By Diana McFarland

Managing editor

Isle of Wight County officials are concerned about a bill that could dramatically reduce revenues from machinery and tools taxes. 

HB 2640 changes the assessment on machinery and tools from the original purchase price to the sales price in transactions between the seller and an unaffiliated buyer. 

Currently, the assessment method takes 40 percent of the original cost, which provides for a 60 percent depreciation up front, said Isle of Wight County Commissioner of Revenue Gerald Gwaltney. {mprestriction ids=”1,2,3,4,5,6″}

The 40 percent of costs allows the taxpayer to receive more depreciation up front initially rather than depreciating five or 10 percent each year, said Gwaltney. 

To illustrate the impact of the bill, Gwaltney provided an example where one taxpayer pays $388,000 in machinery and tools taxes on machinery purchased for $55 million — the amount assessed. However, if that owner sold the machinery for $2.5 million, the new owner would pay a tax based on that value, or $18,000 in taxes, he said. 

“That would be a drop in M&T revenue of $370,000 per year which would have to be made up by the real estate taxpayers,” said Gwaltney in an example he sent to Del. Emily Brewer, R-64th, who represents Isle of Wight County.

Brewer voted against the bill at the subcommittee level, but changed her vote to support the bill when it went to the full finance committee.

It passed the finance committee on a 14-8 vote and has been sent to the House for consideration. 

Gwaltney went on to say that the bill could create an unfair situation in the county, where one taxpayer could pay a lower amount of tax for identical equipment because of a subsequently lower purchase price.  

Isle of Wight County Board of Supervisors Chairman William McCarty wrote a letter to Brewer opposing the bill based on its impact on local government. 

Based on Gwaltney’s example, McCarty said it represents nearly a cent on the real estate tax rate. 

Windsor District Supervisor Joel Acree was concerned that the state is looking to alter a locality’s revenue stream without giving it a chance to prepare for a potential shortfall. 

How long can a locality provide the current level of services if it experiences a large decrease in tax revenue, asked Acree. 

Machinery and tools tax is for large equipment, such as paper machines, sausage making machines and heavy construction equipment, such as bulldozers, said Gwaltney.

Business and industry can also be assessed for personal property taxes on items such as cash registers, desks, chairs and small tools. 

In Isle of Wight, the machinery and tools tax rate is currently $1.75 per $100 in assessed value. The personal property tax rate is currently $4.50 per $100 in assessed value. The towns of Smithfield and Windsor also charge machinery and tools and personal property taxes. 

Machinery and tools taxes represent a good portion of Isle of Wight County’s tax revenue, at $4.5 million for fiscal 2019, according to the county’s budget. 

That represents 8 percent of all property taxes collected in Isle of Wight. 

Real estate tax revenue represents the bulk of property taxes collected in the county, at $37.9 million for fiscal 2019.   {/mprestriction}