Commercial Real Estate Tax Upheld – FFW Appeal Struck Down

Real Estate, Land Use & Construction Law

Commercial Real Estate Tax Upheld – FFW Appeal Struck Down

Nov 4, 2010 | Real Estate, Land Use & Construction Law

Did you hear that whooshing sound? That was the collective sigh of relief from localities embraced by the Northern Virginia Transportation Authority who have levied a special transportation tax against commercial property owners while exempting residential property owners from that same tax. The Supreme Court released its opinion this morning that commercial and industrial property owners may be taxed for transportation improvements (such as the Dulles Metro extension) while multifamily and other residential properties may be exempted from the tax. Here’s a copy of the opinion. The Supreme Court had granted the appeal back in April and heard the arguments in mid-September.

This decision is a “green light” to Virginia’s legislature and localities that it is now OK to exempt certain types of property owners from taxes for public improvements that do in fact benefit everyone. The Court found that under this challenge to Code §§ 58.1-3221.3 and 33.1-435 under the Constitution of Virginia, the plaintiff failed to meet its burden to prove that no reasonable basis for the tax classifications in these provisions could be conceived. The fact that untaxed others will benefit to some extent from the improvements funded by the taxes does not prove that there is no rational basis for the tax classifications approved by the General Assembly. By doing so, the Supreme Court diverged and distinguished the case from the 1941 “benefit-burden” precedent.

This solves some major problems for several Northern Virginia localities. The funds in question had already been levied and collected and were likely no longer available to be refunded if the transportation tax had been found unconstitutional. No new tax will have to be levied against all property owners now. This holding also solves the political dilemma of how the rest of Virginia has been able to compromise with Northern Virginia and its funding issues for some of this region’s major transportation problems, and the mess overturning this taxing authority would have created.

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