June 6, 2013
Eliminating or reducing key local business taxes in Virginia without providing cities, towns, and counties with ways to make up the revenue losses undermines their ability to invest in local priorities like keeping streets clean, neighborhoods safe, and kids educated.
Efforts to weaken or completely dismantle local business taxes are not new in Virginia. Over the last 10 years, numerous legislative proposals have been introduced in the General Assembly to undermine three local business taxes: business professional occupational license tax (BPOL), machinery & tools tax (M&T), and merchant’s capital tax (MC).
Legislative proposals have included freezing tax rates, prohibiting local governments from enacting a BPOL tax, and reclassifying M&T by certain industries to make them exempt from state and local taxation. And Virginia’s Joint Legislative Audit and Review Commission is now conducting a study on making net income the basis of the BPOL tax, rather than gross receipts.
The latest proposals come from both gubernatorial candidates in Virginia. But these new proposals face the same challenge: if Virginia were to eliminate these local sources of revenue, how would the state also provide local governments with the tools to make up for the lost revenue needed to support core local services like education, health care, and public safety?
This issue brief discusses problems related to legislative proposals to eliminate these local taxes.
Among the report’s key findings:
- All but two of Virginia’s 171 cities, towns, and counties collect at least one of these local taxes, according to a survey by the state’s auditor:
- 130 collect BPOL
- 153 collect M&T
- 47 collect MC taxes
- Virginia’s counties get 5.1 percent of their total local tax revenue from these local business taxes, independent cities get 8.3 percent, and towns get 14.5 percent.
- Replacement revenue sources like a local income tax or meals and lodging taxes face significant challenges
- Nearly 75 percent of all localities already collect taxes on meals and/or hotel rooms leaving little ability for that tax to make up for the lost revenue.