In addition to federal and state taxes, local government taxes can be a significant cost to doing business. Henrico County has jumped into the mix of Virginia localities offering incentives to attract new businesses and benefit existing businesses as well. Specifically, and as explained in more detail in the linked article from the Richmond Times Dispatch/ Greater Richmond Partnership, Henrico’s County Manager recently proposed to reduce the County’s machinery and tools tax from $1.00 per $100 to $0.30 per $100. That could add up to significant tax savings for local businesses.
The machinery and tools tax is applicable to machinery and equipment used in the actual manufacturing process and machinery and equipment used in connection with the operation of machinery and equipment used in the actual, direct manufacturing process, such as machinery and tools used to service that equipment. It does not extend to all property owned by a manufacturer. Property that may be essential to the overall operations of a manufacturing business but not actually and directly used in the manufacturing process is considered nontaxable “capital.” Personal property such as computer hardware and software and other property used in administrative functions, communications and security systems, packaging equipment, etc., are examples of property generally not “machinery and tools” subject to the machinery and tools tax. This means there is no property tax on such items.
In addition, equipment that is idle may not be taxable, depending upon how long it has been or will be idle.
Motor vehicles and delivery equipment used by manufacturers are not subject to the machinery and tools tax but are taxed locally like other tangible personal property.
We find that often manufacturers incorrectly include within their taxable machinery and tools property that is not taxable. Thus, tax savings may be achieved by the proper classification of the personal property.
Although only a proposal at this point, Henrico County businesses should be aware of the County Manager’s proposal, and consider discussing further with their local representatives.
Should you want additional information on planning for local tax matters, Please contact Terry Barrett, or your Keiter advisor.
Sources: Va. Code § 58.1-3507, Rulings of the Commissioner PD 04-39 (8/2/04) & PD 13-69 (5/10/13), The Daily Press v. City of Newport News, Virginia Supreme Court, No. 02117, February 28, 2003.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.