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New General Assembly laws designed to boost economic development

State laws aim to enhance Virginia’s competitiveness

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Print this page by Jessica Sabbath

John Moore hopes that a new Virginia law might make paying BPOL taxes to localities a little less burdensome. “When you look at it, the tax as it is now is really another sales tax,” says Moore, a partner at Tidal Construction in Portsmouth. “You’re paying a percent tax on your gross sales to each locality. And it doesn’t matter whether you make a profit or not.”

Under a new law passed by the General Assembly, localities can collect BPOL (business, professional, and occupational license) taxes based on taxable income rather than gross receipts — a fairer assessment, small-business advocates say.

“BPOL can be a big burden, especially in these recent years when many business owners aren’t earning money,” says Nicole Riley, state director of the National Federation of Independent Business in Virginia. “We see [these new laws] as one step forward in addressing the BPOL issue.”

Businesses are required to pay BPOL taxes to each locality where they do business. Two other new laws passed by the General Assembly allow localities to exclude unprofitable or new businesses from the tax — giving localities a potential new tool in their economic development arsenal. 

The 2011 General Assembly session was another tight budget year, but many new laws will benefit Virginia’s businesses and its economic development efforts.  One major change is the selling of $3 billion in bonds to jumpstart 900 transportation projects.  The legislature also made many new investments through tax credits and incentives benefiting advanced technology, tourism and port-related industries. While some of the investments are small, business leaders say they show the state’s commitment to supporting these industries.

“Generally I think this 2011 General Assembly session was very pro-business and resulted in some positive public policy initiatives that will improve Virginia’s competitiveness,” says Barry DuVal, president and CEO of the Virginia Chamber of Commerce.

Following are some of the laws that will affect business owners and economic development efforts in the commonwealth.

Economic development
Gov. Bob McDonnell pushed a variety of new economic development incentives this year. A change in the criteria of the Governor’s Opportunity Fund will make more projects eligible for assistance. The fund now can be used for projects that create at least 50 new jobs and make a $5 million capital investment. The threshold for localities with high poverty or unemployment rates has been lowered to an investment of $2.5 million and 25 jobs. “Allowing for more counties and cities that are at risk to benefit from the program is an important step forward,” says DuVal.

Three tax credits for users of the Port of Virginia should help the port compete with nearby rivals, including:
A $50 per TEU (20-foot container measurement) tax credit for any manufacturer or distributor that increases exports or imports at the port by 5 percent over the previous year. The credit is capped at $250,000 per taxpayer and $3.2 million each year.

A $3,000 tax credit for each full-time job created by an increase of imports or exports through the port, or the port user can choose a credit of 2 percent of any capital investment made to increase cargo shipments. This would apply to companies that have increased cargo 10 percent over the previous year. The credit is limited to $250,000 annually.

A $25 per TEU tax credit for port-related companies that ship via barge or rail instead of truck, which is capped at a total of $1.5 million each year.

“Other ports to the south of us, particularly North Carolina and South Carolina, have similar tax incentives in place,” says Jeff Keever, senior deputy executive director for external affairs at the Virginia Port Authority. “It really allows us to be on a more level playing field with our competition to the south.”

Other economic development initiatives include:
A tax credit of up to $1,200 per employee who teleworks to cover related expenses. The total is capped at $50,000 per employer and an aggregate of $1 million for 2012 and 2013.

A new tax credit will apply to 25 percent of capital expenditures made by a vineyard or farm winery, but the total is capped at $250,000 per year.

A tourism development grant program will allow locally endorsed tourism projects to retain a portion of state and local tax revenue, and combined with a matching contribution from the developer, provide gap financing for the project.

Investment in technology
This year, the General Assembly passed a number of tax credits and incentives to raise Virginia’s profile in the advanced technology and bioscience fields. “These are major steps for Virginia,” says Mark Herzog, executive director of the Virginia Biotechnology Association. “These are all new initiatives, new funding, that are out of ordinary for the commonwealth. We recognize that these jobs will be created somewhere. Our challenge is to make certain Virginia is as welcoming as possible.”

Herzog says the most significant development was $5 million for the creation of a research and development tax credit. Previously, Virginia was one of only 12 states without an R&D tax credit. The credit will provide a 15 percent tax credit for qualified research expenses and 20 percent if the research is done in conjunction with a state university. The major advantage is that the business can receive the value of the tax credit in cash, which is important in a field where it takes years to turn a profit, says Herzog. “These companies can take that money and reinvest it right back into clinical trials and other R&D investments.”

Other technology-related initiatives include:
SBIR matching grants: The state put aside $2 million to match Phase I Small Business Innovation Research (SBIR) Awards, a federal program that provides competitive awards to innovative private businesses with promising commercial uses.

CIT “GAP” Fund: The budget includes $4 million in additional new funding for the Center for Innovative Technology’s “GAP” Fund, which makes equity investments in technology and life sciences companies in Virginia that are likely to grow quickly.

Commonwealth Research Commercialization Fund: The budget provides $4 million for the CRCF that provides matching grants to technology firms, loans to communities to build wet-labs and the SBIR matching program.

Small business
In addition to the change in BPOL taxes, other new laws will help retailers save on tax payments and small businesses become more competitive in state contracts.

The budget included $45.7 million to end early the accelerated tax payments for retailers with less than $5.4 million in annual revenue. The accelerated tax payment was introduced in 2010, which required retailers to pay their June sales tax a month early so that the state could budget that money in the earlier fiscal year. The program originally was scheduled to end in 2013, but this year’s budget will end the early payment for 80 percent of Virginia’s retailers.

“You’re estimating on the prior year’s sales, and it became very burdensome on people to have to calculate on what they made last June,” says George Peyton, vice president of government relations for the Virginia Retail Federation. “This leaves about 20 percent [of retailers] making this double payment.”

Another law will help small businesses become more competitive in state contracts. Previously, performance and surety bonds were required for businesses bidding for state contracts worth more than $100,000. A new law will increase that to a $500,000 threshold. “You still have to be pre-qualified so it’s not letting a fly-by-night company come in and try to qualify,” says Riley of the NFIB, which supported the law. “That will level the playing field for a lot of small and women- and minority-owned businesses.”

Virginia will sell $3 billion in bonds to initiate 900 transportation projects around the state, under legislation passed this year. In addition, the package invested $283 million in the Virginia Transportation Infrastructure Bank to help localities match grants for transportation projects.

The bonds will support many significant projects to alleviate notorious congestion hotspots, such as widening Interstate 66 in Northern Virginia and widening Interstate 64 near Richmond and in Hampton Roads. “It is the threshold component of competitiveness for Virginia business to be connected to the outside world,” says DuVal. “Our surface transportation needed this over $3 billion of new funding.”

While the legislation marks the first significant investment in transportation projects in decades, business leaders acknowledge it’s only a start in addressing the state’s long-term needs. DuVal says the chamber is working to form a coalition of local and regional chambers, localities and businesses “that can speak with one voice about the transportation needs in Virginia and help develop solutions for long-term transportation planning in Virginia.”

The General Assembly has been reluctant to increase taxes or fees for transportation, a move that Bob Chase, president of the Northern Virginia Transportation Alliance, says is desperately needed. “The real issue is ‘What’s the price of not doing it now?’” says Chase. “When you look at the amount of time and lost productivity in Northern Virginia and Hampton Roads, and you look at what the terrible pavement conditions are doing to people’s cars … clearly the cost of not doing something is far greater than asking people to pay for the actual cost of maintaining and building a transportation network that meets Virginia’s needs.”

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