The URL can be used to link to this page

Home My WebLink AboutI. D. TAX DIVERSIFICATION – Requested During Budget Reconciliation 1.21.2025Tax Diversification Kevin Chatellier, Director of Budget and Management Services January 21, 2025 1 Direction to Explore- FY 2025 Reconciliation “The City Manager shall provide a report to the City Council outlining options for diversifying the City’s tax structure including but not limited to developing a policy on annual real estate revenue growth, potential additional revenue sources, and modifying personal property tax rates to provide a more equitable tax base for both property and non- property owners to ensure relief is provided to the people who need it most. Any policy decision shall strive to maintain existing services and provide flexibility to adequately plan for the future” 2 Background Information •Tax diversification discussion has occurred multiple times over the years Mostly driven by discussions surrounding real estate assessment growth and Virginia Beach’s reliance on that growth to avoid degradation of services. •2007 Blue Ribbon Task Force Established with the aim to explore revenue diversification options and provide recommendations to the City Council 3 Several Tax Relief Policies and Efforts Personal Property Tax Relief Relief Provided Reduced Personal Property Rate Disabled Veterans Lowered rate of $1.50 per $100 Assessed Reduced Personal Property Rate- Personal Boats Lowered rate of $0.000001 per $100 Assessed Reduced Personal Property Rate- Machine and Tools Lowered rate of $0.000001 per $100 Assessed Reduced Personal Property Rate for EMS Volunteers $70,000 est. Reduced Personal Property Rate for new business (2 years) and Individuals over 65 or disabled $336,000 est. Business, Professional, and Occupational License (BPOL)Relief Provided Two -year Exemption Program Qualifying new businesses $0 license for two years Reduced BPOL Tax- Adjusted Thresholds $1.1 million (est.) 4 Real Estate Rate Relief Real Estate Tax Relief Programs Relief Provided Elderly and Disabled (annual local program)$15 million (FY 2024-25 est.) Veterans Tax Relief- Mandated $27.5 million (FY 2024-25 est.) Real Estate Tax Relief- Since 2020 Relief Provided Reduced Real Estate Tax Rate by 4.75¢$37.4 million (FY 2024-25) Absorbed $567 million bond referendum = 4.1¢$32.3 million (FY 2024-25) Combined Real Estate Total:$69.7 million •$69.7 million of annual tax avoidance on residents and businesses •Additional context of that number, annual avoidance could sustainably support debt service associated with roughly $700 million or more in bonds 5 Resources, Tools, Terminology •Resources and Tools used to guide research and organize discussion: •Blue Ribbon Committee Report •State Reports •Weldon Cooper Survey •Real Estate Annual Report •Commissioner of the Revenue Reports (various sources) •Terminology •Constitutional Limitations •Regressive Tax 6 Comparison of Tax Rates Virginia Beach Chesape ake Norfolk Portsmouth Suffolk Hampton Newport News Real Estate (per $100 /A.V.)