ANALYSIS OF SEPTEMBER 17, 2020 SUPREME COURT OPINION

(Posted September 17, 2020) Today we honor the most important document in American history. Two hundred thirty-three years ago today, 39 of the 55 delegates to the Constitutional Convention approved a document to replace an unworkable Articles of Confederation. They gave us the Constitution, the document that assures Americans of a democratic republic under the rule of law. For all of our past and current problems, there still is no better place on Earth to be, because of this document.

Taxation

Today’s lone published opinion involves a local-tax challenge with a lot of zeroes. International Paper Co. v. Isle of Wight County involves machinery and tools taxes levied against International Paper, which has a production facility in the county.

From 2012 to 2015, the county assessed the tax against the company’s facility, using 100% of its original total capitalized cost. The company hired its own appraiser, who concluded that the fair market value of the equipment, by then used, was only 60% of that. Having paid the taxes, the company sued for correction and a refund.

It won; a circuit-court judge agreed with the company and directed a reduction in the assessment and a two-million-dollar refund. The County appealed, but in 2017 The Robes declined to take the case. The County paid the directed refund.

So how are we here, with a three-year-old writ refusal? Here’s where it gets complicated (and I’ll simplify this description for the benefit of my dear readers). The County decided to refund taxes to all of its M&T taxpayers, to be uniform. That led to a $5 million hit on the County treasury.

If you know much about the mostly rural Isle of Wight County, that’s a huge chunk of the available funds. To make up for the shortfall, the County Board decided to increase the tax rate for future years, so the reduction in the assessed value would turn out to be revenue-neutral. That is, the County used a significantly lower assessed value for the equipment across the county, but taxed it at a much higher tax rate.

By the 2017 tax year, the tax rate had risen from 70 cents per $100 in value to over four dollars. By doing this, the County hoped to claw back the money that it had refunded to the various businesses for the earlier over-assessment. Because this would foreseeably hit some businesses with a ruinous new bill, the County decided to limit the new bill for affected businesses to the amount of the earlier refund. If the new tax came out a bit higher, the County offered a grant to offset that increase.

When you think about it, that’s a neat trick. A court orders you to give money back to taxpayers; you do so, but then hit ‘em with the same amount in sharply increased taxes for the next year. International Paper revolted at this idea, and sued again.

It didn’t go as well this time. The circuit court sustained a motion to strike the case at the conclusion of International Paper’s evidence. The court ruled that the 2017 levy was a new tax, so it didn’t impair the company’s right to receive the refund for the previous years. The County can do that, the court ruled, adding that the Board was answerable to the voters if it did anything wrong.

The court also rejected the company’ argument that the practice of offering varying grants to different companies, to ease the pain of the new tax, meant that properties across the area weren’t taxed uniformly. The court ruled that the grant program was separate from the assessment and collection of the tax. Because the applicable statute authorizes legal challenges to tax assessments, not grant programs, it rejected this argument.

On appeal, the Supreme Court agrees mostly with the trial judge. It holds today that the County can indeed impose a tax in subsequent years to make up for its judicially imposed refunds, and that doing so doesn’t violate the separation of powers. But it reverses and remands on the circuit court’s final ruling, finding that the grant program was integrated with the tax assessment and collection. This results in a varying effective tax rate, and that could support relief. Because the trial court had struck the company’s evidence, the justices remand the case for trial on that aspect of the claim.

Note that the procedural posture matters here. The Supreme Court doesn’t rule as a matter of law that the grant program, in conjunction with the taxation model, produced a lack of uniformity. Instead, it holds that the company made out a prima facie case, so the trial should have continued. My best guess is that on remand, the circuit court will accept the previously submitted evidence from the company, and start with the County’s case in chief. Starting from square one would waste resources, including judicial time.

One last point: One seemingly innocuous line in today’s opinion caught my eye. “On January 29, 2019, the circuit court entered a final order consistent with its ruling from the bench.” From what I can tell, there were no further proceedings in the circuit court, so that January 2019 date started the appellate clock ticking. What’s significant about that? I’d say the fact that this case took almost twenty full months to proceed from circuit-court judgment to Supreme Court opinion.

I’ve written about this before, including relatively recently. In the years of the Carrico Court, before he took senior status in 2003, an 18-month delay was routine. When Justice Leroy Hassell took the center chair, he was determined to speed things up; during his tenure, the court cut back the time for a merits decision to a little under a year. But pace hasn’t been a priority for Hassell’s successors, Chief Justices Kinser and Lemons, so the time slipped back over a year, and probably stands now at 15-16 (or so) months.

The pandemic hasn’t helped. Neither has the fact that this appeal was complicated – as noted above, I’ve streamlined this complex fact pattern to make the message easier to absorb – thus leading to a detailed analysis of the case and the law. Justice Goodwyn’s opinion for a unanimous court occupies almost 38 pages.

I don’t think that twenty months is the new norm. But if you’re advising a client about the appellate process, you need to be able to estimate the time involved. I think that you have to tell him or her that it could reasonably take a year and a half, assuming the justices grant a writ and decide the case on the merits. And that assumes you don’t have one of the common extenders of appellate time, such as a denied writ followed by a granted petition for rehearing. That can add another couple of months, or even more if it’s filed just before the winter or summer recesses. Appeals in Virginia now take a great deal of time, and there’s nothing to be done about that on our end.

Update September 18: We have yet another high-profile unpub. The court has now posted to its website a short order that refuses a request by Kanye West to appear on the November presidential-election ballot. The ruling in West v. Wilson rejects an appeal of the Richmond Circuit Court’s writ of mandamus, finding that the Supreme Court doesn’t have jurisdiction over this interlocutory order. The court then declines to alter the temporary injunction, finding it “not appropriate” to do so. That’s a polite way of rejecting the petition on the merits without giving extensive reasons.

These hot-button unpubs are starting to feel normal nowadays.