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Management Side
Virginia Supreme Court sides with Hanover in Bear Island tax dispute worth nearly $5 million

RICHMOND, Virginia (From news reports) -- The highest court in the state has sided with Hanover County in a dispute with one of its largest taxpayers that would have cost the locality millions had it gone the other way.

The Supreme Court of Virginia in November denied a petition for a re-hearing filed by Bear Island Paper WB LLC in its dispute with Hanover over how the mill's machinery and tools were assessed for tax purposes, said County Attorney Sterling Rives.

"This is a significant decision for Hanover County because it affirms the way the commissioner of the revenue, like many other commissioners across the state, has been interpreting and applying the machinery and tools tax assessment for decades," Rives said.

Rives said about $5 million in tax money and interest was at stake for Hanover. The dispute centered around how Hanover taxed equipment at the now-shuttered Bear Island mill that sits south of the Kings Dominion theme park and east of Interstate 95.

Had the courts not decided Hanover's machine and tools taxes were being calculated correctly, Hanover would have had to pay Bear Island millions in tax refunds and lost out on tax revenue. And Hanover and other localities would have been subject to claims for refunds from all other businesses that pay machinery and tools taxes, Rives said.

"Had the court invalidated the commissioner of the revenue's method of assessment, Hanover would have had to change its method for assessments, which would have affected all of the businesses located in the county," Rives said.

Bear Island has long been a top taxpayer for the county and was a big employer for the county before the mill closed in May, costing about 165 people their jobs.

The plant opened in 1979 and expanded in 1994 to add a recycling plant. In 2010, Bear Island and its parent company, White Birch Paper Co., filed for bankruptcy protection after an investment deal went wrong. Shrinking newspapers also played a role in the newsprint manufacturer's woes.

A group of investors that included one of the owners and a number of creditors of the former Bear Island took over the company. The new ownership group bought equipment at the mill for a portion of its original cost, Rives said.

Machinery and tools are assessed for tax purposes based on a percentage of their original cost, according to state code. In Hanover, the rate is $3.57 per $100 of the assessed value of machinery and tools, and the assessed value is 10 percent of the original cost. Hanover uses the 10 percent figure as a way of incentivizing business investment, Rives said.

"(It) is a very conservative assessment," Rives said. "Some localities use a higher percentage, such as 25 percent. Other use a range of percentages based on the age of the equipment."

An attorney for Bear Island could not be immediately reached for comment.

The owners of Bear Island argued in court that its machinery and tools should be taxed 10 percent of the values they were purchased for in 2010 in the wake of the bankruptcy filings, Rives said.

Hanover countered that the original cost paid to the manufacturer should be the one used for calculating 10 percent of the equipment's assessed value.

The closing of the Bear Island mill was seen as a loss for the county's workers and tax rolls.

In 2016, Bear Island paid $213,360 in real estate taxes and $824,390 in personal property taxes, according to the county. Bear Island also bought an average of 1.25 million gallons of water a day from Hanover in the fiscal year that ended June 30, 2016, for $1.07 million.

In September, JLL was chosen as a listing agent for the site, which includes a more than 600,000-square-foot manufacturing facility and 180,000 square feet of warehouse space on 1,600 acres. An asking price was not disclosed.

Hanover's director of economic development, E. Linwood Thomas IV, said the site is being "aggressively marketed" in conjunction with JLL, White Birch Paper Co., Greater Richmond Partnership and Virginia Economic Development Partnership.

"There has been a significant amount of interest in the facility both domestically and internationally," Thomas said.

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