by Stephen D. Haner
The Prince William County Board of Supervisors yesterday voted to maintain a special tangible personal property tax rate on “programmable computer equipment” used in a business, providing a live and real-world example to continue our discussion on tax preferences and other incentives used to lure and keep businesses.
The general personal property tax rate in Prince William County is $3.70 per $100 of value, with the value basically set as the purchase price. Individuals pay the tax on cars, trailers and boat, but businesses pay annual property taxes on just about all their tangible goods -– furniture, art, machinery and tools, etc. State law says that the tax rate on business property cannot exceed the rate on personal property (and that all by itself makes Judge Dillon a hero in my book).
About twenty years ago the leaders of Prince William, seeking to lure the computer industry (and I bet the industry proposed it first), lowered the tax rate to $1.25 on computer equipment. As far as I can tell the provision is uniformly available to any and all businesses with computers, which these days is about all of them. But of course it has proven very attractive to the data center industry.
This became news because Corey Stewart, the chairman of the board and a U.S. Senate wannabe, proposed ending the special lower tax rate, in effect tripling the tax on all the business computers in the county. He further proposed to use all of the additional revenue produced thereby to finance a modest reduction in the real estate tax rates – something he then advertised to the voters (oops, taxpayers) in a county-financed mailer.
I just noticed Jim’s post on Amazon. The competition for tech investment, of course, provides a huge additional headwind to Stewart’s idea. But here’s my take on the proposal, and feel free to challenge me.
As long as the county had made no explicit promises to data businesses as they located or expanded in Prince William, it is fair to question whether the preferential rate should be permanent. Prince Williams’ general property tax rate is still lower than that of surrounding localities. And it already automatically depreciates the cost basis behind the tax, so as an asset ages the tax bill goes down.
Stewart’s big mistake was to use the additional revenue to lower the real estate tax by a penny, a proposal that smacks of political pandering (in an election year, imagine that). Republicans who complain that businesses pay too few taxes are in vogue these days.
It would have been so much more effective and fair to propose to lower the overall tangible property tax rate instead, especially to set a slightly lower rate for all business property. After all, individuals still get part of their car tax paid by the state (the Gilmore Switcheroo), but the full tax falls on any business vehicle. Trade a specific preference for one favored investment for an incentive for all investments.
