Taking Some Pain Out of Eminent Domain

Senator Frank Ruff of Clarksville. Taking some of the pain out of eminent domain.

Four successful bills heading for Governor Ralph Northam’s desk may combine into a measurable shift in Virginia’s condemnation laws in favor of the targeted landowners.  They may also spark a race to the courthouse between now and when some go into effect July 1.

The biggest financial impact may come from Senator Frank Ruff’s Senate Bill 1256, which eliminates state tax on any capital gain resulting from the forced sale.  The subtraction for any capital gain applies to both individual and corporate landowners and applies to any transaction after January 1 of this year.  Too bad if you took that check in December.  

The fiscal impact statement on the bill merely notes “unknown negative General Fund revenue impact.”  In the short run the impact may depend on whether two contested natural gas pipelines crossing the state complete construction and take all the needed private property.  Ruff confirmed in an interview that a constituent in the path of the pipeline suggested the bill, saying if the General Assembly couldn’t stop it, it could at least improve the financial outcome of the takings.

However, the bill applies to all condemnations under state or federal law by any authorized agency for any reason from that day forward.  If the property has been held for a long time, a large portion of the price could be a capital gain, taxed at about 6 percent at the state level.

Unlike most tax recent bills creating tax exemptions, credits or subtractions, this bill sailed through with no sunset clause.

The three other bills may work to increase the amount of that now tax-free gain (at least, state tax free.)  They passed with House-added language to make it clear they do not affect any condemnation efforts filed before July 1,   These bills deal only with takings by eminent domain under state law by the government or a public service company.  (The pipeline condemnations are in federal courts.)

The most comprehensive is Senator Mark Obenshain’s Senate Bill 1421, which oddly is not accompanied by a fiscal impact statement even though may change what state and local governments pay to condemn land.   The bill changes the rules for notice before the property is entered or surveyed and changes some of the considerations used by the court for determining the final value.

It makes is easier for the owner to get a set of expert witnesses equal to the number used by the agency or company seeking to take the land, at that petitioner’s expense.   This phrase may prove significant: “Nothing in this subsection shall make evidence of tax assessments admissible as proof of value in an eminent domain proceeding.

Obenshain indicated many of the changes to the statute merely reflect actual practice in Virginia courts.  The most significant, he thinks, protects the landowner when the agency seeking the land changes its petition, abandoning it in full or in part.  It will be easier for the landowner to recover costs in those cases under this change.

Senator Chap Petersen has two less-comprehensive bills, both likely to increase costs for the agency or company seeking to take the land.  Senate Bill 1403 makes it easier for the landowner to recover costs from a public service corporation if the landowner takes the matter to court and wins a higher payment.   Senate Bill 1404 puts the condemnor on the hook for additional costs in certain court proceedings.

The session hasn’t been all victories for opponents of eminent domain.  One measure aimed directly at the pipelines, a constitutional amendment proposed by Senator Creigh Deeds, was killed early in the session on a party-line vote in a Senate committee.  The pipelines being federally-approved, it is doubtful such a state measure would have stopped them.

Eminent domain is always controversial, but used properly it support projects with a public purpose.  The successful process bills could raise the costs for future Virginia public works projects by utilities, railroads, localities or the state, costs which ultimately flow to ratepayers or taxpayers.

Ruff’s bill can also be seen (for those who think that way) as a cost to taxpayers, perhaps a large one.  Note it does not cover the other possibility; it does not prohibit somebody from claiming a loss on their taxes if the price paid represents a major deterioration of a property’s value.

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17 responses to “Taking Some Pain Out of Eminent Domain”

  1. LarrytheG Avatar

    You know – eminent domain is essentially socialism, right? Real “capitalism” means willing seller-willing buyer.

    And in the case of the ACC – it’s socialism for investor owners of a for-profit corporation.

    Nice try on the Cap Gains but it’s the Federal tax that is the big one for cap gains…

    1. Steve Haner Avatar
      Steve Haner

      Every little bit helps, I hear. Six percent more is better than a stick in the eye!

      So, Larry, what do we do? Make all the railroads, natural gas companies, oil pipelines, electricity providers, etc. give back all the land or easements they took? Stop any future taking for any investor owned entity? Play your argument out to the end, if you are going to stick with it. The public ownership of all such assets would certainly not be capitalism – it would be Marxism.

      1. LarrytheG Avatar

        well heckfire – they could let you deduct BOTH from your state tax – then ALL of us could help pay for Dominion’s stuff!

      2. djrippert Avatar

        Make them pay 6% above the free market value for confiscated land? Why should we need yet another isolated tax break with no sunset provision? Why should the taxpayers subsidize the confiscators?

        1. LarrytheG Avatar

          EXACTLY!!! A really good blog post would list out all the special carve-outs that already exist in the Va tax code. Essentially they are tax exemptions paid for by others taxes!

          But in this case – we basically incentivize corporation takings of private land… and so we “compensate” the victims… rather than protect them from the robber! lord!

      3. LarrytheG Avatar

        I’m pointing out that when we force people to give up their private property for the “good” of society – that IS “socialism” and if we are
        actually going to do that – we should assure that the legitimate purpose is actually for society and not the “private property” of investors of a for-profit corporation.

  2. Steve Haner Avatar
    Steve Haner

    Well, if you actually open the link to the bill and find the italicized language, you can find the ones already listed in those code sections. I think this new one is in the low 20s on one list and the high 20s on the other.

    I’m not endorsing this idea, but one point to consider – these sales are involuntary, so a bit different from somebody selling land because they want to harvest the capital gain.