$0.97 $1.01 $1.25 $1.30 $1.09 $1.16 $1.18 Personal Property (Vehicles & Business)$4.00 $4.08 $4.33 $5.00 $4.25 $4.50 $4.50 Personal Property (Machinery & Tools)-$0.64 $1.70 $1.50 $0.63 $1.23 $1.25 Personal Property (Boats)-$0.09 -$0.50 $1.50 -$1.00 Automobile License Registration $30.00 $26.00 $31.00 $32.00 $26.00 $35.00 $26.00 Cigarette (per pack)$0.75 $0.65 $0.95 $0.95 $0.75 $0.85 $0.85 Solid Waste Fee $30.55 -$28.51 $29.16 $25.25 $31.42 $31.63 Meals 5.5%6%6.5%7.5%6.5%7.5%7.5% Admissions 10.0%10.0%10.0%10.0%10.0%10.0%10.0% Hotel 8.0%8.0%8.0%8.0%8.0%8.0%8.0% Hotel Flat Tax $2.00 $1.00 $3.00 $3.00 $1.00 $2.00 $1.00 7 Comparative Report of Local Governments Virginia Auditor of Public Accounts Revenue Virginia Beach % VB Revenue Total Cities % Local Revenue Real Estate 682,095,402 48.89%3,706,766,502 46.00% Personal Property - General 131,536,551 9.43%745,750,522 9.25% Personal Property - Mobile Home - 0.00%507,643 0.01% Machinery and Tools - 0.00%92,025,868 1.14% Merchants Tax - 338,239 0.00% Local Sales and Use Taxes 89,501,992 6.41%584,244,111 7.25% Consumer Utility Taxes 23,836,579 1.71%142,638,056 1.77% Business License Taxes 59,030,932 4.23%377,185,243 4.68% Franchise License Taxes - 0.00%2,036,009 0.03% Motor Vehicle Licensees Taxes 10,753,542 0.77%49,819,692 0.62% Bank Stock Taxes 4,183,698 0.30%42,442,342 0.53% Recordation and Will Taxes 7,870,701 0.56%32,171,965 0.40% Tobacco Taxes 8,479,917 0.61%41,336,718 0.51% Admission Taxes 9,236,340 0.66%24,712,209 0.31% Hotel and Motel Room Taxes 51,768,589 3.71%151,226,183 1.88% Restaurant Food Taxes 92,035,336 6.60%526,064,305 6.53% Coal, Oil, and Gas Taxes - 0.00%- 0.00% Other Local Taxes 1,583,355 0.11%18,694,058 0.23% Permits Fees 6,541,083 0.47%59,764,090 0.74% Fines & Forfeitures 2,923,674 0.21%34,626,168 0.43% Charges for Services 156,332,758 11.21%898,804,817 11.15% Use of Money- Miscellaneous 57,493,022 4.12%527,854,139 6.55% $ 1,395,203,471 $ 8,059,008,879 8 Real Estate Rate:97¢ per $100 Assessed Value Budgeted Revenue:$763,622,800 excluding Town Center TIF Per Penny:$7,872,400 Timing of Tax:Fiscal year tax with bill split with ½ payment due in December and ½ payment due in June. Payment Method:80% on average escrow (LERETA estimate) meaning payment occurs through monthly mortgage payment or direct payment to City Resident/Business tax base:Residential: Residential 60.8% Apartment 8% Townhouse 5.7% Agriculture 0.3% Commercial: General 7.6% Hotel 2.1% Office 2.5% Industrial 1.7% Rate Limit:There is no established tax rate limit by the State. Rate Virginia Beach Chesapeake Norfolk Portsmouth Suffolk Hampton Newport News Real Estate (per $100 /A.V.)$0.97 $1.01 $1.23 $1.25 $1.09 $1.15 $1.18 9 Meals Tax Rate:5.5% of sales price Total Revenue:$92,035,336 Per Percent:$16,733,697 per tax percent Timing of Tax:Fiscal year tax. Sellers submit the meal tax by the 20th of each month for the previous month. Payment Method:Collected by businesses at point of sale and Businesses remit to City monthly Resident/Business tax base:Impact on local residents and businesses is not exactly known due to heavy influence of tourism. Estimated split is roughly 40% of tax is generated by tourist. Rate Limit:No State established tax rate limit Rate Virginia Beach Chesapeake Norfolk Portsmouth Suffolk Hampton Newport News Meals Tax Rate %5.5%6.0%6.5%7.5%6.5%7.5%7.5% 10 Hotel Tax Rate:8% citywide 9.5% in the Sandbridge SSD (8% citywide + 1.5%) $2 per night Total Revenue:$46,382,193 Citywide Tax- 8% $1,281,720 Sandbridge SSD 1.5% $5,397,560 Flat $2 per room night Per Percent and per $1:$5,797,774 per 1% $2,698,780 per $1 room night Timing of Tax:Monthly Payment Method:Collected by businesses at point of sale and Businesses remit to City monthly Resident/Business tax base:Impact on local residents and businesses is not