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CHAPTER I

THE LEGAL BASIS OF ASSESSING IN VIRGINIA

The real property tax is the principal source of local revenue for cities and counties in Virginia. The tax is imposed upon real estate, including land, buildings, and other improvements to the land, and is based upon the monetary value of the property. The determination of the fair market value of parcels of property within a given locality is the job of the assessor. Such property valuation requires that the assessor have special knowledge and technical skills in several areas, as well as, an ability to synthesize material and form mature judgements from varied information; probably the administration of no other tax requires as much judgement and knowledge. Additionally, the assessor must have a sound knowledge of the general body of law relating to assessments for tax purposes. The following discussion is concerned with the latter area.

Real estate assessments for property tax purposes derive their legal authority from four sources: the Constitution of Virginia; the Code of Virginia; case law (court rulings); and Opinions of the Attorney General. The opinions in the Report of the Attorney General to the Governor of Virginia are published annually. While these opinions are not properly termed law, they are given considerable weight by public officials, including real estate assessors, in their construction of particular statutes and relevant case law. Cases decided by the Supreme Court of Virginia are recorded in a publication which is referred to as Virginia Reports. Chapter 32 of Title 58.1 of the Code of Virginia contains most of the statutory provisions pertaining to real property assessment; and the relevant constitutional provisions can be found in Article X, Section 4, of the 1971 revision of the Virginia Constitution.

Constitutional Right to Assess

The 1971 revision of the Virginia Constitution specifies that real estate, coal, other mineral lands, and tangible personal property (except rolling stock of public service corporations) are to be segregated for, and made subject to, local taxation. The constitution also provides that the General Assembly may further define and classify taxable subjects and segregate classes of property for either state or local taxation, except for those expressly segregated in the constitution.

The greatest area of involvement for the assessor is the estimation of value, which is actually related to how assessments are made. In this regard, the constitution requires that all assessments shall be at their fair market value, to be ascertained as prescribed by law. Fair market value of property has been defined by courts as "The price it will bring when it is offered for sale by one who desires, but is not obliged to sell it, and is bought by one who is under no necessity of having it." The constitution further states that all taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax. The courts have gone to great lengths to recognize the importance of the uniformity mandate, noting in several instances that, though fair market values are constitutionally required, the courts have consistently honored the breach of this rule as long as the uniformity provision of the constitution has been met.

Section 58.1-3200 of the Virginia Code provides the implementing vehicle for the taxation of real estate, except that which is exempted by law. Section 58.1-3201 of the Code requires that all annual and general reassessments be made at 100 percent of fair market value. It should be noted that this paragraph does not relate to public service properties.

 Properties Exempt from Taxation

The constitution requires that all property, except that specifically exempted, is to be taxed. The exemption of properties is provided for in Article X, Section 6. Basically, exemptions take two forms: (1) those which are mandatory and (2) those which are permissive.

Mandatory Exemptions

Mandatory exemptions can be divided into exemptions by classification and exemptions by designation (name). Class exemptions, as listed in Section 58.1-3606, include such properties as those owned by the federal, state, and local governments, property owned by churches and religious bodies and used for worship or for residence of a minister, non-profit private or public cemeteries, etc. Designated exemptions, as listed in Section 58.1-3607 through 58.1-3650, include properties owned by organizations such as the American National Red Cross, Boy Scouts and Girl Scouts of America, etc. The General Assembly may, by three-fourths vote of the members elected to each house, exempt properties by classification or designation if they are used by the owners for religious, charitable, patriotic, historical, benevolent, cultural, or public park and playground purposes. However, in no case can exemptions be made unless provided for in the constitution.

Except for properties of the Commonwealth, the General Assembly may restrict or condition any exemption; in fact, most exemptions have some form of restriction. For example, it is not enough for property to be owned by a church in order to qualify for an exemption; the property must also be used wholly AAF exclusively for religious worship or for the residence of a minister. Therefore, property should not be exempted by name alone. Before exempting a property from taxation, the assessing official should thoroughly review the section of the law under which exemption is requested. For certain organizations it may be necessary to examine Acts of Assembly, request articles of incorporation and by-laws to determine if the organizations actually qualify. If all requirements are not met, the property should remain on the tax rolls. In any questionable situation, it is suggested that a legal opinion be obtained from the proper authority prior to granting exemptions.

Permissive Exemptions

A permissive exemption is one which is provided for in the constitution and state statutes, but which does not become effective in any local jurisdiction until and unless the locality adopts an ordinance specifically allowing the exemption. Such exemptions include real or personal property, equipment, facilities, or devices used primarily for certified pollution control, certified solar energy generation, and energy conversion. Localities may also exempt certain rehabilitated residential,commercial and industrial properties.

