Democrat Terry McAuliffe and Republican Attorney General Ken Cuccinelli have agreed on very little since the start of the Virginia gubernatorial campaign, but the one issue on which they found common ground -- ending a handful of local business taxes -- has anxious municipal officials across the state warning that it would be a financial disaster.
McAuliffe and Cuccinelli each recently proposed reducing or eliminating the Business Professional Occupation Licensing, the Machinery and Tool, and the Merchants Capital taxes as part of their economic plans to create jobs and grow businesses in the state. Both are jockeying to be seen as the business-friendly candidate who cares most about putting Virginians back to work. But those three taxes were worth $899 million to cities, towns and counties in 2012 and neither candidate has detailed how he would replace that lost revenue.
McAuliffe proposed creating a task force to identify new sources of revenue that would give localities the option of getting rid of the business taxes. Cuccinelli, who also wants a $1.4 billion state income tax cut, vowed to "find more economically effective ways of getting local tax revenue" but provided no specifics.
Local leaders who rely on those business taxes to help fill government coffers are worried about that lack of certainty. Virginia already ranks as one of the country's most business-friendly states, officials said, so it's unlikely that the local taxes are hurting businesses.
"Elimination of those taxes without a replacement revenue for local governments would put local governments in the same type of bind that the state itself wants to avoid," said Neal Menkes, fiscal policy director at the Virginia Municipal League.
In 1997, Republican Jim Gilmore won the governorship with the campaign slogan "No Car Tax," a promise to eliminate a local personal-property tax on vehicles. But attempts to fully phase out the tax fell apart after lawmakers realized the fiscal and administrative burden it placed on local governments.
Both Cuccinelli and McAuliffe deride the BPOL tax as a burden on small businesses because it is levied against gross receipts, not profits. The tax, first instituted to help pay for the War of 1812, generated $683 million for localities last year. The Machinery and Tool tax, levied on new equipment, brought in $204 million and the Merchants Capital tax, charged to inventory, tallied $11 million.
"I clearly support eliminating it. It's a bad tax," said Fairfax County Supervisor Pat Herrity, R-Springfield. "But the devil is in the details."
Senate Minority Leader Dick Saslaw, D-Springfield, is a supporter of McAuliffe, but doubts that lawmakers in Richmond will back McAuliffe's tax plan.
"I don't know how you're going to do that," Saslaw said. "That's a lot of money to find."