exactly known; however, mostly assumed to be tourism driven Rate Limit:No State established tax rate limit Rate Virginia Beach Chesapeake Norfolk Portsmouth Suffolk Hampton Newport News Hotel Tax Rate %8.0%8.0%8.0%8.0%8.0%8.0%8.0% Hotel Flat Tax $2.00 $1.00 $3.00 $3.00 $1.00 $2.00 $1.00 11 Admission Tax Rate:10% of admission price 5% participatory Budget Revenue:$9,236,640.00 Per Percent:$923,664 estimate Timing of Tax:Monthly Payment Method:Collected by businesses at point of sale and Businesses remit to City monthly Resident/Business tax base:Unknown what the impact split is for resident’s vs tourist visiting the City Rate Limit: There is no maximum rate. Rate Virginia Beach Chesapeake Norfolk Portsmouth Suffolk Hampton Newport News Admission 10.0%10.0%10.0%10.0%10.0%10.0%10.0% 12 Vehicle License Tax Rate:$30 per vehicle registration- gradually increasing based on weight and number of vehicle axles Total Revenue:$10,753,542 Per Dollar:$358,451 avg Timing of Tax:Collected at time of vehicle registration with the Department of Motor Vehicles (DMV). Annual for vehicle owners, depending on vehicle registration (every year, two years, or three years) Payment Method:Residents pay tax during initial or renewal of vehicle registration with the Department of Motor Vehicles (DMV) who then remits revenue to the City monthly Resident/Business tax base: Rate Limit:Maximum amount charged cannot exceed fee charged by Commonwealth Rate Virginia Beach Chesapeake Norfolk Portsmouth Suffolk Hampton Newport News Tax $30.00 $26.00 $31.00 $32.00 $26.00 $35.00 $26.00 13 Business Occupational License Tax Rate: Tiered flat license fee for businesses with gross receipts under $200,000. Rate applied to businesses with gross receipts in excess of $200,000 vary by business type: Flat fee $25 gross receipts less $25,000 Flat fee $40 gross receipts $25,000- $100,000 Flat fee $50 gross receipts $100,000-200,000 Contracting: $0.16 per $100 Retail: $0.20 per $100 Repair, Personal, & Business Services: $0.36 per $100 Financial, Real Estate & Professional Services: $0.58 per $100 Wholesale Gross Purchases: $0.12 per $100 (In Virginia Beach, the tax is based on gross purchases not gross receipts) Total Revenue in the City of Virginia Beach FY 2025 Budget: $62,625,915 Business Base Estimate: 34,363 licenses (2023 data) Timing of Tax:Filing Due Date:1/1 Payment Date: 3/1 Payment Method:Direct payment to the City Relief:The Business License Incentive Program allows any new established business that report over $200,000 in gross receipts to pay the $50 business license fee for the first two calendar years. 14 Business Occupational License Tax- Threshold Comparison Locality Gross Receipts Threshold Maximum License Tax Virginia Beach $200,000 $0 - $25,000 @ $25 $25,001 - $100,000 @ $40 $100,001-$200,000 @ $50 Chesapeake $200,000 $0 - $199,999 @ $50 Hampton $100,000 $0 - $100,000 @ $50 Newport News $100,000 $0 - $50,000 @ $30 $50,001 - $100,000 @ $50 Norfolk $100,000 $0 - $100,000 @ $50 Portsmouth $100,000 $0 - $100,000 @ $50 Suffolk $100,000 $0 - $100,000 @ $50 15 Personal Property Budgeted Revenue:$206,725,457 Timing of Tax:Calendar year tax with the primary billing due June 5th each year. Rate changes go into effect January 1st. Payment Method:Direct payment to City Tax Relief:Elderly and Disabled: Tax rate of $0.000001 per $100 for 1 vehicle Disabled Veteran: Tax rate of $1.50 per $100 assessed value (one