THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, January 25, 1995 TAG: 9501250013
SECTION: FRONT PAGE: A14 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 65 lines
Imagine the state government's response if the federal government should say, ``Keep on doing what you're doing if you want, but, by the way, you can't collect a sales tax anymore.''
State officials would squeal like stuck pigs.
Yet Gov. George Allen, in effect, has proposed telling Virginia cities, towns and counties, ``Keep on doing what you're doing if you want, but, by the way, you can't collect the Business, Professional and Occupational License tax anymore.''
And local officials are squealing.
The business tax, known as BPOL, is collected by all cities, most of the towns and half the counties in Virginia. By taxing businesses' gross receipts, BPOL raises about $300 million a year. Last year it raised $48.6 million in Hampton Roads.
The tax, roughly 100 years old, is one of only a handful controlled by localities: The Virginia legislature keeps local governments on a short leash.
Northern Virginia businesses say the BPOL tax puts them at a competitive disadvantage with companies in Maryland, which has no such tax. Small and budding businesses say the tax is an obstacle to their success. Most businesses complain because the tax is on all revenue, not just profits, so even companies losing money have to pay it. Allen contends that eliminating the business tax will speed business recruitment and thus cause city coffers to grow. Localities counter that much of the new revenue would go to the state - not to them.
In a speech before the Senate Finance and House Appropriations committees earlier this month, Norfolk Commissioner of Revenue Sam T. Barfield said,
``All I hear from the advocates of the elimination of the BPOL tax is that it is a bad tax. After 34 years in government I frankly don't know of any good tax.'' Barfield said it was ``hogwash'' that BPOL hindered attracting businesses to Virginia.
The nonpartisan Virginia Municipal League estimates that losing the business tax revenue could cause real-estate taxes to jump an average of 17 cents per $100 of assessed value in Virginia. Thus the owner of a $100,000 home would pay $170 more a year in property taxes. Another choice would be to slash services, but Norfolk, which gains $14 million a year from the BPOL tax, already has eliminated 841 city jobs over the past eight years. Many other localities have run out of fat to cut, so the likely effect of ending the BPOL tax would be to shift more of the local tax burden from businesses to home owners.
Allen initially proposed phasing out the BPOL tax over five years; he now is considering lengthening the phase-out period. Allen also says he now favors setting aside a state fund to permanently offset the lost revenue, but he hasn't said where that money might be had. Allen has agreed to an option that would allow localities to reinstate the tax if, after the first five years, state replacement funds were inadequate.
Local officials are not persuaded. They fear placing such a large chunk of their financial destiny in Richmond's hands. In this matter, local officials trust Richmond about as much as Richmond trusts Washington, D.C. And rightly so.
KEYWORDS: BUSINESS TAX by CNB