When a Virginia business buys used equipment from another business and a local tax assessor wants to apply the 'original cost' valuation method, do they use the secondhand price the new owner paid or the original price the first buyer paid?

Plain-English summary

Virginia localities tax tangible personal property used in a trade or business. Section 58.1-3503(A)(17) tells assessors to value most categories of business personal property by applying "a percentage or percentages of original cost." When the property has been bought used by a current owner, the question is what "original cost" actually refers to: the price the current owner paid for the used equipment, or the price the original purchaser paid when buying it new from the manufacturer or dealer? Senator Hanger raised the issue after seeing a real-world scenario in which a taxpayer had bought used trade property for much less than its initial purchase price.

Acting Attorney General William Mims concluded that "original cost" means what the first purchaser paid for the property from the manufacturer or dealer. The statute does not define the term, so plain meaning controls. Black's Law Dictionary defines "original cost" by reference to "acquisition cost," and acquisition cost is "[a]n asset's net price; the original cost of an asset." Reading those definitions together, the cost in question is the cost paid by the original owner to acquire the asset from its first source (the manufacturer or dealer), not any later transfer price.

The practical effect is that business personal property carries its original-cost number forward through subsequent ownership changes. A used printing press that originally sold for $200,000 and now changes hands for $40,000 is still valued from the $200,000 figure (applied to the depreciation percentages in the locality's tax tables), not from the $40,000.

Currency note

This opinion was issued in 2009. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Section 58.1-3503 lists categories of tangible personal property for valuation. Most categories have specific valuation methods (boats valued from boat-pricing guides, motor vehicles valued from automotive guides, and so on). Category (17) is the catch-all for "[a]ll tangible personal property employed in a trade or business other than that described in subdivisions 1 through 16," and it is valued by applying "a percentage or percentages of original cost."

That residual category covers everything from manufacturing machinery to office furniture, restaurant kitchen equipment, dental chairs, photocopiers, and similar trade assets. The locality picks the percentage to apply (usually a depreciation schedule that drops the value year by year), and then multiplies by the original cost to get the assessed value. The valuation is then taxed at the locality's rate.

The interpretive question turns on what number goes into the original-cost slot. The statute does not define it. Virginia's standard rules of statutory construction direct that, absent a definition, the plain and ordinary meaning of a term controls. Dictionary definitions are the typical first source. Black's Law Dictionary defines "cost" as "the amount paid or charged for something; price or expenditure." It defines "original cost" by reference to "acquisition cost," which is "[a]n asset's net price; the original cost of an asset.—Also termed historical cost; original cost."

Reading those together, the AG settled on the original purchaser's price as the meaning of "original cost." The same asset retains the same "original cost" number as it moves through subsequent owners, because the original purchase from the manufacturer or dealer is the historical anchor.

What the AG concluded

Plain meaning of "original cost" is the first purchaser's price. The dictionary definitions point to the cost paid by the asset's first owner, not to any later resale price. Calling a later resale a new "original cost" would conflict with the word "original."

Subsequent transactions don't reset the basis. The point of the locality's valuation table is to start from a known historical cost and apply depreciation percentages reflecting age. Allowing each secondhand transaction to set a fresh starting point would defeat the depreciation method, because the locality would need to keep track of the date and price of every subsequent transfer.

The taxpayer's actual purchase price doesn't displace the original-cost figure. Even if a used printing press was acquired for 20% of its original cost, the locality continues to apply its depreciation percentages to the original first-purchase number.

Common questions

How does a current owner know what the original cost was?
The current owner usually has to ask the seller for documentation or accept the locality's records of historical purchases. Where records are incomplete, the locality may use book value, depreciation schedules, manufacturer pricing data, or comparable assets as proxies. Each locality's commissioner of revenue handles this differently.

Doesn't this mean used buyers pay tax on a higher number than they actually paid?
Yes, in the years before depreciation has fully run. The depreciation percentages applied by the locality typically reduce the original cost substantially after several years, so the effective tax is much lower than the original cost would suggest. But the starting number is still the original cost.

Why does Virginia value business personal property this way?
The General Assembly chose this approach for administrative simplicity and uniformity. It keeps one consistent valuation number across all owners and avoids creating tax incentives or disincentives for selling business property.