Inventory of Tax Exempt Property

The Code of Virginia requires the assessing officer of any county, city, or town to prepare and maintain an inventory and appraisal of all tax exempt property and all property immune from real estate taxation within that jurisdiction, except streets, highways, and other roadways. A general site description of the property and an identification of the owner must be placed on the land book, along with the assessed valuations of the property based on fair market value and the total tax which would have been due if the property were not exempt. Equity between the assessment of tax exempt property and that of taxable property should be maintained. The local assessing officer must annually publish the total assessed valuations of all exempt and immune property included in the inventory, as well as, a computation of the percentage such exempt property represents in relation to all assessed property within the locality, and the total reduction in tax revenues resulting from the exemptions. Forms for this report are prescribed by the Department of Taxation, which also must receive a copy of the report. All the costs of capturing and maintaining the inventory of tax exempt property are borne by the local jurisdiction.

Biennial Application for Exemption

Any jurisdiction may, by local ordinance, after giving sixty (60) days written notice, require that the owner of any real property which has been exempted, in order to retain the exempt status of that property, file a biennial application with the appropriate assessing officer. This application must indicate the ownership of the property, as well as, how the property is used. Also, the application must be filed within sixty (60) days preceding the tax year in which the exemption is sought.

Service Charge on Tax Exempt Property

Under the 1971 constitution and subsequent statutes, the governing body of any county, city, or town has the authority to impose and collect a service charge upon the owners of all tax exempt real estate within that jurisdiction. This service charge is based upon the assessed value of the tax exempt real estate and the amount which the locality would have expended in the preceding year for the purpose of furnishing police and fire protection, collection and disposal of refuse, and the cost of public school education for the children of staff residents of certain tax exempt institutions. However, any amounts received in federal and state grants specifically designated for these purposes must be deducted from the net charge. Therefore, the service charge would amount to a fee for the service actually provided and would be calculated solely upon the cost of the service used.

Any person who has reason to believe that the assessment or valuation of real estate for the purpose of collecting this service charge is in error may apply to the appropriate assessing official for correction. He may further appeal to the Circuit Court of the city or county as provided by law.

Special Use Value Assessments

In addition to the exemptions outlined in the preceding section, Article X, Section 2 of the constitution provides for implementation of general law to permit local jurisdictions to grant deferral of, or relief from, a portion of the taxes on certain classes of real estate. Pursuant to this authority, the General Assembly has passed legislation permitting localities that have adopted a comprehensive land use plan to provide, by ordinance and according to specific criteria, for the special assessment and taxation of agricultural, horticultural, forest, and open space lands at their use value rather than their market value.

Exemptions for Elderly and Handicapped Property Owners

Localities may also provide for exemption from, and deferral of, taxes on real estate and mobile homes owned by persons where taxes are found to constitute an extraordinary burden. Such individuals must be at least 65 years of age or permanently and totally disabled and meet financial and other qualifications described in Sec. 58.1-3291.

Specific Assessment Procedures

The following is a list of code sections which address specific procedures in dealing with certain assessment situations. Better understanding of these procedures can be obtained by referring to the entire notation in the specific code section.

§ 58.1-3202 Taxation of certain leasehold interest.

§ 58.1-3203 Lands acquired from the United States, etc. when beneficial ownership held prior to January 1.

§ 58.1-3205 Assessment of real property where interest less than fee is held by public body; exemption of interest of public body from taxation.

§ 58.1-3282 When land and improvements owned separately; how assessed.

§ 58.1-3283 Assessment of airspace owned separately from subjacent land surface.

§ 58.1-3284 Assessment of standing timber trees owned by a person who owns land surface; when owned separately.

§ 58.1-3285 Assessment and reassessment of lots when subdivided or rezoned.

§ 58.1-3286 Mineral lands to be specially and separately assessed; severance tax.

§ 58.1-3287 Mineral lands and minerals to be included in general reassessment of real estate.

§ 58.1-3288 Assessment in name of unknown owner.

§ 58.1-3289 How land divided among several owners to be assessed.

§ 58.1-3291 Valuation of repairs, additions and new buildings.

§ 58.1-3292 Assessment of new buildings substantially completed, etc.: extension of time for paying assessment.

§ 58.1-3293 Buildings, etc., when damaged or destroyed, value to be reduced.

§ 58.1-3294 Reports of income data by owners of income producing realty: certification; confidentiality.

§ 58.1-3360 Credit on current year’s tax, when acquired by United States, the Commonwealth, a political subdivision or a church or religious body.

§ 58.1-3383 Omitted real estate and duplicate assessments.

Assessment Administration

The General Assembly has enacted a number of statutes which relate to the overall administration of real property assessments, the required frequency of assessments and reasessments, and the local officials who are responsible for conducting such assessments.

Reassessment and Assessment Cycles

Sections 58.1-3250 through 58.1-3254 provide for the general reassessment of real estate by resolution of the governing county or city body. It should be noted that, as a practical matter, most of the larger cities and counties throughout the State of Virginia conduct annual assessments by a full-time assessor and appraisal staff. Assessments in jurisdictions which do not have an office of real estate assessments with a full-time assessor may be administered by an appointed board of assessors or through the commissioner of revenue.

Copyright 2005, Virginia Association of Assessing Officers