    1. djrippert Avatar

      Sometimes a company will invoke terms and conditions in the shareholder agreement to force shareholders to sell their shares at a certain price. Sometimes shareholders don’t want to sell their shares. Should they get tax free capital gains from the sale of their stock? The typical answer would be that it’s not the government forcing the sale of the shares. Well it’s not the government that will make up the shortfall from this tax gift either. It’s the taxpayers. This bill effectively has me subsidizing Dominion.

  3. Another scoop for Steve Haner. Too bad VA News refuses to include his articles!

    Ruff’s bill makes total sense to me. Why should landowners be forced to pay capital gains tax for the “sale” of property they were compelled to transfer. When people pay capital gains on the sale of stocks, bonds, or real estate, they normally get to choose whether they sell or not. If someone does NOT want to sell his property but is forced to by the exercise of eminent domain, taxing the capital gains adds insult to injury.

    Eminent domain is a necessary evil. We need it, for without it, we could not construct roads, highways, rail lines, electric transmission lines, and pipelines. But landowners should be fully and fairly compensated.

    I have argued for even more comprehensive reform. Many people living in the path of the Atlantic Coast Pipeline and Mountain Valley Pipeline are being deprived of aesthetic values that affect the value of their property. As I understand it, landowners are compensated only on economic loss. But if I payed a premium price for a farm with a fantastic view, I should be compensated for the lost value affecting the entire property, not just the portion crossed by a pipeline or transmission line.

    1. djrippert Avatar

      “Why should landowners be forced to pay capital gains tax for the “sale” of property they were compelled to transfer.”

      Because you have a gain. You have real income. Why shouldn’t you pay taxes on that income?

      I have no problem sweetening the pot for those who lose their property. But the sweetening should be done by the taker not the taxpayers. Assess a 6% surcharge (above fair market value) on the taker.

      There is no free lunch. Every tax break means somebody else pays more. Let the users of the product supported by the eminent domain seizure pay the surcharge.

      I agree on the need for more comprehensive reform but as long as the companies taking via eminent domain can make unlimited donations to our state politicians I think that’s unlikely.

    2. vaconsumeradvocate Avatar

      Jim, I can actually agree with you on most of this!

      Landowners also get nothing for loss of heritage. Land passed down generations has more meaning than just a few dollars.

      It’s a one time payment although the infrastructure and safety and health risks are there 50 or more years.

      Calculation of the payment ignores the property as a whole – but the company gets to decide what part of the property it takes and check out the easement filings – unbelievably often opts for the middle of the property!

      Eminent domain is only set up to pay a dollar amount. Nothing gives the landowner any right to even negotiate for what part of our property they take.

      We have no guarantee of a certain level of safety and are essentially at the mercy of the company.

      Further, the company can sell the infrastructure/easement and we have no say.

      There is no consideration of or way for the owner to protect the business the land is used for – no matter how long the business has existed. What motivation does anyone have to work hard and save to buy property and build a business? Another business can claim public benefit even when it’s actually private gain and destroy what you built. Eminent domain needs a lot of consideration and improvement to protect basic property rights.

  4. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    All the bills make sense to me. And I agree with Jim–more good reporting by Steve. This blog is a much better source of news and analysis about the General Assembly than any of the main newspapers.

    Eminent domain is necessary for the common good. I suspect that the abuse of this power by Dominion for the pipelines is the main impetus behind this spate of bills.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      I agree with Dick’s comment 100%. I also think that Jim’s comment below is particularly important for future enactments:

      “As I understand it, landowners are compensated only on economic loss. But if I payed a premium price for a farm with a fantastic view, I should be compensated for the lost value affecting the entire property, not just the portion crossed by a pipeline or transmission line.”

      Simply put, aesthetic and style considerations of all sorts and kinds often today have enormous consequences in determining sale prices of particular kinds of real estate. I my real estate experience, which is not insubstantial, real estate appraisers, and their methods, and smarts today, are quite often totally incompetent in seeing and judging the real value of real estate. Indeed, if their judgement of worth had any value they wouldn’t be appraisers, they ‘d be worth many $millions living the lives of the rich and famous, in the most beautiful spots on the planet. And The Donald would often be their closest friend and neighbor.

      1. vaconsumeradvocate Avatar

        State changes are good but we’ve also got to attack this at the federal level. The problem won’t be fixed until we do.

  5. LarrytheG Avatar

    For the record – I have NO PROBLEM with roads, and schools, powerline rights of ways or even pipelines that are NECESSARY for the good of the general public but I have a big problem with using eminent domain to acquire property for the investors of a for-profit corporation and THEN on TOP OF THAT – having the taxpayers of Virginia -INCENTIVIZE that kind of transaction by saying that we should “help” those who were forced to sell their land to the corporate investors!

    Come on guys – surely you can differentiate between a road or school and a private for-profit pipeline!! If this was a true monopoly then the SCC would cap their profit… and control the prices paid by customers!

    this is robber barons on steroids!

  6. LarrytheG Avatar

    And make no mistake as we hear the word “socialism” tossed around these days. public roads are socialism – we just seem to be selective about what we call ‘socialism and we get confused about things like pipelines because we get distracted by saying that since pipelines serve the public – that justifies taking private property.

    For profit pipelines should REQUIRE willing-seller/willing-buyer with special courts with citizen juries for the rate and isolated cases where someone will not sell no matter what. Otherwise – it should be 99% between the company that wants the land and the guy that owns that land unless we’re going to control the price of the product like we would any monopoly.

    Just imagine what would happen if we gave a private company the right to condemn land for a for-profit toll road… all hell would break loose!!!

  7. TooMuchRegulation Avatar

    @Larry, I’m some what sympathetic to your point but its we the citizens that allow the monopolies to get away with eminent domain abuse. At some point, the taxpayer needs to feel the pain.

    Eminent Domain abuse is very much a divide and conquer strategy. Its very hard to get taxpayers / ratepayers to be sympathetic to a land owner who is not getting just compensation.

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