IP wins machinery, tools tax lawsuit

Published 12:06 pm Friday, February 24, 2017

Earlier this week, Judge Carl E. Eason found in favor of International Paper in its $2.4 million suit against Isle of Wight County. They had been in disagreement about how the Machinery and Tools tax had been applied to some of the company’s assets.

The suit, titled “Application for Correction of Erroneous Assessments of Machinery and Tools Tax,” was filed in late December 2014. In addition to a refund, IP also had requested a lower assessment thereafter.

At the time, mill communications manager Jenny Railey stated, “IP’s position is that the current tax assessment is not appropriate because it taxes the mill’s assets without taking into account decades of depreciation”

The machinery and tools tax rate to which she referred was then 70 cents per $100 in value, according to the IOW County website; it’s since gone up to $1.75. Gerald Gwaltney, commissioner of revenue, said then the policy of not taking depreciation into account with machinery and tools had always been in place, with the one exception of farm machinery.

In comparison to IOW, Franklin’s rate is $2 per $100. Suffolk’s rate is $3.15 per $100, which is based on a sliding scale of 20 percent of cost for the first five years, and 10 percent of the cost after five years.

In the suit, IP referred to state laws as sources for its claim. For example, section 2 of Article 10 of the Constitution of Virginia states, “All assessments of real estate and tangible personal property shall be at their fair market value, to be ascertained as prescribed by law.”

Virginia Code 58.1-3507(B) “requires that machinery and tools must be valued by means of depreciated cost or a percentage or percentages of original total capitalized cost excluding capitalized interest.”

In that same section, when it comes to valuing machinery and tools, commissioners of revenue must “consider any bona fide, independent appraisal presented by the taxpayer” when a written request is made by the taxpayer.

For that, IP hired American Appraisal to ascertain the fair market value of machinery and tools in the local mill for Jan. 1, 2012; Jan. 1, 2013; and Jan. 1, 2014. The amounts were, respectively, $124,300,000; $217,300,000; and $214,700,000.

Further, the suit included that for each year, the County’s assessment of IP’s machinery and tools for the tax was incorrect and that IP overpaid it in each of those years.

Railey said that IP had worked for the previous three years to address its concerns with Isle of Wight, but had gotten no resolution, and so it felt that filing legal action was appropriate.

In response to the news about the case, Railey said on Wednesday, “We are pleased with the Court’s decision. International Paper’s ability to stay cost competitive with the products we make is paramount to our success and to the success of the community. We are proud to be an economic driver in our region, providing 288 jobs to International Paper employees at the Franklin mill.”

Don Robertson, deputy county administrator and spokesman, confirmed that the County would have to pay IP for some overage in the amount of taxes it paid.

“The amount that we will pay is quite less than what IP requested,” he said. We were hearing several million dollars.”

He added it’s closer to slightly over a half million dollars plus interest. But until an actual order is received, Robertson could not give an exact amount.