Document Number
Tax Type
Business Tangible Personal Property, Fair Market Value, Automated Racking System
Tangible Personal Property
Date Issued

September 25, 2017

Re:     Appeal of Final Local Determination
          Taxpayer:     *****
Locality:        *****
Business Tangible Personal Property Tax

Dear *****:

This final state determination is issued upon the application for correction filed by you on behalf of ***** (the “Taxpayer”) with the Department of Taxation.  The Taxpayer appeals an assessment of business tangible personal property (BTPP) tax issued to it by ***** (the “County”) for the 2016 tax year.

The BTPP tax is imposed and administered by local officials.  Virginia Code § 58.1-3983.1 D authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments.  On appeal, a BTPP tax assessment is deemed prima facie correct, i.e., the local assessment will stand unless the taxpayer proves that it is incorrect.

The following determination is based on the facts presented to the Department summarized below.  The Code of Virginia sections and public documents cited are available on-line at in the Laws, Rules and Decisions section of the Department's website.


The Taxpayer operated a food products distribution facility in the County. The Taxpayer installed an automated racking system, but the equipment was not fully operational because of performance issues.  As a result, the facility did not operate at full capacity.

The County issued an assessment of BTPP tax to the Taxpayer for the 2016 tax year. The Taxpayer appealed to the County, contending that the value of the racking system should be reduced because the equipment was not fully utilized. The County denied the Taxpayer's appeal, concluding that the Code of Virginia did not provide for the requested reduction to the equipment's valuation. The Taxpayer appealed to the Department, contending that the fair market value of equipment that was not fully utilized must be reduced by such “economic obsolescence.”


All tangible personal property, unless declared intangible under the provisions of Va. Code § 58.1-1100 et seq., is reserved for local taxation by Article X, § 4 of the Constitution of Virginia.  Article X, §§ 1 and 2 of the Constitution of Virginia provide that all property, unless specifically exempted within the provisions of the Constitution, shall be taxed at a uniform rate among classes, and that “all assessments of real estate and tangible personal property shall be at their fair market value to be ascertained as prescribed by general law.”  This provision of the Constitution contains the presumption that the General Assembly's prescribed valuation method will both standardize valuation practices across all the local governments in the Commonwealth and result in something approximating fair market value. Virginia Code § 58.1-3103 specifically charges local commissioners with the responsibility of assessing property at fair market value.

As part of his duties each commissioner of the revenue shall ascertain and assess, at fair market value, all subjects of taxation in his county or city on the first day of January in each year, except as otherwise provided by law. [Emphasis added.]


Fair market value is generally defined as the price a property will bring when offered by one who desires, but is under no obligation, to sell it, and the buyer has no immediate necessity to purchase it.  See Tuckahoe Women's Club v. County of Richmond, 119 Va. 734, 101 S.E.2d 571 (1958).  If the valuation methodology employed by a locality results in an assessment well above fair market value, the locality may use another methodology prescribed in Va. Code § 58.1-3507 B.  See Public Document (P.D.) 05-129 (8/3/2005).

Virginia Code § 58.1-3503 A 17 specifies that for most items of tangible personal property, fair market value is to be ascertained either by a percentage or percentages of original cost, or in the case of trucks and cars and certain other vehicles, by means of recognized pricing guides.  Further, this statute stipulates:

Methods of valuing property may differ among the separate categories, so long as each method used is uniform within each category, is consistent with requirements of this section and may reasonably be expected to determine actual fair market value as determined by the commissioner of revenue or other assessing official . . .


The Taxpayer argues that the actual fair market value of the racking system was less than the fair market value as determined by the City's methodology because the system was only able to operate at approximately 40% capacity during the tax year at issue.  Instead, the Taxpayer proposed a reduced value based on a formula of economic obsolescence used by a national appraisal industry group. The formula accounted for operating capacity, among other factors.

It appears that the second phase of the system installation was completed in 2016, and performance problems were still being addressed as of the end of the year. Because the installation was so recent, the Department questions whether economic obsolescence is an appropriate justification to reduce the system's valuation.  The Department recognizes that performance issues are not unusual when complex industrial installations are first put into operation.  The information provided indicates that the performance problems are still being addressed. “Obsolescence,” however, normally implies that something is no longer in use and will not be again.

Nevertheless, whenever a locality is considering the valuation of property for purposes of either the machinery and tools (M&T) tax or the BTPP tax, the Department's policy has been that the locality must consider a bona fide independent appraisal offered by the taxpayer.  See P.D. 05-129 and P.D. 12-145 (8/30/2012).  The Department has also upheld a locality's assessment where it performed due diligence in hiring an outside appraiser to value the property in dispute.  See P.D. 07-103 (7/27/2007).

The Department, however, has determined that the submission of an economic obsolescence analysis by a representative of a taxpayer does not constitute a bona fide independent appraisal.  See P.D. 12-212 (12/13/2012).  Implied in the result of P.D. 12-­212 is that the Department does not consider appraisal analyses that are not independent as sufficient proof to adjust a locality's assessment. Further, even a bona fide independent appraisal attempting to justify a reduced fair market value based on economic obsolescence may fail to satisfy the taxpayer's burden of proof when there are legitimate issues concerning the applicability of the principle.  See P.D. 14-147 (8/26/2014).


As permitted by Virginia statutes, the County valued the Taxpayers racking system and other BTPP at a percentage of original cost. The Taxpayer has not provided sufficient evidence to show that the County's valuation method is invalid.

I am remanding this case back to the County, however, with the instruction that it consider any bona fide independent appraisal that the Taxpayer may be able to provide to demonstrate the fair market value of the equipment at issue.  Any such appraisal must be provided to the County within 90 days of the date of this determination, subject to reasonable requests for extension for contingencies outside the Taxpayer's or the County's control, including, but not limited to, appraiser availability, appraisal preparation time, scheduling conflicts, etc.  If an extension is required, the Taxpayer and the County should mutually agree on a new deadline.  The County must adjust the assessment based on its review of the appraisal.  If the Taxpayer fails to provide an appraisal within the allotted time, the County's assessment will be considered to be correct.

If you have any questions regarding this determination, you may call ***** in the Office of Tax Policy, Appeals and Rulings, at *****.



Craig M. Burns
Tax Commissioner



Last Updated 10/04/2017 07:26