The Virginia Joint Legislative Audit and Review Committee (JLARC) has released its impact report (PDF) on a potential change of the basis of the state’s Business, Professional, and Occupational License (BPOL) tax from gross receipts to net income.
The report, presented at Tuesday’s JLARC meeting, found that using income as the basis for the BPOL tax could reduce local BPOL revenue by up to 95 percent. The change could decrease the tax liability of businesses that currently pay the tax by varying degrees, requiring an average BPOL tax increase of 40 percent on profitable businesses to maintain the same level of local revenue.
JLARC also noted that the change could be far more difficult for businesses and governments. Tax form preparation would be more cumbersome for businesses, and local governments would need to expend more resources to collect and verify information. The timing of information could delay tax collection, and implementation could create new inequities.
Currently, 39 Virginia cities, 49 counties and 124 towns impose a BPOL tax, basing the tax on gross receipts generated in the locality. The tax applies to five industry sectors, and the rate varies among localities and industry sectors, subject to a statutory maximum. Businesses in localities that impose the tax must pay it regardless of profitability.
The tax raised $683 million in fiscal year 2012, accounting for 4.2 percent of local income (9.5 percent for towns). Ninety percent of BPOL revenue comes from businesses with more than $1 million in gross receipts, with 60 percent of businesses paying a small fee or no tax.
JLARC found that under an income basis, certain businesses — notably repair, personal and business service providers, high profitability businesses and sole proprietorships — would pay more in taxes to make up for lost taxes from other businesses. Retailers, unprofitable or low-profit businesses and C corporations would be among the businesses paying lower taxes.
JLARC studied 10 Virginia localities in preparing the report:
- The cities of Norton, Richmond and Virginia Beach
- The counties of Campbell, Fairfax, Henrico, King William and Roanoke
- The towns of Herndon and Rocky Mount
The VSCPA’s Tax Advisory Committee served in an advisory role on the study.