Can a locality choose to use a different method?
Section 58.1-3503(A)(17) says property in this category "shall be valued by means of a percentage or percentages of original cost." The locality can choose its own depreciation percentages, but not a different starting number.

Does this rule apply to vehicles or other categories with specific valuation methods?
No. The opinion is specific to category (17), the catch-all for business personal property. Other categories (boats, motor vehicles, mobile homes) have their own statutory valuation methods, typically based on published industry pricing guides.

Citations

• Va. Code Ann. § 58.1-3503(A)(17) (business personal property valuation)
• Sansom v. Bd. of Supvrs., 257 Va. 589 (1999)
• Commonwealth v. Orange-Madison Coop. Farm Serv., 220 Va. 655 (1980)
• Black's Law Dictionary (8th ed. 2004) (definitions of "cost," "original cost," and "acquisition cost")

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2009/08-109-Hanger.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
900 East Main Street
Richmond, Virginia 23219
804-786-2071
FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

February 25, 2009

The Honorable Emmett W. Hanger, Jr.
Member, Senate of Virginia
P.O. Box 2
Mt. Solon, Virginia 22842

Dear Senator Hanger:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You inquire concerning the meaning of the term "original cost" as it is used in § 58.1-3503(A)(17).

Response

It is my opinion that the term "original cost" means the acquisition cost of property from the manufacturer or dealer, i.e., the original cost paid by the original purchaser of such property from the manufacturer or dealer.

Background

You inquire regarding the definition of the term "original cost" as it is used in § 58.1-3503(A)(17) when a taxpayer purchases used personal property employed in a trade or business from a seller who has been paying tax to the same jurisdiction for such personal property. You advise that in one case a taxpayer sold personal property employed in a trade or business to a new owner at a price much less than the initial purchase price.

You suggest that the original cost of personal property employed in a trade or business could be defined as either the price paid for the personal property when it originally was purchased from a manufacturer or dealer or the price paid by a subsequent purchaser. You observe that § 58.1-3503(A)(17) does not define "original cost."

Applicable Law and Discussion

Section 58.1-3503(A)(17) provides:

A. Tangible personal property is classified for valuation purposes according to the following separate categories which are not to be considered separate classes for the rate purposes:

17. All tangible personal property employed in a trade or business other than that described in subdivisions 1 through 16 of this subsection, which shall be valued by means of a percentage or percentages of original cost.

The General Assembly has not provided a definition for the term "original cost" within the context of § 58.1-3503(A)(17). Statutory construction requires that words be given their ordinary meaning, given the context in which they are used.[1] This particularly is the case when the words are not expressly defined by statute.[2] Absent a statutory definition, the plain and ordinary meaning of the term is controlling.[3] The term "cost" means the "amount paid or charged for something; price or expenditure."[4] "Original cost" or "acquisition cost" means "[a]n asset's net price; the original cost of an asset.—Also termed historical cost; original cost."[5]

Based on these definitions, the plain and ordinary meaning of the term "original cost" is the cost of the personal property employed in a trade or business paid by the owner who first purchased the personal property from either a manufacturer or dealer. In other words, the cost paid by the original, or first, purchaser of such personal property.

Conclusion

Accordingly, it is my opinion that the term "original cost" means the acquisition cost of property from the manufacturer or dealer, i.e., the original cost paid by the original purchaser of such property from the manufacturer or dealer.

Thank you for letting me be of service to you.

Sincerely,

William C. Mims
Acting Attorney General
1:213; 1:941/08-109

1. Va. Beach v. Bd. of Supvrs., 246 Va. 233, 236, 435 S.E.2d 382, 384 (1993).
2. See McKeon v. Commonwealth, 211 Va. 24, 27, 175 S.E.2d 282, 284 (1970).
3. See Sansom v. Bd. of Supvrs., 257 Va. 589, 594-95, 514 S.E.2d 345, 349 (1999); Commonwealth v. Orange-Madison Coop. Farm Serv., 220 Va. 655, 658, 261 S.E.2d 532, 533-34 (1980).
4. BLACK'S LAW DICTIONARY 371 (8th ed. 2004).
5. Id. at 371 (defining "acquisition cost") (emphasis in original); see id. at 1133 (defining "original cost" by reference to "acquisition cost").