THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, November 13, 1995 TAG: 9511110437
SECTION: BUSINESS WEEKLY PAGE: 04 EDITION: FINAL
TYPE: Editorial
SOURCE: Ted Evanoff
LENGTH: Medium: 85 lines
Let's say you can fix wooden furniture and, with your savings, open your own repair shop.
In the first year, you ring up $100,000 in sales, but leasing the shop, paying a helper, laying in a supply of walnut veneer, and the cost of a myriad other items raises your expenses to $102,000.
Not only have you lost $2,000 your first year on your own, you must dig into your savings to pay the city tax collector $360. Why?
The BPOL tax. A service like the furniture repair shop owes $3.60 for every $1,000 in sales. And it owes the tax even if profits are nil.
If there was a chance of repealing the BPOL, it probably came and went last week, to the chagrin of small companies in the state, and the relief of property taxpayers in Tidewater.
When Virginians at the polls last week appeared to snub Gov. George Allen's conservative agenda, the election seemed to wither support for tax cuts.
With no strong public appetite for slashing taxes, few business groups will push for outright repeal when the General Assembly meets.
More popular is the notion of tinkering with BPOL now in the name of reform and trying to phase it out in some unspecified future year after Lt. Gov. Donald Beyer Jr.'s tax commission completes its review of the state's tax structure.
BPOL is the short name for the Business Professional and Occupational License Tax. A state law enables more than 200 municipalities throughout Virginia to levy the BPOL on service, construction, retail and professional businesses.
For most cities the tax serves as a small crutch, without which they would hobble about looking for cash, most likely in the form of higher property taxes.
Because BPOL paperwork varies from one city to city, reform efforts apparently will center on establishing uniform paperwork once the General Assembly convenes.
``I think there is a fair chance that a uniform bill will come out of the next session,'' said Norfolk banker Robert J. Keogh, vice chairman of the Hampton Roads Chamber of Commerce governmental affairs committee.
What's so bad about the BPOL? Depends on where you stand.
Many small businesses, especially high-tech businesses in Northern Virginia, long have argued the BPOL imposes an unfair burden, particularly on new firms unprofitable in their first years.
Say you land a $1 million contract from the U.S. Navy, and subcontract half the work to another firm in town.
Under BPOL, you're taxed in full on $1 million of revenue, even though you profit only on half the contract. What's more, your subcontractor in turn pays a BPOL tax on its $500,000 share.
``Government contractors have a lot of problems with the BPOL,'' said Martha S. McClees, governmental affairs vice president for the Hampton Roads Chamber in Norfolk.
Unpopular as it may be, the tax raises about $300 million a year statewide for cities in Virginia, including about $50 million in Hampton Roads.
It's no huge tax load. By comparison, property taxpayers in Virginia Beach, the state's largest city, pay more than $100 million every year to operate their public schools.
But the problem with doing away with the BPOL is that no one is quite sure what tax, if any, to replace it with. Mayors especially reliant on the property tax oppose wiping out the BPOL.
Norfolk, for example, in recent years has run its public schools using a higher proportion of property tax revenue in the operating budget compared to Virginia Beach or Suffolk.
While Norfolk receives only $14 million from the BPOL, suddenly replacing the money with property taxes would push the tax rate of $1.40 per $100 assessed valuation over $1.50. Voters would howl.
The positions of the various cities figured in the chamber's tax recommendations to the '96 legislature - reform the paperwork now, and replace BPOL later.
``There's a better way to do the tax than the way it's done now, but we don't want to just do away with it and leave the cities hanging,'' said Keogh, chief executive of Heritage Bank & Trust.
All this may become moot if the business flat tax suggested by Del. George H. Heilig Jr., D-Norfolk, gains ground. Folding the BPOL revenue into the tax base might be possible, Heilig said, though he cautions cities:
``I don't see the flat tax as a tax increase. I see it as something that would be revenue neutral, but easier to figure out than what we have now.'' by CNB