THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, February 7, 1996 TAG: 9602070450
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY MARGARET EDDS, STAFF WRITER
DATELINE: RICHMOND LENGTH: Medium: 92 lines
A decades-long push to grant tax relief to small business owners appears to be approaching fruition in this year's General Assembly, but uncertainty about who will pay for the cut remains.
That wrinkle was among the points of contention Tuesday as business interests and local government officials squared off over how best to reform the state's Business, Professional and Occupational License Tax, better known as BPOL.
After years of debate and a shelf-full of legislative studies, the Assembly appears poised to establish an income threshold freeing smaller businesses from paying the controversial tax on gross receipts.
But uncertainty remains over how cities, counties and towns will make up the income loss - by hikes in their real estate tax rates, creation of a flat $50 business license fee or reductions in local spending.
The BPOL reform legislation allows local governments to replace lost taxes with a $50 license fee. A problem with that, critics say, is that two groups of business owners may wind up paying more, not less.
For instance, large businesses may be asked to pay the current rate, plus the $50 fee. And some very small business owners with less than $30,000 in annual gross receipts already pay less than the proposed $50 fee.
``It's ironic that in the name of tax relief we might wind up imposing another fee,'' said Betty Long, director of fiscal policy for the Virginia Municipal League.
Bills introduced in both the House and Senate call for exempting business owners with annual gross receipts of less than $100,000 from the tax. Local government officials, who argue that it will be difficult to make up that revenue loss, are pushing to lower that threshold to $50,000.
``It's time to do something for . . . small businesses, the mom-and-pop store, the company with a handful of employees, the smaller service-oriented company, the fledgling technology firm,'' said Lt. Gov. Donald S. Beyer Jr., who endorses the higher threshold and spoke on its behalf at a public hearing Tuesday.
``A lot of small towns and counties will be greatly hurt by the threshold,'' countered C. Flippo Hicks, lobbyist for the Virginia Association of Counties, which favors the lower limit. VACO argues that the bulk of businesses paying the tax in smaller localities fall below the $100,000 limit.
BPOL has long been a source of contention in the business community. Critics argue that the tax - which applies to all receipts, not just profits - drives out businesses, particularly small companies. Northern Virginians say the tax makes it difficult to compete in attracting businesses with Maryland, which has no such tax.
The problem with eliminating or reducing BPOL, local government officials counter, is that it puts $300 million annually in local coffers. BPOL is one of the few taxes local governments can set without legislative approval.
Although rates can vary by locality - a few towns and about half of Virginia's counties have opted not to impose the tax - there are maximum rates set by law. For instance, the maximum BPOL tax on contractors is 16 cents per $100 of gross receipts, and on individuals supplying repair or personal services it is 36 cents per $100.
Without the tax, members of the Virginia Municipal League and VACO say, governments would have two options: cut spending or raise another tax. When New Jersey cut a similar tax a few years ago, local real-estate taxes skyrocketed.
Addressing the public hearing on behalf of the Virginia Municipal League, Virginia Beach Mayor Meyera Oberndorf noted that the city would lose $1.2 million annually in BPOL revenues if a $100,000 threshold is set. If a $50 fee were imposed on just the businesses that are exempt under the threshold, that would leave a revenue loss of about $400,000.
If the $50 fee were imposed on all businesses, including those still paying the BPOL tax, the revenue loss would be $200,000.
The VML also opposed two other features of the proposed BPOL reform: exempting those who design or sell computer software and setting up an appeals process that would apply to other business taxes as well as BPOL.
Supporters of the software exemption, including the Northern Virginia Technology Council, argue that the industry must be granted special privileges if Virginians want their state to become a high-tech mecca.
Oberndorf and others countered that it would be wrong to exempt a growth industry, while taxing weaker industries.
``The proponents argue that the industry should be exempt because it will be the economic engine of the 21st century,'' said Oberndorf. ``That line of reasoning suggests that we should only tax the declining segments of our economy.'' ILLUSTRATION: Graphic
What local cities stand to lose if the General Assembly adopts a
$100,000
[For complete graphic, please see microfilm]
KEYWORDS: GENERAL ASSEMBLY by CNB