By. Neil Williamson, President
My first car was a yellow 1976 Ford Pinto Station Wagon (fondly referred to as the ‘Banana Boat’). Over time, I upgraded the stereo and dressed up the interior but it never really changed the fundamental fact that my teenage “ride” was a yellow Pinto Station Wagon.
This car came to mind as I watch Charlottesville consider important and proper changes to their Business Professional Occupancy License (BPOL) tax.
Please let me explain.
On March 6th, Charlottesville City Council will be considering changes to their BPOL Ordinance designed to promote fairness to mid-sized businesses. Currently, any business operating in Charlottesville is required to pay BPOL based on its gross receipts. In fiscal year 2016, the BPOL tax generated $6.9 Million dollars in revenue for the City, 4.4% of all City revenue. All 38 cities in Virginia charge BPOL. The Free Enterprise Forum believes this is an unfair tax as it is based on gross receipts and has called for it repeal.
Staff provided several examples of the challenges under the existing ordinance:
Charlottesville businesses grossing $50,000 or less per year pay a flat fee of $35 and businesses grossing more than $50,000 pay based on a rate (established in State Code and as determined by the particular type of business) multiplied by annual gross receipts.
As an example, a veterinarian grossing $49,000 per year pays $35 for an annual business license. A veterinarian grossing $51,000 per year pays according to the standard rate for veterinarians and other similar professions ($0.58/$100), and would pay a rate-based fee of $295.80.
A graphic designer grossing $49,000 per year pays $35 for an annual business license. A graphic designer grossing $51,000 per year pays according to the standard rate for graphic designers and other similar professions ($0.36/$100), and would pay a rate-based fee of $183.60. The effect is that similar small businesses with very similar gross receipts end up paying very different fee amounts.
Meanwhile in neighboring Albemarle County, businesses earning up to $100,000 pay a flat fee of $50. Therefore the business starting out (>$50,000 gross revenue) pays less in Charlottesville until they cross the $50K threshold and then they pay much more.
The Commissioner of the Revenue has reported of hearing significant concerns from taxpayers about what can be a dramatic jump in their BPOL costs as they cross the $50K gross annual threshold. It is important to recognize that $50K in gross revenue is the point where many businesses may be at the tipping point between viability and failure.
As the staff report outlines:
In an effort to attract, retain, and encourage small businesses in the City of Charlottesville, the Commissioner of the Revenue and City Treasurer are proposing a modest change to the fee structure used to assess BPOL:
- Businesses grossing $50,000 and below continue to pay $35 license fee
- Businesses grossing $50,001 to $100,000 pay a $50 license fee
- Businesses grossing over $100,000 pay the license fee based on applicable BPOL rate
This proposed change would benefit small businesses within the City of Charlottesville by reducing the license fee paid by businesses earning between $50,000 and $100,000. Staff estimates that approximately 450 businesses would benefit from this structural change. There would also be a comparable change in the technology business incentive as well. We are recommending that these changes take place for the upcoming assessment year of 2018.
The Commissioner and Treasurer would note that this is a relatively modest proposal that seeks to provide meaningful relief to small businesses in our community within limited statutory, system, and budget constraints.
These changes do not come without cost. Staff estimates adoption of this proposal would potentially reduce BPOL revenue by $93,000.
While the Free Enterprise Forum has consistently called for the REPEAL of BPOL, we are supportive of the reforms contained in the proposal. In addition, we commend the Commissioner of the Revenue and the Treasurer for thinking beyond the bean counter box and seeking reform. When properly implemented, we see these changes as leveling the playing field with adjoining localities, increasing fairness for small to mid sized businesses and promoting economic development.
We would be remiss if we did not remind the City that regardless of changing the paint job, adding new tires and a kicking new stereo, you are still driving a Pinto Station Wagon.
Yes, repeal would be better but we support these commonsensical BPOL reforms.
Neil Williamson is the President of The Free Enterprise Forum, a privately funded public policy organization covering the City of Charlottesville as well as Albemarle, Greene, Fluvanna, Louisa and Nelson County.
Photo Credits: Motorbug.com, Autospost.com