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Isle of Wight may change manufacturing taxes

Reema Amin

A potential change to how a bulldozer or a sausage-making machine is taxed is aimed at attracting new businesses to the county – and perhaps wooing a specific one.

Commissioner of the Revenue Gerald Gwaltney is proposing that equipment be taxed at 40 percent of its original cost instead of the full price, which is the current structure, so that equipment can depreciate faster. Supervisor Dick Grice, who fully supports the proposal, said it's also about "appearance," and that Isle of Wight's taxing structure doesn't match surrounding localities, making it tougher for businesses to see how the county compares.

The current tax rate of 70 cents per $100 of assessed value would rise to $1.75 to keep revenue the same this year, meaning current businesses would not be paying a "penny more or penny less," Gwaltney said.

"Based on recent conversations with economic development prospects, the county has determined that, in order to better position itself for future economic development opportunities, a re-examination of its machinery and tools tax methodology is in order," said a press release from the county issued Aug. 29.

Spokesman Don Robertson said he couldn't comment on what businesses those conversations happened with. Tom Elder, director of the county's economic development department, did not return calls for comment.

More generally, Robertson said several businesses over the years have urged the county to reconsider how machinery and tools – anything from a paper machine, a cement mixer or a backhoe – are taxed and to allow for some depreciation. That's what Gwaltney is suggesting.

For example, a piece of machinery that costs $100,000 would result in $700 in taxes twice a year in both scenarios. But the point, Gwaltney said, is to allow for new machines to depreciate at 60 percent right away without additional depreciation.

"This is just another way of trying to be a little creative and find some ways to attract other businesses – we're being proactive," Gwaltney said.

Representatives for International Paper and Franklin Lumber, two of the county's biggest machinery and tools taxpayers, declined to comment because they hadn't yet reviewed the proposed changes. Keurig Green Mountain and Smithfield Foods didn't return calls for comment.

The county has projected getting $4.3 million in machinery and tools taxes this year, Gwaltney said. International Paper, located on southernmost tip of the county, is expected to be the biggest contributor to machinery and tools revenue with a projected $2.4 million in taxes this fiscal year, according to data Gwaltney provided.

The company has an ongoing lawsuit over machinery and tools taxes with Isle of Wight, claiming in December 2014 that it was charged too much and that depreciation and the "fair market value" were never considered. A trial for that matter is scheduled next February.

Sahil Tak, vice president of ST Tissue, said he hasn't yet reviewed the change either but that the economic base will more likely grow if the tax rate isn't changed — which would have the effect of cutting business tax bills by 60 percent. ST Tissue is projected to pay $269,651 in machinery and tools taxes, the fourth highest on the list.

"If they make no change to the tax rate, then that makes a difference to the businesses...and attracts a lot of new businesses," Tak said.

The matter will likely be discussed by the Board of Supervisors in October, Gwaltney said. Gwaltney will accept written comments on the proposed change until Oct. 1. Those interested should mail their comments to P.O. Box 107, Isle of Wight County, Virginia, 23397.

The suggested change lets businesses compare and see that Isle of Wight is competitive with its neighbors, Grice said.

York County charges $4 per $100 of assessed value but bases that on 25 percent of the original cost of equipment, spokeswoman Gail Whittaker said. Gloucester County, comparable in size to Isle of Wight, charges $2.95 per $100 and bases that on 30 percent of an item's average retail value if it was made in 2000 or later, according to its Commissioner of the Revenue's office. Items older than 2000 are taxed at 10 percent of the original value.

Hampton charges $3.50 per $100 of assessed value at 35 percent of the original cost; Newport News businesses pay $3.75 at one-third of the original cost, according to those cities' websites.

Gwaltney's suggestion is a good tool to spur economic development at a time when new technology is being pumped out faster than ever before, said Gregory Wingfield, a senior fellow specializing in economic development strategic planning at Virginia Commonwealth University's L. Douglas Wilder School of Government and Public Affairs.

"Any time you can depreciate the machinery and tools quicker, you know, you're going to be more competitive because what you're seeing now is that the life cycle of expensive machines or tools is getting less and less, getting five years, seven years before new technologies take over, and they need to completely revamp their manufacturing system," Wingfield said.

Amin can be reached by phone at 757-247-4890.

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