                     COURT OF APPEALS OF VIRGINIA

Present: Chief Judge Moon, Judges Benton and Coleman
Argued at Salem, Virginia


MEREDITH CONSTRUCTION COMPANY, INC.
  and AMERICAN CASUALTY COMPANY
                                               OPINION BY
v.   Record No. 0135-95-3              JUDGE JAMES W. BENTON, JR.
                                            JANUARY 23, 1996
JOHN ALAN HOLCOMBE


        FROM THE VIRGINIA WORKERS' COMPENSATION COMMISSION

           Gregory T. Casker (Daniel, Vaughan, Medley &
           Smitherman, on brief), for appellants.
           Stephen G. Bass (Carter, Craig, Bass,
           Blair & Kushner, on brief), for appellee.



      The issue presented in this appeal is whether the Workers'

Compensation Commission erred in calculating John Holcombe's

average weekly wage.    Meredith Construction Company, Inc.,

contends that the calculation should not have been based upon the

net taxable income, including depreciation, reported by

Holcombe's business.    We disagree and affirm the award.

                                  I.

      Holcombe was employed by Meredith Construction as a brick

mason when he sustained a compensable injury by accident.

Because of the severity of the injury to his lower back, Holcombe

could not return to his pre-injury employment.      After

rehabilitation, he began operating a refinishing business as a

sole proprietor.

      When Meredith Construction learned of Holcombe's new

employment, Meredith Construction filed an application for change
in condition.    It requested a termination or suspension of

Holcombe's workers' compensation benefits or a credit for

previous payments made to Holcombe.     The deputy commissioner

found that Holcombe had experienced an increase in earnings and

ruled that the calculation of Holcombe's average weekly wage

should include consideration of his business' taxable income,

including depreciation expense.    The deputy commissioner also

ruled that Meredith Construction was entitled to credit for

overpayments made during Holcombe's self-employment.     The

commission affirmed that decision.
                                  II.

       Code § 65.2-101 contains the guideposts by which the

commission may base its finding of average weekly wage. 1      When
   1
    In pertinent part, average weekly wage means the following:

            1.a. The earnings of the injured employee in
            the employment in which he was working at the
            time of the injury during the period of fifty-
            two weeks immediately preceding the date of
            the injury, divided by fifty-two; but if the
            injured employee lost more than seven
            consecutive calendar days during such period,
            although not in the same week, then the
            earnings for the remainder of the fifty-two
            weeks shall be divided by the number of weeks
            remaining after the time so lost has been
            deducted. When the employment prior to the
            injury extended over a period of less than
            fifty-two weeks, the method of dividing the
            earnings during that period by the number of
            weeks and parts thereof during which the
            employee earned wages shall be followed,
            provided that results fair and just to both
            parties will be thereby obtained. When, by
            reason of a shortness of time during which the
            employee has been in the employment of his
            employer or the casual nature or terms of his


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the earnings of an injured employee are not amenable to the

primary calculation specified in Code § 65.2-101, "[t]he

commission properly resort[s] to 'such other method of computing

average weekly wages . . . most nearly approximat[ing] the amount

which the injured employee . . . earn[s].'"   Dominion Assocs.

Group, Inc. v. Queen, 17 Va. App. 764, 767, 441 S.E.2d 45, 47

(1994)(quoting Code § 65.2-101 ("Average weekly wage" . . .

1.b.).   "The reason for calculating the average weekly wage is to

approximate the economic loss suffered by an employee . . . when
there is a loss of earning capacity because of work related

injury."   Bosworth v. 7-Up Distrib. Co., 4 Va. App. 161, 163, 355

S.E.2d 339, 340 (1987).

     On review from the deputy commissioner's decision, the

commission held that Holcombe's average weekly wage, as a self-

employed person operating as a sole proprietor, "should be based

           employment, it is impractical to compute the
           average weekly wages as above defined, regard
           shall be had to the average weekly amount
           which during the fifty-two weeks previous to
           the injury was being earned by a person of the
           same grade and character employed in the same
           class of employment in the same locality or
           community.

           b. When for exceptional reasons the foregoing
           would be unfair either to the employer or
           employee, such other method of computing
           average weekly wages may be resorted to as
           will most nearly approximate the amount which
           the injured employee would be earning were it
           not for the injury.


Code § 65.2-101 ("Average weekly wage").



