IP loses M&T lawsuit
Published 1:56 pm Saturday, December 1, 2018
ISLE OF WIGHT
On Wednesday in Isle of Wight County Circuit Court, Judge Carl E. Eason dismissed a lawsuit brought by International Paper against Isle of Wight County concerning machinery and tools taxes.
The company had filed the suit in August 2017, alleging that the county, by virtue of substantially raising its M&T tax rate for the 2017-2018 fiscal year, had effectively defied a previous court order granting IP M&T tax refunds for fiscal years 2013, 2014 and 2015. It had sought $2,742,741 in damages, plus the abatement of all remaining 2017 taxes subsequently assessed by Isle of Wight upon IP.
In late February 2017, Judge Eason had ruled in favor of IP during its initial lawsuit against the county concerning M&T taxes, which the company had filed in December 2014. That suit, titled “Application for Correction of Erroneous Assessments of Machinery and Tools Taxes,” had contended that the county’s tax assessment of the Franklin paper mill and its equipment over the past several fiscal years was overly high because it had not taken into account the equipment’s depreciation.
Nearly three months after the February ruling, the county’s Board of Supervisors voted to increase the county’s M&T tax rate for 2017-2018 from $1.75 per $100 of assessed value, to $4.24 per $100, an increase of approximately 142 percent. In a letter accompanying the county’s first FY 2017-2018 M&T tax bill, which was included as evidence in the most recent suit, County Commissioner of Revenue Gerald H. Gwaltney affirmed that the new rate was to offset the refunds and assured taxpayers that next year, meaning 2018-2019, the board planned to roll the tax rate back to its 2016-17 rate of $1.75.
The Board of Supervisors then voted in June 2017 to appropriate $32,000 for an economic retention grant program, which allowed any M&T taxpayer to receive a deduction from its annual M&T tax bill using the following formula: total 2017-2018 annual tax levy using the $4.24 per $100 rate, minus any refund paid to the taxpayer for tax years 2013, 2014 and/or 2015, minus the amount the taxpayer would have paid in 2017-2018 were the county still using the $1.75 per $100 rate.
If the resulting figure from the calculation was positive, the taxpayer received a grant in that amount. In July of that year, the board appropriated roughly $6.3 million in anticipated revenues from M&T taxes collected using the $4.24 per $100 rate, with roughly $1.16 million of that set aside for the economic retention grant program.
IP’s subsequent lawsuit challenging the new rates referred to these actions as a “clawback ordinance,” and alleged that the actions were taken with the intent of recouping the county’s refund obligation to IP.
The trial to settle this lawsuit began on Monday, with testimony lasting three days.
Craig D. Bell, an attorney with the Richmond-based firm McGuire Woods LLP represented IP, with James S. McNider III of the Hampton-based firm James S. McNider PLC serving as co-counsel. Representing the county was Andrew McRoberts of the Richmond-based firm Sands Anderson PC. Also on the county’s legal team was former county attorney Mark Popovich.
After IP rested its case, McRoberts asked Judge Eason to dismiss the case, claiming that International Paper had not met the burden of proof required by law. After about an hour of listening to arguments by IP and the county, Eason ruled in favor of the county’s motion to dismiss, stating that both the county’s commissioner of revenue, Gerald H. Gwaltney, and the Board of Supervisors had acted legally.
Speaking to The Tidewater News on Friday, McRoberts provided background information on the case, explaining that IP was not the only M&T taxpayer to receive a refund in 2017. In October 2016, he said, Gwaltney adopted a new methodology for current and future M&T assessments, lowering the ratio from 100 percent of an asset’s original cost to 40 percent. This took effect during the 2016-2017 tax year and each year thereafter.
Also during FY 2016-2017, the Board of Supervisors adjusted its M&T tax rate from $0.70 per $100 to $1.75 per $100 so that all taxpayers’ annual tax due would be the same as the previous fiscal year. In December 2016, Gwaltney retroactively adjusted all past M&T assessments for fiscal years 2013, 2014 and 2015 to a uniform 60 percent of the original assessed values. On Jan. 6, 2017, the county treasurer refunded the difference for those fiscal years to taxpayers, which totaled approximately $5.6 million. IP refused to cash its refund check, and instead chose to proceed to trial. Per the terms of Judge Eason’s initial ruling in February 2017, IP was ultimately awarded a lesser refund than the company would have received had it cashed the county’s original check, McRoberts said.
McRoberts also confirmed that the county, upon learning of the February 2017 verdict, immediately paid the refunds required for the 2013 and 2014 tax years by wire to IP. The county had appealed the verdict for the 2012 tax year to the Virginia Supreme Court, but ultimately lost the appeal later that year, at which time the county wired the remainder of the court-ordered refund.
He added that the county’s purpose in offering economic retention grants to M&T taxpayers was to ensure no taxpayer felt a negative economic impact from the tax increase in 2017-2018 and thus, would not have a reason to leave the county.
“We are delighted with the outcome,” said Assistant County Administrator Don Robertson. “I think it certainly speaks well of the legal team the county had in place, as well as the commissioner of revenue, treasurer and the other individuals who were called on to provide testimony.”
Jennifer Dixon, spokeswoman for IP’s Franklin mill, said she could not comment on the matter.