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Woolford v. Virginia Department of Taxation

Supreme Court of Virginia

November 22, 2017



         PRESENT: All the Justices



         The Tax Department rescinded $4.9 million in land preservation tax credits it had previously awarded to the Woolfords. The circuit court sustained that decision, reasoning that the appraiser the Woolfords hired was not a "qualified appraiser" within the intendment of Code § 58.1-512(B). For the reasons noted below, we will reverse that determination and will remand for further proceedings.


         For more than 160 years, the Woolford family has owned a 450-acre farm in King William County.[1] In anticipation of applying for a land preservation tax credit provided for in Code §§ 58.1-512 and 58.1-513, they hired a professional appraiser, Michael J. Simerlein, to appraise the property. Simerlein has been licensed by the Virginia Real Estate Appraiser Board as a General Real Estate Appraiser since 1994. On November 25, 2011, Simerlein provided a detailed appraisal which valued the property at $13.5 million without a land preservation easement, and at $1, 070, 000 with a conservation easement - a reduction in value of $12, 430, 000.

         According to Simerlein, the value of the land overwhelmingly rested in as yet unmined sand and gravel deposits. At the time, the Woolfords had obtained a special use permit from the County and an active state permit through the Virginia Department of Mines, Minerals and Energy. The permit to mine sand and gravel, however, was limited to five acres and the site was not being actively mined. Simerlein valued "the sand and gravel operations as a going concern, " allocating $4, 550, 000 "to the value of the minerals in the ground, " and $8, 425, 000 for a mine as a "prospective going concern." He placed a value of $525, 000 on the remaining 174.7 acres of land. Simerlein expressly assumed that the necessary special use permit for the mining operation could be "reasonably secure[d] . . . within 12 months of the date of this appraisal." He further assumed that the existing permit for a limited sand and gravel mining operation on five acres "can be readily expanded by the Virginia Department of Minerals, Mining & Energy . . . to encompass the proposed upper and lower pit areas."

         The Woolfords donated a conservation easement to the Virginia Outdoors Foundation on November 11, 2011, and recorded the deed of gift with the King William County Circuit Court. The Virginia Outdoors Foundation is a public conservation agency. See Code § 10.1-1800. The easement, which encumbers the entire property, prohibits the Woolfords from mining the sand and gravel on the property.

         The Woolfords then applied for land preservation tax credits. By letter dated January 10, 2012, the Department of Taxation awarded the Woolfords a tax credit in the amount of $4, 972, 000, based on Simerlein's assessment. The letter from the Department stated that

The amount of tax credit is based solely on the information supplied with your Form LPC notification. Any value of the donation on which the credit is claimed is subject to review, audit, and challenge by all appropriate tax authorities. The Virginia Department of Taxation makes no express or implied warranties regarding whether any tax benefits will be available to the Grantor or anyone to whom the credit is transferred. The Department will notify you further only if any portion of your credit is disallowed or otherwise adjusted by the Department. Such notification may be issued either before or after you file an income tax return claiming the credit, subject to the statute of limitations.

         The Woolfords later transferred the tax credits to 168 transferees and paid the Department $248, 600 in fees for administering the transfers. See Code § 58.1-513(C)(1).

         On December 3, 2013, the Department notified the Woolfords that there were "material deficiencies and/or issues that cause [the submitted Appraisal] to be unreliable." The Woolfords met with Department officials and submitted a second appraisal. This revised appraisal lowered the appraised value of the conservation easement from $12, 430, 000 to $10, 180, 000. The parties were unable to reach a resolution. By letter dated December 4, 2014, the Department stated that it was rejecting the Woolfords' appraisals and disallowing all tax credits. In rejecting the appraisals, the Department cited "the speculative analysis, conflicting data, lack of qualifications, and failure to meet the requirements" of the Code.

         The Woolfords appealed the Department's decision to the circuit court. See Code § 58.1-1825(D). The Department moved for summary judgment arguing, among other things, that Simerlein was not a qualified appraiser under Virginia law and, accordingly, the entire appraisal should be disregarded.

         At a hearing, the court heard extensive testimony concerning Simerlein's qualifications. In addition to being licensed by Virginia as a real estate appraiser, Simerlein holds a master's degree in real estate appraisal and investment analysis from the University of Wisconsin-Madison. He has appraised commercial and residential properties since 1992, and has appraised approximately 100 conservation easement donations. He acknowledged that he has not taken any coursework on the subject of mineral appraisals.

         As of 2011, Simerlein testified that he either appraised himself or participated in the review of four properties involving sand and gravel mines. In the year 2000, he appraised a tract located in Isle of Wight County, the Turner Estate property. This property involved a proposed plant on 40 acres with 180 acres of residential land tied to it. This appraisal afforded him a first opportunity "to get up to speed on that market." Another appraisal, in James City County in 2005, involved condemning 40 acres adjacent to an operating pit. He concluded that the sand and gravel mine was not the highest and best use for the property. In 2007, he, along with an associate, conducted a review of an appraisal for a property in Charles City County, the Sturgeon Point Tract, involving 103 acres and approximately 3 million tons of material. Finally, in 2011, he and an associate appraised a property in Middlesex County, where a contractor was mining materials for his own construction business.

         Simerlein explained that "valuation is a process by which you go from identifying the problem to inspecting the property to studying the market and ultimately preparing market analysis" for the property's highest and best use. He reviewed his previous sand and gravel appraisal work, as well as published appraisal industry resources. He testified that he educated himself concerning the sand and gravel market for King William County. He discussed the matter with "friends in the industry, " spoke with other appraisers, researched production statistics, and felt comfortable making an appraisal. In addition to his previous appraisals, Simerlein did "quite a bit of local research." He studied the local market for sand and gravel, including all the other large active competitive pits in King William, examined the infrastructure near the Woodfords' property, talked to other local market participants, looked for sales of comparable mines, and spoke with local sources as well as officials at the Department of Mines, Minerals and Energy. He relied on the report by a licensed geologist that the site contained 7.75 million tons of marketable sand and gravel.

         At the conclusion of the hearing, the court stated from the bench that Simerlein acknowledged he was not formally educated in appraising minerals. The court also discounted the four prior appraisals on the basis that they were different: one was for a depleted mine, one was for sand and fill dirt, which differs from sand and gravel, one was a review of an appraisal, and the other was one that he co-signed. The court granted summary judgment for the Department, holding that "the Plaintiffs' appraiser lacks the necessary education and ...

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