The Virginia Supreme Court has upheld, but qualified, a widely used method of assessing commercial property that raises millions in real estate tax revenue for local governments but which developers challenged as costly and unfair.

The court's ruling, issued late last week, upholds Fairfax County's practice of evaluating commercial property based on its market value--or what building owners could charge for space--but concludes that the county's assessment formula should also take into account the actual income the owner of a commercial property receives from existing leases.

The decision, considered the leading test case of the controversial "market value" method used in Virginia and many in many areas of the United State to assess commercial property, appears to have mollified both county assessors and David E. Nassif, head of Suffolk Properties, who had brought suit against Fairfax seeking to force the county to assess his office building at 5611 Columbia Pike solely on the basis of its rental income.

"There's no federal question so there won't be an appeal," said Nassif's lawyer Robert C. Fitzgerald. "The decision certainly doesn't vindicate the assessor," Fitzgerald added. "The court said the property assessor and the lower court were both wrong."

Nassif, whose Columbia Pike office building at Baileys Crossroads is under a 20-year lease to the federal government, had brought a successful suit against the county in Fairfax Circuit court three years ago when the assessed value of the building climbed 33 percent from $4.9 million in 1977 to $7.1 million in 1978.

The county argued that under state law it was required to assess property at its fair market value, utilizing rental income figures from neighboring office buildings that had more recent leases reflecting the current, higher rate for office space. The County Circuit ruled that the county could not use that formula and should only consider the income Nassif received from the long-term lease he held with the federal goverment.

The decision was appealed last year and the State Supreme Court has now reversed the lower court, ruling that "the rent fixed by the lease between Nassif and the federal government does not control the amount of gross income to be used in evaluating the property."

But the court said "this does not mean. . . that we must reinstate the county's assessment. The county concedes that contract rent should be considered in this type of case. Yet. . . the assessor ignored contract rent in appraising the property in the 1978 assessment."

Nassif's assessment must now be recalculated, taking into account both the fair market value of the property and his long-term rental contract.