Legislation Affecting Valuation of Machinery and Tools Advances from Subcommittee

January 25, 2019

VACo opposes HB 2640 (Byron), which would change a long-standing interpretation of one of the methods of valuation of machinery and tools currently specified in statute.  The bill was initially heard in the House Finance Committee on Monday, January 20; after opposition was expressed by local governments, the bill was sent to the House Finance Committee’s Subcommittee #1 for a hearing on January 23.  The Subcommittee voted to recommend the bill for reporting by the full committee on a 5-3 vote, and the bill is expected to be House Finance Committee on Monday morning, January 28.

Action Required – VACo encourages members to contact their delegates and express concerns about this bill.

Proponents of the bill have characterized the measure as a clarification of existing law, but the bill represents a change to current law.  Two opinions of the Attorney General and two rulings by the Tax Commissioner have affirmed the validity of valuing machinery and tools based on a percentage of the cost when purchased by the original owner – a method used by many localities.

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 have the ability to submit an independent appraisal to the Commissioner of the Revenue, who must consider that appraisal in valuing the property.

VACo Contact:  Katie Boyle

 

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