When we moved to Virginia from Ann Arbor and Cambridge, we were more than a little surprised. (I am not talking about the culture shock nor the concept that “there’s a chance of snow tomorrow and schools will be closed” either.)
Nope. My neighbors all referred to the fact that I moved here from Taxachussets. (The old nickname for Massachusetts- and most of them had no clue about A2Mi.) Yup. Because they were so proud how little they paid in taxes.
What a crock. Virginia is a nickel and dime state. From the sales tax imposed on everything (grocery store food included) to pretty flat 5% income tax rate, I was paying a higher percentage of my income to the Commonwealth that I did to Taxachusetts.
That didn’t include a ridiculous tax imposed on businesses. Each locality taxes businesses based upon the gross revenue accrued in the state. Over the years, the rate has been reduced (by state fiat), but this tax still is used to provide significant local tax revenue. The tax rates range from around 4 to 75 cents per $ 100 in receipts.
And, until we won in court, that meant the locality expected us to pay them a business tax on the airplane tickets and hotel rooms for which we were reimbursed by our clients. Which, had we lost, would have meant we were paying a 7% tax on revenue- not profits- to the city of Charlottesville and the county of Albemarle.
But, we were the lucky ones. Because we also operated in other states (with multiple incorporations), the local governments could not touch the revenue we generated out-of-state.
That is about to change though. The Virginia Supreme Court has finally woken up and decided that out-of-state receipts are not subject to local coffers. And, they have ordered the various localities in the Commonwealth to refund the money they’ve collected (illegally).
Places like Fairfax County owe their local businesses some $ 30 million. Which means that they will be looking elsewhere to suck that money. (Fairfax is among the localities in the state with the most amount of businesses.)
This Supreme Court decision reversed what had been the practice of the 200 year old BPOL (Business, Professional, and Occupational Licenses) tax. Because the Nielsen Company (you know, the one that provides TV viewership data) won their case against Arlington County.
While we maintained financial records demonstrating where each and every dollar was derived, Nielsen did something different. They used a long-accepted state formula to estimate tax deductions. This formula did not require proof from where the income originated. That’s what the Supreme Court ruled was acceptable for the BPOL tax system.
Which means that other firms- those that don’t account for each penny- or really can’t because some of their clients operate in Virginia and other states and remunerate them with one check-will now be allowed to use that same formula. And obtain refunds for previously imposed BPOL taxes.
Don’t get too excited if you operate in Virginia. You need to remember that just like the Feds, you can only get refunds for the past three years of taxes. (You always owe forever- no matter how many years, though.)
Thanks a lot !