Proposed repeal of Virginia's gross receipts tax.

On January 12, 1995, Tax Executives Institute filed the following comments with the finance committees of both houses of the Virginia legislature, supporting the proposed repeal of Virginia's business, professional, and occupational license tax, which is a form of gross receipts tax imposed at the local level. The Institute's comments, which took the form of a letter from TEI President Linda B. Burke, were prepared under the aegis of its State and Local Tax Committee, whose chair is Christopher W. Baldwin of the Gannett Co. Representatives of the Virginia Chapter and the Baltimore-Washington Chapter (whose membership encompasses Northern Virginia) participated in the development of the comments.

I am writing today in my capacity as President of Tax Executives Institute (TEI) to support the repeal of Virginia's Business, Professional, and Occupational License (BPOL) Tax. Because TEI is the principal association of corporate tax officials in North America, these comments are submitted on behalf of the tax executives of nearly 3,000 U.S. and Canadian businesses, including our 100-plus members who live and work in Virginia.

What Is TEI?

Tax Executives Institute is a volunteer, professional association of nearly 5,000 accountants, lawyers, and other professionals who are responsible for managing the tax affairs of their companies. TEI members must contend daily with business tax laws, including the BPOL tax, from both tax planning (including site location) and tax compliance perspectives. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and the government alike.

The Institute is firmly committed to maintaining a tax system that works-both for taxpayers and tax administrators. We believe the diversity and training of our members enable us to bring a uniquely balanced and practical perspective to your attention.

The BPOL Tax

Should Be Repealed

TEI strongly recommends that the Virginia General Assembly act favorably on proposals to repeal the BPOL tax and work with the Allen Administration in crafting and enacting a repeal initiative that properly balances the legitimate needs of taxpayers, localities, and the Commonwealth. Stated simply, the Institute believes the BPOL tax in its current form represents a serious impediment to economic growth and development in Virginia. The orderly phasing out of this tax (while taking into account the revenue needs of the affected localities) will make Virginia more competitive in attracting jobs and business investment to the Commonwealth.

Virginia has long authorized its counties and other local jurisdictions to impose the BPOL tax. The tax, which operates as a tax on the gross receipts of most businesses without regard to their profitability, reaches backward in the Commonwealth's history to well before the turn of the century, and at that time the measure may well have been an appropriate means of taxing and regulating businesses. The underlying character of Virginia's economy (with its reliance on agriculture and manufacturing) and the portable nature of American business generally, however, are vastly different today from what they were when the BPOL tax was enacted. Today, significant segments of Virginia's business sector are devoted to services, including information and computer technology. In this evolving business climate, the BPOL tax operates as an unfair, regressive tax on jobs since the BPOL tax exacts its due regardless of whether the business makes a profit. In other words, the BPOL tax is 'blind" to whether the business has any ability to pay the tax. Moreover, different types of business enjoy different levels of profitability relative to their receipts, and the tax does not respect the differences.

In addition, the BPOL tax is structurally biased against start-up businesses, which typically experience losses in their early years while they make investments in plant and equipment. The BPOL tax also effectively discourages businesses from selecting Virginia as a location, since most jurisdictions that compete with the Commonwealth have no comparable local levy on gross receipts. Much more than in the past, companies-especially service companies-have choices of where to locate. Regrettably, the BPOL tax often can tip the scale against choosing Virginia. The loss is not only the locality's, but because of the cascading effect of the disincentive, the entire Commonwealth's.

In addition to TEI's policy concerns about gross receipt taxes, we are concerned about the administrative and compliance problems that arise by virtue of the tax's being administered locally. Unlike the corporate income tax and Virginia's sales and use tax, the final authority for BPOL determinations is the county (or city) commissioner of revenue; although local officials may seek advisory opinions from the Virginia Department of Taxation, there is no requirement that they do so (or that they follow the opinions). The result is a patchwork of differing rules and-even when the rules are identical or similar-taxpayers are still subjected to different interpretations. Numerous questions arise to which different Virginia localities provide different, conflicting answers. The inconsistent rules and practices spawn not only confusion but also costly litigation. (Often, the only remedy is expensive Circuit Court litigation.) Once again, the BPOL tax makes the business environment in Virginia less hospitable.

Although the reforms under consideration by the Joint Study Subcommittee will address some of the BPOL tax's deficiencies, the tax will remain a bad tax that is difficult to administer. We believe the time is ripe for bold action: The BPOL tax should be repealed.

Conclusion

Tax Executives Institute appreciates this opportunity to provide its comments on the desirability of repealing the BPOL tax. TEI remains convinced that repeal of the tax will improve Virginia's overall economic competitiveness (thereby enhancing the Commonwealth's ability to attract new business) and make it easier for Virginia's companies to compete successfully in our increasingly global economy. We hence stand ready to assist the Assembly in crafting a proposal that ensures not only the orderly, phased repeal of the BPOL tax but also, in the interim, uniform administration of the tax by all jurisdictions. Upon request, we will also provide further information regarding current BPOL practices and the benefits of repeal.

If you or your staff should have any questions about these comments, or if TEI can otherwise be of any other assistance, please do not hesitate to contact either Christopher W. Baldwin of the Gannett Co. in Arlington, who is the Chair of TEI's State and Local Tax Committee, or Timothy J. McCormally of the Institute's professional tax staff in Washington, D.C. Mr. Baldwin's telephone number is [phone], and Mr. McCormally may be reached at [phone].