Tax Originally Created to Fund War of 1812 is Killing RVA Business

Screen Shot 2015-03-10 at 6.41.32 AMDid you know Virginia passed a Business Tax to pay for the war of 1812? Did you know that tax is still in effect? The last I checked we aren’t fighting the British anymore. But like all taxes, once created, they are virtually impossible to eliminate.

The tax in question is called the Business, Professional, and Occupational License. It’s called BPOL for short and this is the tax businesses pay each year to renew their licenses. The law grants Virginia cities and counties the authority to tax business revenue (not profits mind you) at a prescribed maximum threshold in exchange for a license. And no surprise here, the City of Richmond taxes are set at the highest rate in the Greater Richmond area. The counties have lowered or eliminated this tax altogether as a method to lure businesses away from the City, and the jobs they bring with them. This creates a perverse disincentive for Richmond’s largest businesses to move from the City once they are successful, taking their jobs and tax dollars with them. I know this first hand. I moved my company from Richmond to Chesterfield County for this very reason. The list of companies who have done the same is enormous. This is the exact opposite behavior the City of Richmond should incentivize with its tax policies.

So what should be done? Well as a starter, the City set up a Task Force to study this issue and make a recommendation on what to change so it could stop the bleeding. And just like the first step in alcoholism, admitting you have a problem is a positive first step. This committee was comprised of a diverse group of Richmond’s business leaders and owners. Given the fact that my company had just moved out of Richmond, I was nominated to serve on the task force. At our first meeting, I was also nominated to Chair the committee since I had nothing to gain or lose by making any changes to the City’s BPOL tax structure. I now know as a result of this experience more about business taxes than I ever cared to know.

We spent a year on this topic. We brought in experts to present, conducted analysis, gathered reports, and generally opined on all the complex facets of the matter at hand. So what did we ultimately conclude? Well, we recommended that the City should at a minimum match the BPOL rates and structure of Henrico County. Henrico was by far the City’s most obvious competitor and the group felt this change would provide the most bang for the buck.

But by lowering BPOL tax rates, there was a concern that the City would see a loss of short term tax revenue. That’s a fair point. It’s also a fair point that this reduction might only be temporary as more businesses would choose to stay in Richmond given the removal of the disincentive. However, it would likely take time for this desired effect to take hold.

So how should the City plug the hole in the short term? We looked at all the areas that the City could tax without creating a disincentive for businesses to remain in Richmond. And one idea in particular gained momentum: taxing cigarettes. Did you know that Richmond is virtually the only City in Virginia that does not tax cigarettes? After conducting some analysis, we concluded that the City could gradually phase in a reduction in business taxes so that the City was equally competitive to Henrico (if not more so over time) if it passed a modest 60 cent per pack cigarette tax. This rate would be on par with other similar cities in Virginia. Given these facts, we thought this was a no brainer. Who could disagree with more businesses, more jobs, more tax revenue, higher wages, and less poverty? All this could be achieved by a modest cigarette tax. But that’s when politics began to trump common sense. We started to hear cries of: What about Philip Morris? Well I have news for the naysayers.

Are you aware that Philip Morris struck a special deal with the City of Richmond as a condition of locating its R&D facility in the biotech park that it would be exempt from paying BPOL Taxes? That’s right, Philip Morris’ massive R&D facility in downtown Richmond pays no business taxes whatsoever, while every single restaurant, hair salon owner, flower shop, car wash, law firm, bicycle shop, brewery, etc is required to stroke a check each year based upon its gross revenues in order to get a license. Well that seems completely unfair if you ask me. Philip Morris is sitting on a massive war chest it built by selling nicotine delivery devices to unsuspecting smokers. That business practice caused a multi-generational health crisis of epic proportions caused by smoking related illness. Now it is pushing the vaping craze as a replacement for those lost cigarette revenues given the fallout from all the lawsuits. But let’s give them a free pass, because Philip Morris knows the right people in City Hall, right? No, they should pay their fair share just like everyone else.

So where do things stand with our proposal? Our recommendation to City Council was created in the form of the following presentation. I was slotted to present this recommendation to City Council and have been awaiting a date for over a year. I suspect City Council and the Mayor got wind of what we were going to say and do not want this proposal to see the light of day. Well that’s too bad. The BPOL Task Force members dedicated a year of our lives studying this issue and putting this proposal together without pay as citizen volunteers. We all love the City and stepped up to do what was asked of us when the City needed help. We at least deserve the opportunity to explain our recommendation that the City asked us to make in the first place.

Again, I ask the question? Who could disagree with more businesses, more jobs, more tax revenue, higher wages, and less poverty? Apparently Philip Morris and its backers in City Hall disagree. And that my friends is yet another example of how bad government is preventing the City of Richmond from moving to the next level. Congrats Henrico, Chesterfield, and Hanover. You can continue swirling like vultures and feasting at the carcass of downtown Richmond’s once robust business community. The City has relapsed into a state of denial related to its business tax problem. Richmond City Government should seriously consider changing its motto: RVA, where we like things just the way they are, even if they are causing us to fail. Catchy no? It doesn’t need to be this way. City Hall, we gave you the blueprint for the fix. Now go do something about it so the City we all love can flourish.