Why Local Business Taxes Matter

Richmond, counties battle over recruitment.

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It may be federal income tax season, but there certainly are plenty of stories locally about how tax rates for others things affect us and sort out where businesses locate.

Leading the list, of course, is the City of Richmond, which levies a tax on financial, real estate and professional services at a rate of 58 cents per $100,000 of gross revenue -- or nearly three times the rate of 20 cents per $100,000 in gross revenue charged by Chesterfield and Henrico counties.

As the Richmond Times-Dispatch notes, a fair-sized financial services firm in Richmond with $100 million in revenue would be shelling out $580,000 a year. But if it were located in Henrico, it would pay only $199,800 (the first $100,000 is exempt in that county).

Take meals taxes. State taxes for a meal are 5 percent, but Richmond taxes an extra 6 percent, including 1 percent that was added in 2003 (12 years ago) to help pay for the CenterStage renovation downtown that was completed some time ago. Henrico added a 4 percent meals tax last year for school improvement while Chesterfield residents voted down an extra 2 percent meals tax in 2013.

This month, Henrico County Manager John A. Vithoulkas proposed a 70-percent cut in the county’s machine and tools tax from $1 per $100 in value to 30 cents. His idea is to grow the county’s manufacturing sector by making its tax rate more attractive.

So let’s try to sort this out. The counties do compete against each other tooth and nail and they can and do use taxes to do it. Sometimes it works and sometimes it doesn’t. In terms of meals taxes, Richmond’s ambiance and thriving dining market probably don’t mean that diners are going to high-tail it out to Brandermill for dinner because Chesterfield has no meals tax. But Henrico, including Short Pump, seems to be doing just fine.

In the case of Henrico, county officials report that since the 4 percent meals tax went into effect last summer, revenue from it has run at about $2 million a month, a rate that's beating expectations.

When it comes to nuts and bolts stuff like machine taxes, Vithoulkas may have a point, but location may mean even more. For example, Boyd Co. Inc., a New Jersey site selection firm, has rated Chesterfield as the most logistics friendly location in the United States.

That’s right, Chesterfield is Numero Uno because of labor, real estate, construction, taxes and shipping. It beat out localities in Washington State and Texas. Being at the intersections of interstates 95, 64 and 85 helps.

For evidence, look what industries that Chesterfield has recently bagged. Amazon’s distribution center has up to 4,000 seasonal and permanent jobs in eastern Chesterfield along with the Shandong Tranlin paper plant that will employ 2,000 workers and at $2 billion will be the single largest Chinese greenfield investment in the country.

Richmond and Henrico, eat your heart out.

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