                               - 3 -
on the net taxable income reported by [Holcombe's] business for

federal income tax purposes . . . [, which] will, of course,

include all allowable expenses, including, but not limited to,

depreciation and interest."   The commission's decision follows

the principle announced in one of its previous decisions that an

allowance for depreciation is a legitimate business expense.       See

Semones v. New Jersey Zinc Co., 68 O.I.C. 1 (1989).     The

commission's decision is also consistent with "the conclusion

reached by the majority of courts which have addressed the

question of whether depreciation deductions should be considered

in determining [average weekly wages for self-employed

individuals] to be awarded as workers' compensation."     Elliott v.

El Paso County, 860 P.2d 1363, 1366 (Colo. 1993).     See, e.g.,

Happle Solar Contractors v. Happle, 547 So. 2d 1035, 1037 (Fla.

Dist. Ct. App. 1989); Christian v. Riddle & Mendenhall Logging,

450 S.E.2d 510, 513 (N.C. Ct. App. 1994); Nortim, Inc. v.

Workmen's Compensation Appeal Bd., 615 A.2d 873, 875-76 (Pa.

Commw. Ct. 1992).

     "'[B]roadly speaking, depreciation is the loss, not restored

by current maintenance, which is due to all the factors causing

the ultimate retirement of the property.   These factors embrace

wear and tear, decay, inadequacy, and obsolescence.'"     Alexandria

Water Co. v. Alexandria, 163 Va. 512, 564, 177 S.E. 454, 476

(1934) (citation omitted).    "'[T]he [depreciation] deduction

simply protects . . . against overstating . . . profits' . . .



                                - 4 -
[and is] necessary to accurately determine the appropriate amount

of income of those who are self-employed."    Elliott, 860 P.2d at

1365 (citation omitted).

     Although we agree with Meredith Construction's argument that

the discussion in the commission's decision concerning Jett v.

Jett, VWC File No. 154-35-14 (January 19, 1994), is inaccurate,

that error is not dispositive of the issue in this appeal.

Properly read, the Jett decision does not reject the principle

that depreciation is an appropriate factor in calculating the

average weekly wage of a sole proprietor.    Jett asked the

commission to determine his weekly average wage from the

information contained in Schedule C (Profit or Loss from Business

Statement) that he submitted for federal income tax purposes.

Although the deputy commissioner used the schedule and its

depreciation allowance in computing the average weekly wage, on

appeal, the commission was "more persuaded" that an alternative

method based upon facts in that case gave a more accurate measure

of the average weekly wage.
     In determining the average weekly wage of Jett, a self-

employed truck driver, the commission relied on (1) information

in the First Report of Accident which stated Jett's weekly draw,

(2) Jett's testimony that he paid his replacement driver 25% of

the gross income generated by the truck, and (3) the gross income

stated in the schedule.    The commission relied on this

alternative method of calculating average weekly wage in Jett



                                - 5 -
because the record did not clearly indicate whether other non-

business income was included on Jett's schedule.      Thus, although

the commission did not accept Jett's request to use a method of

determining average weekly wage that included depreciation in its

calculations, the commission stated that, on the facts of that

case, a more accurate measure of average weekly wage was

available.    The commission's decision did not foreclose in other

cases a method of calculating the average weekly wage that would

include the sole proprietor's depreciation of equipment.
     As a sole proprietor, Holcombe must purchase and maintain

equipment to operate his business.       Generally, this equipment

will decrease in value over time.    Depreciation allows Holcombe

to account for the decrease in value of his assets and recognizes

that Holcombe will need to purchase replacement equipment.      The

use of depreciation, thus, allows a more accurate basis to

compute the average weekly wage of a sole proprietor.

     The commission's decision requires Holcombe to make

available to Meredith Construction "all books and records of the

sole proprietorship so that income and expenses may be verified."

We believe this requirement complies with the commission's

concerns expressed in Semones that a sole proprietor such as

Holcombe establish that the depreciation is "an actual business

expense."
             It was the duty of the Commission to make the
             best possible estimate of future impairments
             of earnings from the evidence adduced at the
             hearing, and to determine the average weekly
             wage. . . . This is a question of fact to be



                                 - 6 -
          determined by the Commission which, if based
          on credible evidence, will not be disturbed
          on appeal.


Pilot Freight Carriers, Inc. v. Reeves, 1 Va. App. 435, 441, 339

S.E.2d 570, 573 (1986).

     Accordingly, we hold that the commission did not err in

allowing a reasonable rate of depreciation on the equipment as a

business expense in determining the average weekly wage of

Holcombe, a sole proprietor.
                                             Affirmed.




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