Isle of Wight County will refund machinery and tools taxpayers a total of $5.6 million beginning Friday after an independent appraisal revealed the county's tax assessments were above fair market price.
The refund covers excess payments in fiscal years 2013, 2014 and 2015, when the county's total machinery and tools tax collections were $8.4 million.
In order to compensate for the $5.6 million payout, Commissioner of Revenue Gerald Gwaltney is recommending the county raise its tax rate from $1.75 per $100 of assessed value to $4.24 per $100 of assessed value for the calendar year 2017.
To ease the impact of the rate increase, County Attorney Mark Popovich additionally recommended offering grants to the roughly 40 firms that would offset any increases in tax bills this year.
Chairman Rex Alphin asked during the session whether or not the proposed changes would be revenue neutral for those businesses.
Gwaltney said it would be, but added that the county's total net cost for the refunds would be roughly $350,000.
The county currently has enough cash on hand for the $5.6 million refund, Popovich said. However, Popovich and Gwaltney also recommended opening a line of credit for about $2.8 million to protect the county from possible dips in revenue during the refund process. The plan would be to pay off any credit spent within a year, Popovich said.
The county will begin sending out checks Friday, Jan. 6, 2016. The checks range from $42 for Burris Engraving Company to $2.8 million, half of the entire refund amount, for International Paper.
Gwaltney said after his presentation that a taxpayer came forward to the county with an appraisal on machinery and tools. After seeing the taxpayer's appraisal, the county contracted for an independent appraisal of the machinery and tools. The appraisal's results revealed the county's assessment was above fair market value, which is not permitted by the Virginia Constitution.
The Board of Supervisors voted in October to raise the tax rate but to lower the assessment it is based on for the remainder of fiscal year 2017. The tax rate rose from 70 cents to $1.75 per $100 of assessed value, but the assessed value was lowered from 100 percent to 40 percent of the original cost of the machinery and tools.
The 100 percent assessment rate was "created back in the 1970s," Gwaltney said during the session. "Based on appraisals, I have reduced all machinery and tool taxes by 40 percent. That allows us to meet the constitutional requirement of fair market value."
The correction to meet fair market value requires the county under the Code of Virginia to refund taxpayers for the past three years, based on the appraisals.
The change recommended by Gwaltney would increase the $1.75 tax rate amount to $4.24 for the remainder of 2017, and will likely be adopted during the budget process this spring, he said by email.
Smith can be reached by phone at 757-510-1663.