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What’s Next: Taxation Toolbox

What’s Next with Nicole is a biweekly opinion column. The views expressed are solely the author’s.

(Updated at 2:15 p.m.) Tax and budget season is upon us. County Manager Mark Schwartz has released a recommended budget of $1.396 billion, including increased tax revenues from increased assessments and increased county expenditures.

While I will not go into specifics of this year’s budget, I would like to begin a dialogue about systemic changes that the County Board should consider in the long-run about how we levy taxes.

Have Commissioner of Revenue Assess and Collect All Taxes

Currently, the county assesses and collects taxes on real estate and the Commissioner of Revenue assesses and collects every other tax including vehicular, personal property, and business license taxes. Two-thirds of our revenues come from real estate and one-third from everything else. This means a vast majority of the tax revenue is based on assessments that their own employees determine, rather than the elected independent Commissioner of Revenue, Ingrid Morroy.

In almost every election, Commissioner Morroy has advocated for this power. The argument is that having the same people setting the budget responsible for assessments is an inherent conflict of interest, and the move would provide better transparency and customer service for those who believe they’ve been overassessed.

The Virginia Code also says that the County government should only administer assessors if the Commissioner of Revenue will not consent to doing assessments, which is obviously not the case (note: I am obviously not a lawyer, but this seems to be the intention). This is used in almost every Virginia jurisdiction as a best practice when a Commissioner of Revenue exists.

Incentivize Lower Vacancy Rates

I would encourage consideration of a vacancy tax on office and storefront retail properties. For the last several years we have made it a goal to reduce commercial real estate and office vacancy. This is prioritized because when space remains vacant, the property is assessed at a lower value and we receive less tax revenue, making it harder to provide the services that our community expects. Each percentage of vacancy represents $3.4 million in lost revenue.

Intuition might tell you that if you cannot fill a space, owners would lower their rent to attract more tenants. Oftentimes this is not the case. Property owners will intentionally leave office and retail space vacant for a number of reasons. One is to wait for a large tenant to anchor the building, and avoid the build-out costs associated with leasing to smaller businesses along with the higher overhead needed to piecemeal tenants together. Another is that vacant space means lower taxes because of their low assessment.

Together this leaves very little pressure for owners of office and retail space to lower rents to the benefit of small businesses or fill vacant space to the benefit of the county’s tax revenue.

Other jurisdictions such as Washington, D.C. and San Francisco have developed a version of their own vacancy taxes. The intention of each is different, for example, San Francisco’s vacancy tax is only on storefront retail to maintain street-level vibrancy, and Washington D.C.’s vacancy tax is on office, retail, and residential, but based on the class of real estate to prevent general blight. Our real estate vacancy problems are unique to us and should be considered by our own stakeholders to frame a solution that prevents unintended consequences.

There has been some debate on whether Arlington has the authority to levy this type of tax. I would argue that there is precedent based on the tax exemption programs that we currently provide. If this is still deemed an unavailable tool in our toolbox based on state law, it might be worth restructuring the incentive in the form of a fine that we do have authority to enforce or for our government affairs team to push for this authority in the next General Assembly session.

Having the Commissioner of Revenue begin assessing taxes would likely save homeowners and commercial building owners in taxes, but would likely decrease overall county revenues. Levying a vacancy tax would benefit small businesses looking for office space, create a better restaurant and retail vibrancy, and increase county revenues, but would likely adversely impact commercial property owners. My hope is that further dialogue on these topics will benefit homeowners, small businesses, and on balance, our entire community.

Nicole Merlene is an Arlington native and former candidate for Virginia State Senate. She has served as a leader in the community on the boards of the Arlington County Civic Federation and North Rosslyn Civic Association, as an Arlington Economic Development commissioner, in neighborhood transportation planning groups, and as a civic liaison to the Rosslyn Business Improvement District.

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