AN UNEXPECTED OPPORTUNITY
Virginia legislators are facing a unique opportunity to fulfill promises many have made for years as action in Washington will bring an unexpected, yet significant boost to Virginia’s revenue.
Soon we’ll learn if “looking out for the middle class” and “creating jobs” were actual goals or simple campaign rhetoric.
A June Supreme Court ruling expanding the Internet Sales Tax could add $300 million to state coffers annually. Also, while most Virginians will benefit from federal tax cuts, those taking the Federal Reserve’s standard deduction are barred by Virginia from itemizing in the state.
In result, Virginia will take an additional $500 million from taxpayers each year through
2024. Both are in addition to a recently announced $552 million surplus boosting total unexpected revenue over $1.3 billion.
Don’t get excited just yet. Vir- ginia has a history of overcommitting expenditures in good times only to raise fees and cut critical programs in the bad. Next session may be no different as several legislators are already planning increased spending, new programs, and “refunding” taxpayer money to nontaxpayers.
Legislators looking to protect the middle class can easily do so by allowing filers who take the standard deduction in their federal returns to itemize deductions in the state. Simpler yet, raise the minimum tax filing threshold to help low-wage earners while lowering the rate for all. They can do either without cutting a dime from current programs while leaving hundreds of millions to invest in our state’s economic future. Make no mistake, failing to adjust VA Code to keep up with federal law is a tax increase on Virginians.
For job creation: There’s no doubt Virginia has prospered in the nation’s strong economy, further bolstered by defense spending which at nearly $39 billion in 2019, benefits ours more than any other state.
While this is good news for the short term, it highlights our greatest vulnerability; Virginia’s longterm fiscal health is far too dependent on federal spending. We must diversify our economy by making Virginia more attractive for new and growing employers.
As co-founders of the General Assembly’s Business Development Caucus, we have spent years exchanging ideas with our state’s job creators to make Virginia more attractive for business. Throughout our travels, the Business Professional and Occupational License tax has consistently been the top issue raised in these meetings. BPOL places a heavy burden on a business’s finances by taxing its gross proceeds rather than net profits and its inconsistent application among localities causes uncertainty for business looking to invest here.
Under today’s law, if a company invests in a locality with a lower BPOL rate or none at all, nothing prevents that locality from imposing new or higher rates once the new company is settled. BPOL can also hit new employers hardest, potentially costing thousands just as they are trying to get underway.
A 2009 study by Chmura Economics & Analytics shows that gross proceeds taxes can equate to a range of 1.56 percent of a retail business’s profits to 13.99 percent of the profits of professional and technical service companies. Considering Virginia’s 6 percent corporate income tax, the combined rate may total 20 percent or more for many companies. A stark contrast to the 3 percent paid by companies residing in our economic rival to the south which eliminated its Business License Tax in 2015.
While most businesses and many legislators prefer to eliminate the BPOL tax altogether, the solution for replacing this reve- nue is complicated. Any fix would affect each locality differently.
Many meetings, ideas and bills have been introduced to address this issue over several years. We know because we’ve both patroned them, to no avail, however, and despite the fact that Govs. Bob McDonnell, Terry McAuliffe and Ralph Northam have all campaigned on reforming BPOL.
This is the time for a bipartisan solution. While unlikely to eliminate it, Virginia’s newfound revenue can provide the catalyst for significant BPOL reform, removing one more obstacle for employers to move and to grow here.
Families that receive shortterm windfalls are advised to invest in the future and avoid new long-term expenditures. With all due respect, we advise our colleagues to do the same. Del. Webert represents the 18th District. Former Del. Watson represented the 93rd District. Both co-founded the General Assembly’s Business Development Caucus.