Fairfax County has become a test site for several legal challenges to a widely used method of commercial property tax assessment that raises millions in revenue for local governments but which developers consider costly and unfair.
Three separate court suits recently have been brought by developers seeking to end Fairfax's practice of evaluating commercial property based on what building owners could charge for office space and apartments rather than what owners get from existing leases.
So far the developers have won two cases against the county. Both of those cases now are on appeal, one before the state Supreme Court. A third case is expected to be decided today in Fairfax Circuit Court. At stake in those cases alone is about $300,000 in taxes.
Alarmed by the possible loss of revenue to local jurisdictions, almost a dozen state and local groups -- including the Virginia attorney general, Henrico County and the state Department of Taxation -- have filed briefs with the Virginia Supreme Court supporting Fairfax County's assessment method.
"I would suppose we are talking about tens of millions of dollars" in revenues statewide, said John G. MacConnell, an assistant Virginia state attorney general. He said if the developers are successful they may force Fairfax and about 130 other Virginia jurisdictions to suspend an assessment method that the Virginia Department of Taxation for years has taught to local assessors.
David E. Nassif, head of Suffolk Properties, initiated the dispute in 1978 when he filed suit against the county after the assessed value of his property at 5611 Columbia Pike near Baileys Crossroads jumped 33 percent from $4.9 million in 1977 to $7.1 million in 1978. His tax bill increased from about $75,000 to $107,000.
The case tentatively is scheduled to be argued in November.
Nassif was out of town and could not be reached for comment, but his lawyer, Robert C. Fitzgerald, said the county's assessment method was unfair particularly to older buildings covered by long-term leases.
Fairfax began luring dozens of firms from downtown Washington in the late 1960s by offering less expensive office space. Many firms hold long-term leases which allow limited rent increases. So while a building could be leased for an estimated $13 to $14 a square foot today, it may have been rented about a decade ago in a long-term agreement at only $5 a square foot.
Fitzgerald said that a change in the county's assessment method would change the tax bills on only a few Fairfax buildings because most are too new to be tied to the earlier rental rates.
Nassif's high-rise office building was one of the first erected in Fairfax when it opened in 1962 and "escalator" clauses that allow an owner to raise the rent with inflation and tax increases were not yet in vogue.
The building was leased to the U.S. General Services Administration under a 20-year agreement. Nassif's tax bill increased about 5 percent to 10 percent a year from 1962 to 1977. Then the price of office space rose dramatically, and Nassif's tax bill jumped 33 percent from 1977 to 1978.
"That would upset almost any taxpayer," said Fitzgerald. "Nothing was done to improve the property, yet his taxes jumped 33 percent."
"This case along with several others will have a great impact on the way we do assessments," said Lurty C. Houff Jr., director of the Fairfax real estate division of the office of assessments. "What they are saying is if there are two buildings that are exactly alike and one is renting for $8 and the other for $4, the one renting for $4 should be assessed at half the value. We don't think that's right."
Houff said the county is required to use the method it does because under state law property must be assessed at its fair market value -- what it could sell or rent for on the open market.
"I think our method is a perfectly acceptable method," said Fairfax Supervisor Thomas Davis. "The commercial property owners are always crying over one thing or another. But last year, commercial assessments did not go up nearly as fast as residential property."
Fairfax assessors use a number of ways to determine the value of commercial property including sending out annual surveys to building owners requesting information on building income and expenses, evaluating current market lease rates and comparing the price of commercial building sales.
But unlike private residential homes, which change hands frequently and respond fairly uniformly to price changes, evaluating commercial property is an inexact science. Too few commercial buildings are sold for the county to have enough information on overall values, Houff said.
"We don't have a Tyson's Corner selling every day," said Houff. Still, Houff said his department's methods are accurate.
Some building owners disagree.
"A lot of owners are not happy about it," said real estate developer Walter Robbins, president of a real estate firm that owns several warehouses in Fairfax.
Francis Steinbauer, president of Mobil Land Corp. which owns a large tract of undeveloped commercial property in Reston, also criticized the county's assessment method.
"They've got to watch out about biting the hand that feeds them," said Steinbauer. "The county will eventually hurt its ability to have a broad base of businesses" and may even "drive some people out of business."