Counties to Lose Tax Break Tool
By Justin Blum
Virginia's General Assembly has rejected a tactic that economic development officials in Loudoun and Warren counties had employed to help companies avoid paying sales tax on construction materials.
The legislation, which awaits the signature of Gov. James S. Gilmore III (R), outlaws arrangements in which local officials have agreed to act as tax-exempt buyers for companies that are constructing or expanding buildings.
The Loudoun Industrial Development Authority had signed off on the tax break for Orbital Sciences Corp., agreeing to use the company's money to purchase the firm's building materials so Orbital would not have to pay Virginia's 4 1/2 percent sales tax. That would have saved the satellite and rocket maker $2 million on a planned expansion of its Dulles area headquarters.
Virginia Attorney General Mark L. Earley (R) issued an opinion last month saying that the development authorities did not have the power to give companies breaks on state sales taxes. Members of the General Assembly said the legislation was needed because the attorney general's opinion was not binding; officials in Loudoun had not ruled out going forward with the tax break after the opinion was issued.
"I'm pleased the law is not so ambiguous now," said Del. Harry J. Parrish (R-Prince William), who sponsored the legislation. "Of course, the attorney general had already ruled what they were doing, they had no authority to do. This just reaffirms so there won't be any misunderstanding." Parrish had said the tax break was akin to "tax evasion" and asked for Earley's opinion after learning of the tax break in Loudoun.
The Loudoun Development Authority had approved the tax break contingent on a favorable opinion from the state's tax commissioner. Warren County had used the tactic several times.
The way the tax break works is that companies that want to build or expand give a list of construction materials along with money to cover the costs to a local development authority, a group appointed by a county board of supervisors to spur economic growth. The authority then buys the goods using its tax-exempt status and turns the materials over to the company.
Barron Beneski, a spokesman for Orbital, declined to comment on the legislation. "There's really nothing to say about it," Beneski said. "It speaks for itself." Beneski said construction has not yet begun on the company's expansion, and he would not say whether lawmakers' decision would affect Orbital's plans in Loudoun.
The House approved the measure Tuesday, and the Senate signed off on the bill last week. Lila Young, a spokesman for Gilmore, said the governor likely would sign the measure, although he has not yet reviewed the language of the bill.
"We expect he'll sign it," Young said. "It's clear that this activity has been ruled illegal. So we have to move forward and find other ways of attracting business."
Susan D. Rutherford, chairman of the Loudoun Development Authority, said she was saddened to hear of the lawmakers' decision. "I thought it was a pretty good economic development tool," Rutherford said. "I feel real sad that our legislators would do something that would hurt the rest of the counties in Virginia. I think it definitely puts the economic development department at a disadvantage because Maryland is wooing businesses as fast as they can."
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