Isle of Wight County could soon adopt a new strategy for its machinery and tools tax — one that's more about perception than actual dollar amounts, officials said.
The change, if adopted by the Board of Supervisors Thursday, would raise the current tax rate from 70 cents to $1.75, but lower the assessment rate from 100 percent to 40 percent of the original cost. The amount of money being paid to the county would remain the same. However, offering businesses that 60 percent depreciation rate right off the bat would make the county a more appealing destination, according to Gerald Gwaltney, the county's commissioner of the revenue.
"The bottom line stays the same as far as the amount of taxes," Gwaltney said Tuesday evening. "But for some reason, it means a lot to the businesses coming in, giving 60 percent depreciation up front."
The old structure billed 70 cents per $100 of the original price. This means for a $500,000 purchase, the taxes would amount to $3,500. The new structure charges $1.75 per $100 of 40 percent of the original price. A $500,000 purchase under this new structure would also amount to $3,500.
Even if business owners are still paying the same amount of taxes, creating a tax rate based on less than 100 percent of the original cost looks better to businesses, according to Gwaltney.
Supervisor Dick Grice said the change will align with nearby localities, which allow for depreciation within their machinery tax structure. This means they base the tax rate on a lower percentage of the original cost, either by lowering the percentage as the years go by, or by starting out with a depreciated rate.
"It's more in line with the formula everybody in the area uses," Grice said Tuesday evening. Isle of Wight's low tax rates will remain low, he said.
"Before we had a new formula, our taxes were in the bottom-third of taxes in the area, and they're going to remain right there," Grice said.
Suffolk, Hampton and Portsmouth allow for depreciation in their machinery tax rates. For the calendar year 2015, Suffolk based its tax rate — $3.15 per $100 — on 20 percent of original cost for the first five years. Once the equipment reaches six years, the rate is based on 10 percent of original cost. Last year, Hampton's rate — $3.50 per $100 — was based on 35 percent of original cost. Portsmouth's rate — $3 per $100 — was based on 50 percent of the original cost for all equipment purchased in 1989 or later.
Business owners have complained to the county about its current assessment for the tax because it's based on 100 percent of the original cost, county spokesman Don Robertson said Tuesday.
The amount business owners pay would change if either the new rate or the new assessment level changes.
"Moving forward, depreciation is now a part of the formula, depreciation will be positive to business owners," Robertson said.
The Board of Supervisors is scheduled to vote on the tax amendment Thursday. It meets at 5 p.m. at the Isle of Wight County Courthouse Complex.
Smith can be reached by phone at 757-510-1663.