Regions Central Virginia

County drops tax on stores’ inventories

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Print this page by Bryan Gentry

At any given time of the year, Jeff Powers has more than $1 million in inventory at Powers Tractor and Equipment Co. in Vinton. In the past, having that much inventory on Jan. 1 always meant a tax bill for thousands of dollars.

But not any more. In fiscal year 2012, Bedford County will eliminate its Merchants’ Capital Tax, which was assessed on a company’s inventory of products held for resale. The tax was 22 cents per $100 in merchandise. In eliminating the tax, the Bedford Board of Supervisors hopes to help existing county businesses and attract more employers.

“[The tax was] a serious burden for a business my size,” says Powers. “We were always reluctant to take advantage of our suppliers’ year-end deals to add inventory early, because we knew we’d have to pay tax on that inventory.”

That was one of the main concerns of Bedford County Supervisor Dale Wheeler, who led the move to eliminate the Merchants’ Capital Tax. When he worked in the wholesale industry, he saw merchants cut back their orders toward the end of the year to avoid taxes.

Wheeler says he would rather have the county benefit from increased sales tax revenue as merchants sell from larger inventories. The county also hopes to burnish its reputation as a low-cost place to do business.
“By doing away with this [tax], we want to make it easier for our existing businesses to stay in business and encourage more people to open up in Bedford County,” Wheeler says.

Beford County isn’t alone in cutting business taxes. Stafford County last year repealed its Business, Professional and Occupational License (BPOL) Tax, which is charged on gross receipts, and Virginia Beach plans to phase out its machinery and tools tax for manufacturers starting in fiscal year 2012. Many economic development officials believe lower business tax rates can give a city or county an edge in attracting new employers.

But Neal Menks, director of fiscal policy for the Virginia Municipal League, doesn’t expect many Virginia localities to discard their business taxes. As state aid has dropped in recent years, he notes, local governments have had to find ways to pay for services. If business taxes disappear, “the other choice you have is to fall back on your real estate tax,” he says.

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