Capitol Contact ALERT – Legislation Affecting Valuation of Machinery and Tools Headed to House Floor; Calls Needed

January 28, 2019

VACo opposes HB 2640 (Byron), which has been reported from the House Finance Committee and will be on the House floor later this week.  A final vote could be held as soon as Thursday, January 31.

ACTION REQUIRED – VACo encourages members to contact their Delegates to oppose HB 2640.

This bill would change one of the methods of valuation of machinery and tools currently specified in statute.  Valuing machinery and tools based on a percentage of the cost when purchased by the original owner is a longstanding practice that is used by many localities and has been affirmed by two opinions of the Attorney General and two rulings by the Tax Commissioner.  Some localities use a static percentage of the original cost, which could be as low as 5 percent, and some use a percentage of the original cost that declines over time as the machinery ages.

The bill would provide that the valuation would instead be based on the cost of the equipment to the current owner, plus any cost incurred by the current owner to extend the useful life of the equipment, assuming the current owner acquired the equipment in an arm’s length transaction.  This provision could create a situation in which the same equipment of the same age is valued differently, depending on whether it is still owned by the original owner or had been sold to a new owner.  Several local government attorneys have also expressed concern that some transactions that are technically conducted at arm’s length could nevertheless artificially reduce the value of the property.  It should also be noted that current law already requires the Commissioner of the Revenue to consider any bona fide, independent appraisal of the property that is presented by the taxpayer.

KEY POINTS

  • Taxpayers who feel that the current system unfairly values machinery and tools currently can submit an independent appraisal to the Commissioner of the Revenue, who must consider that appraisal in valuing the property.

KEY CONTACTS

Virginia House of Delegates

VACo Contact:  Katie Boyle

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