Clarification: Hanover County has a BPOL tax of 10 cents per $100 of a company’s gross receipts in excess of $100,000 solely for contractors, except in Ashland. The town, which sits within the county limits, charges 7 cents per $100, which drops to 5 cents after $25 million and 2 cents after $50 million in receipts.
An unpopular business tax is getting some scrutiny in Richmond.
The City Council today will vote on a measure that would exempt new business and companies that relocate to the city from the business, professional and occupational license tax, better known as BPOL, for two years.
The measure, introduced by City Council President Charles Samuels, is an attempt to attract new businesses to the city and make it a little easier for businesses to start up.
“When a business is deciding where to locate, a big consideration is its bottom line,” Samuels said. “That’s why I’m focusing on easing the tax burden on those who want to move to Richmond or start a business here.”
Under Samuels’ plan, exempt businesses would revert to the normal tax rate after two years.
“This isn’t going to fix all the problems we have in this area, but I think it’s a good start,” Samuels said.
He also plans today to introduce a measure that would set up an 18-month study regarding the BPOL tax and to examine ways to ease the burden on existing businesses.
The BPOL tax is paid annually based on gross sales and varies from business to business. For example, a retailer pays 20 cents for every $100 in sales on gross receipts over $100,000 as a result of the tax. Those in real estate and professional services, such as law firms, pay 58 cents per $100 in gross receipts.
The city generated about $30 million last year from the BPOL tax.
A tax on gross receipts adds up quickly for some businesses such as law and financial firms that generate substantial revenue. Each million in receipts adds up to about $5,800 in BPOL taxes to the city. In Chesterfield, the same law firm would pay about $2,000 on each million.
Henrico County charges the same 20 cents per $100 in revenue on all businesses for its BPOL. Hanover County charges 10 cents or less on each $100 on gross receipts over $100,000.
As a result, this tax is about as popular as a playground bully for some high-grossing businesses. In August last year, BizSense reported that Live Well Financial had moved from its office downtown to Chesterfield to escape the high gross receipts tax.
Michael Hild, chief executive of Live Well, said the high gross receipts tax rate is out of whack because it taxes revenue and not profit. His firm trades government-backed securities with Wall Street, which means a large amount of money moves through his firm but the margins are comparatively low.
“The difference in Chesterfield was literally millions,” he said. “And when you have shareholders, that’s a big difference.”
Hild said that the proposed exemption in the city would be a step in the right direction but that the larger issue of Richmond’s gross receipts tax being higher than the counties still needs to be addressed.
“It’s great to attract new and innovative businesses,” Hild said. “But if you are a startup, you are probably losing money. It takes a few years to grow and scale to compete with the big boys. So what’s the point in attracting new businesses if they are just going to leave when they are successful? That’s exactly the opposite of what you want to happen.”
Mac McCormack, owner of McCormack’s Whiskey Grill in the Fan and McCormack’s Irish Pub in Shockoe Bottom, said the tax sends the wrong message to business owners.
“It insults me,” McCormack said. “I think it’s ridiculous that the city charges you to license a business. It’s like penalizing you for creating jobs.”
But the tax isn’t universally hated. Avrum Elmakis, owner of the online pet treat retailer Best Bully Sticks, said the BPOL tax comes with the territory.
“I consider the tax a part of doing business,” Elmakis said. “And while the counties’ [BPOL rates] are lower, we feel that we have a great labor source in the city. We have a great relationship with the city also because we are located in an enterprise zone.”
I agree with Mac McCormack. Doesn’t make for a level playing field. But, there again, this is the same City Council that is working to hard to stiff the struggling non-profits who do real good for our community.
Kudos to Eric Samuels for putting this on the radar. If this is truly the start of a thoughtful examination of the backwards BPOL policy, I’m all for it. If it’s an excuse to say we’ve done something and move on, then it’s little more than a gimmick.