The Fluvanna Taxpayers Association has urged the county’s Board of Supervisors to halt a policy of retroactive tax increases that the Virginia Department of Taxation called “extremely unusual.” The state agency has agreed to “look into” Fluvanna’s policy and report its findings. However, FTA said retroactive billings are unfair to taxpayers and ought to be abandoned regardless of the outcome of the state’s inquiry.

Under current policy, a tax hike passed by supervisors in April is billed back to the previous January. That has the effect of adding half of one year’s tax increase to the previous year’s bill. As a result, the owner of a $250,000 home in Fluvanna County paid $50 six months in advance on the most recent June billing. With rate increases of up to 17 cents per $100 of valuation projected for next year, the June 2011 bill could hit that homeowner for more than $200 not really due until the following December.

Such retroactive billing resulted from an accounting change supervisors made in 2008 as they sought to gain financing for the county’s new high school. FTA uncovered the apparent inequity as members researched that accounting change and its effects. Research showed that supervisors did not alter tax collection policy when they adjusted bookkeeping practices. Retroactive tax collections were the result.

“This is like a stealth tax. The county shouldn’t be raising taxes and then making them apply backwards to meet budgetary shortfalls and overspending,” said FTA Chairperson Elizabeth Franklin. “Families in these hard times need to be able to hang on to their money as long as possible.”

To help families keep money in their own pockets longer, FTA called on supervisors to take three actions:

• Deal fairly and transparently with taxpayers in clearly communicating the periods covered by tax increases;
• Do not collect a tax increase until the fiscal year for which it is approved; and
• Refund to taxpayers the latest retroactive tax by not collecting the 2011 tax increase in December.

Gene Ott, chairman of the Fluvanna Board of Supervisors, said his 2008 vote for the change in bookkeeping practices was his worst mistake in seven years on the board. However, he said he does not believe the current collection system is unfair to taxpayers. “I believe what we did setting the budget for 2011 was to make a legal plan to pay the bills from July 1, 2010 until June 30, 2011,” said Ott. “That is exactly what will happen with the local taxes collected in June 2010 and December 2010.”

Asked whether retroactive taxation is common, a Virginia Department of Taxation analyst could identify no other county that is charging taxes in the same way as Fluvanna, according to Dennis Holder, who researched and wrote FTA’s report. “They said the standard practice is to bill a tax increase for the first time in the December after it is adopted, not in the prior June billing, as Fluvanna does,” Holder said.

The record confirms the county is imposing tax increases retroactively, Franklin said. When supervisors voted in April to hike the local rate from 50 cents per hundred dollars of value to 54 cents, the official motion stated that the increase is for the 2011 fiscal year, July 1, 2010, through June 30, 2011. And when supervisors six months ago passed the budget for fiscal year 2011, county documents show it was established on a real estate tax rate of $0.54 per $100.

Yet, tax bills that went out in June—collections that are credited to fiscal 2010—carried the FY2011 tax rate and forced owners to begin paying the higher rate as of Jan. 1, 2010, six months too early. Similar retroactive bills went out in June 2008, when the tax rate went from 43 cents to 48 cents and again in June 2009, when the hike was from 48 cents to 50 cents.

Collecting taxpayers’ money before it is due was part of the strategy when policy makers voted 6-0 to alter Fluvanna’s fiscal calendar, according to former Fluvanna Supervisor Charles Allbaugh. The architect of the bookkeeping change, Allbaugh said he intended to shift one fiscal year’s tax increase so it could be used to cover excess spending in the previous year.

Allbaugh said that the main reason he proposed the 2008 bookkeeping change was to make the county’s financial condition appear unusually strong a few weeks later when a Fluvanna delegation went to New York to seek a positive credit rating. With its fund balance of unappropriated cash bolstered by the new bookkeeping system, Fluvanna acquired a high rating.

The accounting change had the effect of giving Fluvanna three tax collections in fiscal year 2008: the June 2007 collection, which was recorded in the 2008 fiscal year; the December 2007 collection; and the June 2008 collection, which was shifted from fiscal year 2009 into fiscal year 2008. While this made the county’s year-end balance sheet look stronger than it otherwise might have, a secondary effect was to permanently change the tax collection schedule. From that time forward, the June collection of every year would belong to the previous fiscal year, not to the one just ahead. Thus, the taxes collected in June 2010 should have been collected at the FY2010 rate, 50 cents, not at the FY2011 rate of 54 cents, maintains FTA.

University of Virginia law professor Mildred W. Robinson, who teaches state and local tax law, said that, in her opinion, collecting a tax increase retroactively “is problematic.” However, she added, the legality of such a retroactive tax is debatable.

“Whether it is legal is not the main question here,” said Franklin. “The question we ask is: Is it fair to taxpayers? I don’t think so.”