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Virginia’s Business Climate Fiscal Analytics. Ltd. August, 2011.

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Presentation on theme: "Virginia’s Business Climate Fiscal Analytics. Ltd. August, 2011."— Presentation transcript:

1 Virginia’s Business Climate Fiscal Analytics. Ltd. August, 2011

2 Virginia Ranks High in Overall Business Climate Virginia ranks highly in independent evaluations of state business climates. -Tax policy is only one of many factors. Of the individual factors used in judging business climate, cost-of-living and labor costs, not tax policy, appear to be the lowest rated factor in achieving business growth in Virginia. Virginia ranks much better in tax climate than other nearby states. Local BPOL and M&T taxes do not materially affect Virginia’s business tax climate according to rankings. 2

3 Overall Business Climate Rankings ForbesCNBC Chief Executive Area Development Virginia2179 North Carolina3328 Maryland143937not in top 10 Tennesssee221841 Kentucky313517not in top 10 West Virginia414642not in top 10 Georgia8455 South Carolina343783 3

4 2011 CNBC Comparison Virginia and North Carolina VirginiaNorth Carolina Business Costs *219 Work Force123 Quality of Life2633 Economy841 Infrastructure & Transp.103 Technology & Innovation1112 Education618 Business Friendliness211 Access to Capital1011 Cost of Living2422 * Tax burdens, utility, wage, and rental costs 4

5 2011 Forbes Comparison Virginia and North Carolina VirginiaNorth Carolina Business Costs *243 Labor Supply315 Regulatory Environment63 Economic Climate418 Growth Prospects149 Quality of Life632 * Cost of labor, energy and taxes 5

6 Business Tax Climate Rankings Tax Foundation Business Tax Climate Rankings Ernst & Young Effective Tax Rate on New Investment Virginia126 Maryland4412 North Carolina4134 Tennesssee2745 Kentucky1915 West Virginia3742 Georgia2516 South Carolina2437 6

7 Of States With Better Business Tax Rankings Than VA, All Have Lower Overall Business Climate Rank (2011 CNBC Business Climate Rank in Parenthesis) 7 Tax FoundationErnst & Young Tax Climate ETR on New Investment South Dakota (13)Maine (40) Alaska (49)Oregon (27) Wyoming (21)Ohio (23) Nevada (45)Wisconsin (25) Florida (18)Illinois (22) Montana (38) New Hampshire (17) Delaware (36) Utah (8) Indiana (15) Washington (20)

8 Should Business Taxes in VA Be Modified? A Closer Look 8 Tax Foundation Business Tax Climate Rank Overall12 Corporate Income Tax *4 Individual income Tax17 Sales Tax8 Unemployment Insurance29 Property Taxes25 * Includes the local BPOL tax

9 Other States With Business Gross Receipts Taxes Washington Business & Occupation Tax There are no deductions from the state B&O tax for labor, materials, taxes, or other costs of doing business. The B&O tax rate varies by classification – e.g., retailing 0.471%, wholesaling 0.484%, manufacturing 0.484%, service & other activities 1.8%. West Virginia Municipal Business & Occupation Tax There are no deductions from the municipal B&O tax. This is a major source of revenue for most West VA cities. Rates vary according to the type of business, and differ from city to city. Charleston divides businesses into 14 categories with rates ranging from 0.15% for wholesalers to 4.0% for water companies. Ohio Commercial Activities Tax (CAT) Annual 0.26% state tax on business gross receipts on all types of businesses: e.g., retailers, service providers (such as lawyers, accountants, and doctors), manufacturers, and other types of businesses. Taxable gross receipts of more than $1,000,000 per calendar year is subject to this tax ($150 min. tax for gross receipts over $150,000). Receipts that are not subject to the CAT: interest, dividends, capital gains, wages reported on a W-2, or gifts. There are limited exclusions for certain types of businesses, such as financial institutions, dealers in intangibles, insurance companies and some public utilities, if those businesses pay specific other Ohio taxes. 9

10 Other States Continued… Delaware Merchants License Tax In lieu of a state or local sales tax, Delaware imposes a gross receipts tax on the seller of goods or provider of services. There are no deductions for the cost of goods or property sold, labor costs, interest expense, discounts paid, delivery costs, state or federal taxes or any other expenses, and rates ranging from 1.037% to 2.736%, depending on the business activity. Michigan Business Tax Imposes a 4.95% business income tax and a modified gross receipts tax at the rate of 0.8%. The modified gross receipts tax base is defined as gross receipts less purchases from other firms. Michigan Business Tax (MBT) uses the Single Business Tax (SBT) definition of gross receipts, with additional exclusions for a motor vehicle sales finance company, mortgage company, professional employer organization, and for invoiced items used to provide more favorable floor plan assistance. Texas Gross Receipts Margins Tax 1% tax rate applied to either: a) 70 percent of an entity’s gross receipts, or b) the entity’s gross receipts less compensation, or the cost of goods sold. There are phase-in tax rates for entities under $10 mil. in gross receipts. New Mexico Gross Receipts Tax The gross receipts tax rate varies throughout the state from 5.125% to 8.6875% depending on the location of the business. The total rate combines rates imposed by the state, counties, and municipalities where the businesses are located. The business pays the total gross receipts tax to the state, which then distributes the counties' and municipalities' portions to them. 10

11 Option: Replace BPOL and M&T With an Increased Local Sales Tax 1 percent sales tax would generate about $100 million more local revenue than combined BPOL and M&T. Allow localities the local option of choosing either a BPOL and M&T tax, or the additional 1% local sales tax. Additional 1% local option sales tax would still keep Virginia on the low end of sales tax rates in the country and equal to or lower than all surrounding states. – 33 states authorize municipal level sales taxes. – Combined state/local sales tax rates: Tennessee 9.75%; North Carolina 8.25%; Maryland, D.C., West VA, Kentucky 6.0%. 11


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