By Debbie Hall
Businesses, owners of non-qualifying vehicles and Martinsville’s elderly and disabled would be among the most impacted by reversion and changes in town and county tax rates, according to a report prepared by Martinsville’s Commissioner of the Revenue Ruth Easley.
Easley initially compiled the “Tax Impact of Reversion on Martinsville and Henry County Residents and Businesses,” report in March. She updated it in December after a reversion study was presented at a Dec. 10 Martinsville City Council meeting.
Easley’s March report is posted on Henry County’s website. She also emailed council members and other city officials on Dec. 12, and outlined her concern that “there appears to be some errors” in the study.
In a summary of the March report, Easley concluded that the impacts for town residents will be:
*A decrease in Personal Property Tax for vehicles that qualify for Personal Property Tax Relief.
Referring to it as the “most notable” difference, Easley wrote that the assumption in Table 7 of the study refers to a ‘revenue neutral’ 75-cents tax rate for personal property. Because the rate cannot drop below a rate that would fully relieve that tax on the first $20,000 of value of qualifying vehicles, and based on 2018 values, the rate would have to be 86-cents per $100, not the 75-cents outlined in the study.
She noted that the Personal Property Tax Relief Act (PPTRA) requires that the reimbursement received by the city to be fully allocated to the first $20,000 of the assessed value of qualifying vehicles.
“Based on the 2018 assessment of the qualifying fleet, in order to provide 100% relief on the first $20,000 of value of qualifying vehicles, the lowest tax rate that could have been set would be” 86-cents per $100 of assessed value, Easley wrote. “Setting a tax rate below this amount starts to allocate relief to any assessment over $20,000, which is prohibited” by the PPRTA.
*An increase in Business Tangible Personal Property Tax due to differences in depreciation methods.
Easley explained that city businesses will be most impacted because Henry County’s depreciation schedule on business equipment does not go lower than 57 percent of the original cost. Martinsville’s depreciation eventually drops to 25 percent of the original cost, and computer equipment drops to 5 percent of the original cost after the fifth year of use.
“Henry County does not separately depreciate computer equipment. So trying to get a revenue neutral tax rate because of the depreciation differences will require a much lower rate than the” 75-cents rate proposed in the study,” she wrote.
Additionally, though the city has a higher tax rate than the county, the city depreciates business property over a longer period and has a lower residual value for older property still in use by businesses. “Consequently, the lowered depreciated value coupled with the city’s tax rate results in a lower tax bill for a business that keeps their property for a long time and does not replace it,” she wrote.
Easley noted that First Piedmont chose Martinsville over Henry County to expand their warehouse space due to the economic incentives the company received the first few years in an Enterprise Zone in the Clearview Industrial Park and the city’s depreciation schedule in later years.
*An estimated 25-percent decrease in Real Estate Tax Relief provided to the elderly/disabled.
Under reversion, elderly and disabled city residents who qualify for Martinsville’s current Real Estate Tax Relief program also will see a difference in the amount of their maximum annual relief, from the current $400 maximum in the city to the county’s $300 annual limit, Easley wrote.
Additionally, and due to differences between the city’s and the county’s income brackets and relief percentages, 39 of the city’s current qualifying residents would not qualify for any relief at all because their total household income is more than $17,000 annually, according to Easley.
Currently, those households receive from 10- to 70-percent relief on their city real estate bills, she wrote. The average amount of relief for the 39 individuals is $243.28 annually “that they would now (after reversion) have to pay.”
*A modest decrease in Real Estate Tax.
While the real estate rate for Town of Martinsville residents is unknown, Easley used the Town of Bedford to make a comparison. Bedford was the third city in Virginia to revert to a town.
Immediately after the 2013 reversion, residents in the new Town of Bedford paid a town tax rate of 30-cents and a county tax rate of 50-cents, according to online information.
Following the Bedford model, real estate owners there are paying only 2-cents less per $100 of assessed value now (the combined town and county rate there currently is 84-cents per $100), as opposed to the City of Bedford’s real estate tax rate of 86-cents per $100 of assessed value before reversion, Easley wrote.
*An increase in the Tax on Non-Qualifying Personal Property with an assessed value of more than $20,000.
Vehicles such as RVs, campers, trailers, boats and business-use vehicles, do not qualify for tax relief, and owners must pay the full personal property tax, according to Easley. After reversion, Martinsville residents would pay the full amount of both town and county taxes on those vehicles.
The City of Martinsville’s current tax rate on non-qualifying vehicles is $2.30 per $100 of assessed value. Current tax on property assessed at $10,000 is $230, she added.
Easley’s report also included estimated impacts on Henry County residents:
*An increase in Real Estate Tax – no change on business taxes except real estate;
“Historically in the localities that have undergone reversion, town residents pay less in combined real estate taxes than they did before reversion. All county residents realized an increase in their real estate taxes after reversion,” Easley wrote.
The study estimated a real estate tax increase of 5-cents.
*Estimated 12 percent increase in Personal Property Tax for PPTRA Qualifying Vehicles.
PPTRA Relief percentage when the city’s vehicles are added to the county’s for tax assessment. She determined that Henry County’s pro rata (proportional) share of the capped tax relief amount from the Commonwealth is $1,771,828. In FY 2019, the total assessed value of Henry County’s fleet was $323,917,241. Also is fiscal ’19, the total assessed value of Martinsville’s fleet was $67,568,840.
Easley found that conservatively, adding Martinsville’s fleet to Henry County’s fleet could reduce the county’s PPTRA relief percentage to around 34.12% resulting in an increase in the total tax paid by a county resident (an accurate calculation could not be made due to the lack of specific breakdown of qualifying vehicles in Henry County’s fleet. Assumptions were made based on Martinsville’s breakdown.)
Additionally, she concluded that town residents would receive Real Estate Tax and Personal Property Tax bills from both the county and the town, and be required to pay the two separate Treasurer’s offices for the separate liabilities.
Since emailing the report, Easley said she has not been contacted by, or had any feedback from, any council member or other city officials.
In Virginia, cities with populations less than 50,000 may initiate a reversion. Martinsville officials recently reaffirmed their vote on a resolution to move forward with the reversion process. The next step in the process is filing a notice with the Commission on Local Government Review.
The Virginia Commission on Local Government manages the reversion process. A special court with three judges appointed by the Supreme Court of Virginia ultimately decides the case. The three judges are required to ensure there will not be substantial impairment to the county’s ability to provide services to its existing residents, “and there will not be a substantially inequitable sharing of resources and liabilities after reversion. Their decisions can be appealed to the Supreme Court of Virginia for ultimate resolution,” according to virginiaplaces.org.
If the City of Martinsville reverts, it will be the fourth to do so. In addition to Bedford in 2013, South Boston reverted and joined Halifax County in the mid–1990s and a decade or more ago, Clifton Forge became a town in Alleghany County.