vehicle) EMS Volunteer Vehicle: Tax rate of $0.000001 per $100 for 1 vehicle Business Personal Property (New Business): Tax rate of $0.000001 per $100 for first two years of operation Rate Limit:No State limit on local tax rate established 16 Personal Property d Type Count Rate Per Penny Vehicle/Trailer 432,540 $4.00 per $100 assessed $ 443,942 Business PP 26,082 $4.00 per $100 assessed $ 103,022 Commercial Vessel 628 $1.50 per $100 assessed $ 6,222 Pleasure Boat 18,752 $0.000001 per $100 assessed $ 38,092 Machinery and Tools 343 $0.000001 per $100 assessed $ 27,337 Recreational Vehicle 942 $1.50 per $100 assessed $ 3,769 Manufactured Home 1,877 $0.97 per $100 assessed $ 1,948 Computer Equip- Data Center 432,540 $0.40 per $100 assessed Virginia Beach Chesapeake Norfolk Portsmouth Suffolk Hampton Newport News Personal Property (Vehicles & Business)$4.00 $4.08 $4.33 $5.00 $4.25 $4.50 $4.50 Personal Property (Machinery & Tools)-$0.64 $1.70 $1.50 $0.63 $1.23 $1.25 Personal Property (Boats)-$0.09 -$0.50 $1.50 -$1.00 17 General Sales Tax Rate:6.0% (4.3% statewide + 1.0% local options sales tax + 0.7% regional sales and use tax = 6.0% Budget Revenue:$93,281,986 Per Percent:$93,281,986 per tax percent Timing of Tax:Fiscal year tax. Sellers submit the tax monthly to the State. Payment Method:Collected by businesses at point of sale and Businesses remit to State monthly who remits to the City the following month Resident/Business tax base:Breakdown down of tax base unknown as remittance of revenue from state occurs in lump payments Rate Limit:Maximum local sales tax option for localities is 1% 18 Cigarette Tax Rate:20 Pack—$0.75 per pack 25 Pack—$0.93 per pack Total Revenue:$8,479,917.00 Per Penny:$113,065 Timing of Tax:Fiscal year tax. Remitted monthly Payment Method:Retail sellers purchase stamps from the Commissioner of the Revenue. It is assumed that the cost of the tax is passed to consumers. Resident/Business tax base:Unknown what the impact split is for resident’s vs tourist visiting the City. Rate Limit:State froze localities ability to increase the rate above rate established in 2020. Virginia Beach Chesapeake Norfolk Portsmouth Suffolk Hampton Newport News Cigarette (per pack)$0.75 $0.65 $0.95 $0.95 $0.75 $0.85 $0.85 19 Fines, Fees and Charges for Services •Fines, Fees, and Charges for Services are considered Department Specific revenues and most often budgeted to support the program/department providing the service. •Example, Permits and Inspections - Planning Department Waste Collection Fee - Public Works Recreational Center Membership - Parks and Recreation Etc. Virginia Beach Other Cities Permits Fees 0.47%0.74% Fines & Forfeitures 0.21%0.43% Charges for Services 11%11% 20 Additional Context for Discussion: •Flexibility exists within limitations and boundaries established by State Code and many of the findings from Blue Ribbon Task Force study and recommendations are still relevant to the tax diversification discussion today. •Summary of Examples: •Aligning fees to be more businesslike in covering cost of service reducing General Gov’t tax burden (Permits, Inspection, Parking Tickets, Recreation Center Fees, Court Fees, etc.) •Discussion of adjusting lower tax rates or establishing new taxes, to help offset cost of services. Referenced discussion Pleasure Boat Tax. •Request General Assembly assistance in establishing alternative taxing options. 21 Questions & Discussion 22