House rejects bill to restrict local taxing power

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Galax is relying on machinery and tools tax revenue pay for incentives it offered new and expanding industries in the city.


and Landmark News Service


RICHMOND — Yielding to protests from localities, the Virginia House of Delegates on Tuesday defeated an effort to restrict local taxing power.

Del. Bob Purkey’s bill, HB512, would have prohibited localities from imposing the machinery and tools tax on new manufacturing equipment for the first three years after it is put into service.

Galax officials said the bill was bad for economic development, because the city is relying on machinery and tools tax revenue to pay for incentives it offered new and expanding industries in the city.

The Virginia Beach lawmaker's measure won preliminary approval in the House of Delegates on Monday, but the bill was rejected the next day on a bipartisan 65-35 vote after several delegates objected that localities depend on the tax to fund essential services.

“This is a ‘big brother knows best’ bill,” said Del. James Edmunds (R-Halifax County), arguing that localities already have the power to waive the tax if they choose.

The bill provided that the local machinery and tools tax, imposed on manufacturing equipment, could not be levied on new equipment for the first three years it is in service.

Purkey, a Republican, characterized the bill as a job-creating measure. The tax “is a major impediment to our ability to attract business,” he told the House.

Many localities oppose the bill. In fact, Galax officials feel it would throw a wrench in the city's plans to offer incentives to new and expanding industries.

Galax City Manager Keith Barker and Galax Vice Mayor Willie Greene attended Legislative Action Day in Richmond on Feb. 9, where they spoke with Del. Israel O'Quinn and Sen. Bill Stanley in opposition of the bill.

Barker said that, while he sees the thought behind it, passing the bill would create about a $50,000 loss for Galax.

The incentives that the city plans to provide to new and expanding companies were offered based on the expected return from the machinery and tools tax.

"This was our way to give back some of that money to those companies," said Barker. "A loss of the tax will severely hamper our ability to give back incentives."

Because of this, Galax would become less competitive than surrounding areas, such as localities in North Carolina and areas in northern Virginia — those localities that are more financially stable.

For the fiscal year 2011-2012, the city had budgeted $600,000 for machinery and tools tax, about 4.5 percent of the city's revenue.

The city collected $611,000 in machinery and tools tax revenue this budget year and had planned to budget for just above that in the upcoming 2012-2013 budget, due to the opening of Albany Industries and the expansions of Vaughan-Bassett Furniture, Twin County Regional Hospital and Consolidated Glass & Mirror.

If the bill had passed, it would have created higher taxes for local citizens, Barker expects.

"We have a diverse tax base and have been able to spread the load out," he said. If the bill passed, "it would make it necessary to increase the real estate taxes to make up for it."

The city would have to cut services or raise fees elsewhere.

Del. Annie B. Crockett-Stark (R-Wythe County) — whose district includes parts of the Twin Counties — said localities in depend on the tax to pay for essential services. If it is restricted, they would have to make up the resulting revenue shortfall by raising real estate taxes, she said.

Virginia localities collected more than $200 million in machinery and tools taxes in 2010.

A competing measure, SB549, sponsored by Sen. Frank Wagner (R-Virginia Beach), would retain the tax and establish a state grant program to offset the first two years’ taxes paid on new equipment.