The tax gap between the District of Columbia and the surrounding suburbs has widened over the last year, with D.C. pricing itself even further out of the market for attracting new companies.
According to a new report by the Greater Washington Board of Trade, District business taxes not only are still significantly higher than others in the area, but they have continued to climb sharply while those in the Maryland and Virginia suburbs generally have stayed stable or, in many cases, declined.
"We are well aware of this," said Carolyn Smith, D.C. finance and revenue director. "It's kind of a bleak picture in terms of taxes."
Mayor Marion Barry had hoped to lower business taxes when he came into office, but was forced by the city's financial crunch to propose boosts in commercial property tax and personal property tax rates.
Some possible actions being considered to ease the rising tax burden include not levying the franchise tax on new businesses for several years or giving a tax credit for hiring District residents, Smith said.
I would like to see something happen [on tax reduction] in this fiscal year. I think it is long overdue," she said. At the same time, she noted the difficulties of competing with the suburbs for attractive tax rates, because the other juridictions have a broader tax base and do not face the District's fiscal crisis.D.C. couldn't just hold the liine on tax increases but would have to lower rates to create an incentive relative to the suburbs, Smith said.
The Board of Trade report, its 12th annual tax study, compares projected taxes in 15 juridictions for six hypothetical companies, all with $200,000 in net income, using tax rates as of July 1, 1980.
The six kinds of firms considered are a manufacturing corporation with $8.5 million in assets, a wholesale corporation with $5.5 million in assests, a research and development company with $2.7 million in assets, a lessor of business property with $4.1 billion in assets, a retail corporation with 5.5 million in assets and an out-of-state firm's regional headquarters with $1.62 million in assets.
Among the findings in the report, prepared by certified public accountants Millard T. Charlton and Co., are:
The District has the highest taxes among the local juridictions in all categories except the R & D firm, for which it is No. 2. (Arlington, in the second spot last year, this year climbed higher than the District.)
Maryland had lower tax estimates in almost all categories and for almost all jurisdictions, largely because of lower property taxes (mostly notably in Prince George's County).
Maryland continued to have the best overall tax climate in he D.C. area for manufacturing firms.
The Virginia suburbs generally still had lower tax rates for R & D companies and regional headquarters than Maryland, but Maryland has narrowed the difference.
All of the Virginia jurisdictions had to bear the impact of substantially higher unemployment compensation tax rates this year.
Donald Tollefson of Arthur Andersen & Co., a member of an economic committee advising the mayor and the head of a tax task force that made a report to the city earlier this year, said one idea under consideration for improving the District's business climate is tax abatement for specific kinds of light industries that could provide jobs for the large pool of unskilled workers in the District.
Another is asking Congress to pass legislation allowing the District to issue industrial revenue bonds, which the surrounding areas already can use, he said.
"There's a lot going on, but it's a very slow effort," Tollefson said.
The District's problems are illustrated by the hypothtical manufacturing firm.
For manufacturing, the Board of Trade report showed the District increasing its tax differential from the suburbs substantially from last year. The hypothetical corporation would have to pay an estimated $193,500 in taxes in the District, up from $174,000 this year before. The next highest in the area is Fairfax County at $121,900 about the same that last year's No. 2 (Arlington) was.
In the Maryland suburbs, the projected taxes for the manufacturing corporation went down in all jurisdictions, often because of lower property tax rates and less unemployment compensation.
In Virginia, several jurisdictions had slight rises in the manufacturing corporation's taxes, but property tax reductions in Arlington, Fairfax City and Prince William County made the total tax liability there decline.
For the retail corporation, the District this year had the highest tax burden in the area, because of a $9,300 increase in its estimated tax, which pushed it past Alexandria, last year's highest in that category.