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Va. high court holds for dealer group in tax dispute

The Virginia Supreme Court has upheld a decision for a dealer group that has moved vehicles out of the county temporarily for the past three years to avoid a local tax on inventory.

In December 1998, shortly before “tax day” on Jan. 1, Shelor Motor Mile, of Christiansburg, moved all of its approximately 2,500 new and used vehicles out of Montgomery County to avoid $300,000 to $400,000 in so-called merchants’ capital tax, President Larry Shelor said. The group has Chevrolet, Ford, Toyota, Chrysler, Dodge and Subaru franchises and a used-car store in the county and used-car lots outside the county.

It moved all its used vehicles from the county before Jan. 1, 2000, and moved some of its used and new inventory before Jan. 1 of this year, Shelor said. Some of those used vehicles were sold from its out-of-county used-vehicle lots, but the new vehicles were stored until being returned to its Montgomery County stores after Jan. 1.

Counties have the individual option of imposing such a tax on retailers and setting the rates.

With $30 million to $40 million worth of inventory, Shelor Motor Mile is the largest dealer group in the county, Shelor said, and the county’s other franchised dealerships did not move their vehicles.

It’s a matter of fairness, he said. “We’ve never tried to get out of paying taxes but we never understood why we should pay such a high percentage.”

Shelor’s lawyer, Frank Friedman of Roanoke, said Montgomery County’s tax rate is Virginia’s highest and is “out of line with its neighbors.” He said it is about five times the effective rate in adjoining Pulaski County, for example.

The state Supreme Court said state law requires the tax to be assessed where the property is physically located on the tax day.

“This language does not provide for a determination of where the merchants’ capital is ordinarily or normally kept,” the state Supreme Court said.

The decision will have a major impact on Montgomery County because Shelor had accounted for about $400,000 of the county’s annual $1.2 million revenue from the tax before it started moving the vehicles, according to the county attorney, Martin McMahon.

McMahon called it “a crazy ruling” because the dealer group’s “connection is here.” The Supreme Court has rejected the county’s request to reconsider the case.

Meanwhile, Shelor said he is talking with the county about a way to resolve their disagreement in the aftermath of the decision.

Said Friedman, his lawyer: “There has been no resolution. I’m not ruling one out.”

You can reach Eric Freedman at

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