Taxation – County’s tax assessment was ‘plainly wrong’

Where Wise County was obligated to assess the fair market value of the mineral lands of the taxpayers, but it failed to assess a critical component of the fair market value analysis without being statutorily excused, its assessment of the taxpayer’s property was incomplete and, therefore, plainly wrong.

Background

EQT Production Company, EQT Gathering LLC and Diversified Production LLC appeal the Court of Appeals’ decision to uphold the Wise County’s tax assessment of the taxpayers’ mineral lands.

Analysis

In Virginia, real estate must be assessed at its fair market value. Mineral lands “shall be assessed for local taxation in such manner and at such times as the General Assembly may prescribe.” Further, “[t]axes can only be assessed, levied and collected in the manner prescribed by express statutory authority.”

In compliance with the Constitution of Virginia, the General Assembly established a tax assessment framework for mineral lands through Code § 58.1-3286 which requires counties to “specially and separately assess at the fair market value all mineral lands and the improvements thereon.” Under the plain language of the statute, localities would normally be required to assess the fair market value of mineral lands using all applicable subdivisions. However, the legislature has expressly provided an exception to assessments under subdivision 1.

In contrast with Code § 58.1-3286, Code § 58.1-3712(A) allows a locality to “levy a license tax on every person engaging in the business of severing gases from the earth.” A locality that chooses to impose such a license tax, however, “cannot enact the provisions of § 58.1-3286 relating to a tax on gross receipts.”

Notably, the only portion of Code § 58.1-3286 that mentions a tax on gross receipts is the severance tax provision found in Paragraph 4. Thus, if a locality chooses to impose a license tax under Code § 58.1-3712(A), it must forego the severance tax under Paragraph 4 of Code § 58.1-3286 and the corresponding exception to assessments under subdivision 1. In so doing, the locality would also be required to assess the fair market value of mineral lands using all of the applicable subdivisions, including subdivision 1.

The fact that the severance tax under Paragraph Four of Code § 58.1-3286 and the license tax under Code § 58.1-3712 are mutually exclusive of each other is dispositive. Under the plain language of Code § 58.1-3286, the only circumstance under which a locality is not required to assess, and indeed is prohibited from assessing, the fair market value of mineral lands under subdivision 1 is when a severance tax under Paragraph 4 is imposed. Nothing in either Code§ 58.1-3286 or Code § 58.1-3712 indicates that the General Assembly intended to similarly exclude an assessment of the fair market value under subdivision 1 when a license tax is imposed.

Taken as a whole, it is readily apparent that the General Assembly has permitted three different avenues for localities to tax mineral lands. A locality may either: (1) directly assess the fair market value of the entire property pursuant to subdivisions 1 through 3 of Code § 58.1-3286; (2) levy a severance tax based on the gross receipts of all “gases extracted from the land lying within [the locality]” pursuant to Paragraph Four of Code § 58.1-3286 and directly assess the fair market value of only the improvements on the property and the undeveloped portion of the property pursuant to subdivisions 2-3 of Code § 58.1-3286 or (3) levy a license tax based on the “the gross receipts from the sale of gases severed within [the locality]” pursuant to Code § 58.1-3712(A) and directly assess the fair market value of the entire property pursuant to subdivisions 1 through 3 of Code § 58.1-3286.

As the County opted to impose a license tax under Code § 58.1-3712(A), it was obligated to assess the fair market value of the mineral lands pursuant to all three subdivisions in Code § 58.1-3286. As the record establishes that the County failed to assess a critical component of the fair market value analysis without being statutorily excused, its assessment of the taxpayer’s property was incomplete and, therefore, plainly wrong. Accordingly, the lower courts’ decisions affirming the County’s assessment must be reversed.

Reversed and remanded.

EQT Production Company v. County of Wise, Virginia, Record No. 250430, May 21, 2026 (Powell). From the Court of Appeals of Virginia. VLW 026-6-026. 12 pp.

Full-Text Opinion
VLW 026-6-026