Tools/machinery tax

Published 9:34 am Wednesday, February 8, 2012



RICHMOND—Virginia’s machinery and tools tax, which some businesses see as a burden but local governments view as a critical revenue source, would be slashed under legislation before the General Assembly.

Don Robertson, spokesman for Isle of Wight County, said he’s concerned about lawmakers approving legislation that would eliminate the first three years of the taxation on manufacturing equipment.

“A total elimination would be about devastating for us,” Robertson said.

The county for fiscal year 2010-2011 collected $6.8 million from the tax. In December, the Board of Supervisors dropped the tax rate by 26 percent, which will mean the loss of $300,000.

“The rationale behind that was to create some incentives for industrial development in the county,” Robertson said.

Southampton County in December did the same for wood pellet manufacturer Enviva, which plans to build a $75 million plant in Turner Tract Industrial Park off General Thomas Highway. The Board of Supervisors agreed to rebate $1.96 million in Enviva’s machinery and tools taxes over five years, or 42 percent.

“When you look at most industry, the capital investment in machinery and tools would be the most predominant,” said County Administrator Mike Johnson. “This is one of the bigger incentives (we can offer).”

Southampton County collected $392,246 from the tools tax for 2010-2011.

“This is not the first year the bill has been introduced,” Johnson said. “It’s been on the table for many years. Hopefully it will be defeated again.”

The City of Franklin took in $60,651 from the tax in 2011, said Revenue Commissioner Brenda Rickman, noting exemption from the tax is used as an incentive to attract industry.

Bill sponsor Delegate Harry Purkey, R-Virginia Beach, believes the machinery and tools tax is harsh on businesses and keeps Virginia from being an attractive market for prospective employers. Employers may be inclined to leave because of the tax.

“It’s a job killer, non-competitive and dissuades innovation,” Purkey said.

He disputed concerns raised by localities that rely on the tax as a major source of revenue.

“The arguments against it are hogwash. You can’t modernize with the market unless you update and modernize technologically,” Purkey said. “When (local governments) use the tax as a crutch to lean, it acts as an unfair, non-competitive tax. If jobs don’t come, what will (local governments) do?”

Dean Lynch, deputy executive director of the Virginia Association of Counties, disagrees. He said that the tax is a vital source of revenue for localities and that eliminating it could cause local budget problems.

“The revenue is used for schools, parks, police, fire squads, among other things,” Lynch said. “If you lose the revenue, what do you raise to make up for it?”

In a newsletter to its members, the Virginia Association of Counties said a three-year exemption would cost localities about $45 million in revenues.

The Senate Finance Committee planned to consider the bill this week.