Isle of Wight repays International Paper $8.3 million in machinery taxes

Published 7:05 pm Friday, January 27, 2023

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Isle of Wight County has refunded International Paper $8.3 million in machinery and tools taxes, plus interest.

A judge had ordered the county to repay IP $5.4 million in 2021 after ruling that the locality’s efforts to recoup a previous court-ordered M&T refund to the company were unconstitutional.

In February 2017, an Isle of Wight County Circuit Court judge ordered the county to repay IP $2.4 million in M&T taxes it had collected from the company, after ruling in IP’s favor when the company argued the county, over the past several fiscal years, had not been taking into account the depreciating value of IP’s Franklin mill.

About three months after the 2017 ruling, Isle of Wight supervisors voted to hike the county’s M&T rate 142% for a single year, raising it from $1.75 per $100 of assessed value to $4.24 per $100.

Then, in the summer of 2017, the supervisors voted to set aside funds for what the county termed an “economic development retention grant” program, providing IP with the exact amount needed to ensure the company owed the entirety of the $2.4 million refund, plus what it would have owed for the 2017-18 fiscal year had the county’s M&T rate remained flat.

IP then sued Isle of Wight again, arguing the county had effectively defied the 2017 court-ordered refund by raising its M&T rate to compel the company to repay the refunded money. In October 2018, Isle of Wight’s Circuit Court Judge Carl Eason, this time, sided with the county, but IP  appealed the ruling to the Supreme Court of Virginia in 2019.

The Supreme Court ruled unanimously in 2020 that IP be given a new Circuit Court trial. The new Circuit Court trial, held June 24, 2021, this time sided with IP.

According to Assistant County Administrator Don Robertson, the county lost its final appeal of the 2021 Circuit Court verdict on Dec. 29, 2022. During the roughly 18 months of appeals by the county, interest on the $5.4 million owed rose by nearly another $3 million.

According to County Administrator Randy Keaton, the county paid the now $8.3 million owed earlier this year by pulling money from its “unassigned fund balance,” which refers to money in the county’s bank account that hasn’t been allocated for a specific purpose in the 2022-23 budget.

A county policy requires Isle of Wight to maintain an unassigned fund balance of at least 15% of what’s been budgeted for the current fiscal year. According to Keaton, the payment dropped Isle of Wight’s unassigned balance from $29.5 million to $21.2 million, but the remainder still amounts to $23.5% of the nearly $89 million the county budgeted for 2022-23.

On Jan. 18, the supervisors voted to move the $8.3 million from the county’s unassigned fund balance to the “judgment liability” line item in its 2022-23 budget to account for the payment to IP. The amendment, being more than a 1% change to the county’s budget, required a public hearing ahead of the vote, though no one spoke at it.

The repayment to IP will also impact the neighboring city of Franklin’s budget for several years to come. Franklin participates with Isle of Wight in a revenue-sharing agreement pertaining to IP and other businesses along the Carrsville Highway corridor. As of 2017, when the contested M&T taxes were due, the agreement called for Franklin to receive a 17.8% share of what Isle of Wight collected from IP.

As a result of the agreement, Franklin will owe Isle of Wight roughly $976,000, even though it was Isle of Wight – not Franklin – that chose to appeal the court order at the risk of accruing additional interest.

Supervisor Dick Grice, at the Jan. 18 meeting, said at the time, he’d thought the county had made a “good judgment” by continuing its efforts to appeal the court-ordered payment.

“We thought we were going to win,” Grice said.

The county is proposing that Franklin repay the sum over the next four fiscal years, beginning in fiscal year 2023-24, by subtracting the payments from what the county would otherwise owe Franklin via the revenue-sharing agreement, Robertson said. The supervisors discussed but took no official vote on Jan. 18 as to how Franklin would repay the amount.

Franklin City Manager Amanda Jarratt declined to comment on the matter, stating only that “Isle of Wight County and the City of Franklin continue to maintain collaboration and partnership on a wide variety of issues” and “strongly value our long-term relationship.”