The pandemic has seen a rise in freelance and contract work from those looking for job flexibility.
COVID-19 has seen tremendous changes in how Americans work, where and for whom. People are taking their computers to exotic locales or states with lower living costs, while companies are rethinking their office leases or trying to make their offices more attractive. Meanwhile, many are leaving their jobs to strike out on their own as freelancers.
But one area is experiencing delayed shockwaves from these seismic shifts: taxes. Last year folks saw taxes rise or fall depending on where they worked from home or if they could write off their home office. With the second pandemic-era tax season dawning, here’s what independent workers of Arlington need to know.
- The county keeps track of independent workers, requiring them to get a permit certifying their “definite place of business” is in Arlington.
- Every business with a definite place of work in Arlington is considered taxable.
- Business license taxes are calculated before expenses in Arlington.
- License tax rates are fixed until gross receipts exceed $100,000, at which point they’re calculated on a variable rate.
Independent workers can deduct their expenses from their state and federal taxes, but locally, Arlington’s Business, Professional and Occupational License (BPOL) tax collects on pre-expense revenue, or gross receipts.
Businesses with receipts less than $10,000 owe nothing, while those grossing up to $50,000 pay $30 and those grossing up to $100,000 pay $50. After $100,000 over, the annual tax is $0.36 for each $100 of revenue.
“Customers can get confused and think that they should pay a flat fee for gross receipts up to $100,000, plus the tax rate on the remaining receipts, however, the correct amount to file and pay is based on multiplying the total gross receipts by the tax rate,” said Susan Anderson, the communications director for Arlington’s Office of the Commissioner of Revenue.
She says every person engaged in business in Arlington — whether a home or a co-working space — is subject to the BPOL.
“Anyone who is not an employee and who works as an independent contractor has a taxable business,” Anderson said. “It is not necessary to incorporate as an LLC or corporation in order to conduct licensable business activities.”
This is not a new tax being enforced, but she encouraged independent contractors with questions to contact the office’s Business Division Tax Specialists at (703) 228-3060 or email [email protected].
“Our staff is very happy to assist,” she said. “Also, as a reminder, the Business License Tax filing and payment are due annually on March 1.”
The BPOL tax is Arlington’s third-largest source of revenue behind real estate and personal property taxes, including car taxes. For the 2019-20 fiscal year, the BPOL tax netted $72 million, according to the 2022 adopted budget. It’s estimated to net $63 million for the 2020-21 fiscal year and could bounce back to $72.5 million in the 2021-22 fiscal year.
Criticisms of the BPOL
On the right and the left, in Arlington and at the state level, critics have argued for years the BPOL hurts small businesses, particularly those with razor-thin profit margins, as well as startups and entrepreneurs, while large companies — such as Arlington-headquartered Lidl and Nestle — have avoided it in Arlington because their sales happen elsewhere. The same could happen for Amazon.
Arlington-based freelancer Simson Garfinkel tells ARLnow he was surprised to learn his home office needs a permit and he would be taxed on his pre-expense receipts and his office equipment. He argues he should be exempt because the BPOL tax codes applies to a list of “professionals” rendering professional services.
“I am not an architect, an attorney-at-law, a CPA, a dentist, an engineer, a land surveyor, a surgeon, a veterinarian or a practitioner of the healing arts. I am a Ph.D. computer scientist and a freelancer… and the code explicitly says that ‘professional services’ refers to these occupations ‘and no others,'” Garfinkel said in a letter to the county.
Michael Farren, a research fellow at George Mason University’s Arlington-based Mercatus Center, says the BPOL is an “unusual” tax, allowed in only seven states, and economists tend to agree that it particularly hurts struggling businesses.
And the BPOL could have a disproportionate burden on women, who go into independent work more often in search of greater flexibility, says Farren.
“It is entirely possible that, to the extent that it makes it harder for small businesses with thin margins, the BPOL may have a greater impact on woman-owned businesses,” he said.
One workaround could be claiming a definite place of work in a jurisdiction without a BPOL, but the costs of commuting likely outweigh the benefits, he said, adding that Arlington’s rate is comparable others he has seen in Northern Virginia.
Why the BPOL matters now
Farren, who studies the rise in independent work and its economic impact, says the BPOL tax raises a more important policy topic: whether Virginia and its municipalities are adapting to the 21st century remote work world.
“To the extent that Virginia’s policies make it easy to start up that business at home, they’ll see increased tax revenue and growth from that increased business activity,” he said. “To the extent that policies make it harder or more expensive to strike out on their own, Virginia will see less economic growth.”
Meanwhile, smaller operations may be getting relief in a forthcoming tax holiday proposed by Gov. Glenn Youngkin that could offset their local BPOL taxes.
“The Governor’s Day One Game Plan legislative package includes tax relief designed to lower the cost of living for Virginians and targeted tax relief to help small businesses, including a one-year tax holiday for small businesses with under 50 employees on the first $250,000 of their income,” a Youngkin spokesperson told ARLnow.
Today’s Listing of the Day is a 3 BD/2 BA condo with a balcony and direct views of the Washington Monument.
A few hundred parents say Arlington Public Schools should prioritize recreating pre-Covid normalcy in the classroom and evaluating the use of electronic devices. That’s according to a recent informal survey…
The Barnes & Noble store in Clarendon was the scene of an alleged armed robbery today. Police responded around noon to the bookstore at 2800 Clarendon Blvd, in The Crossing…
The Arlington County Fire Department is reviving a door logo last seen on county vehicles more than 50 years ago. At the same time, the department is gradually upgrading its vehicles…
Now you can have fun with your family and friends when deciding where to eat!
Just hop aboard The Lunch Train and set the destination for: breakfast, brunch, lunch, dinner, or nightlife!
– No app necessary. Simply go to the website if you’d like!
– No account necessary
– Use your current location or a desired location
– Add restaurants you’re interested in, invite your friends, and play the game!
Lyon Park & Ashton Heights’ biennial home & garden biennial tour is back. The tour will include contemporary custom homes, older historic bungalows as well as renovated properties. One of the stunning homes on the tour is pictured above. In addition to beautiful & unique homes, the Villa & Vistas ’22 event will conclude with a festive reception at the Lyon Park Community Center at 414 N Fillmore Street, Arlington VA 22201. What could be better right?
All proceeds from this event will go to the Lyon Park Citizens Association (LPCA) towards our neighborhood jewel & hub, the Lyon Park Community Center (LPCC).
When: Sunday, October 2nd, Noon – 4 PM.
Where: Meet to get your tickets and the tour map at the Lyon Park Community Center (414 N Fillmore Street) We will have a table with information outside.
Join us as we explore Vini Franchetti & their two sister vineyards Passopisciaro (Sicily) and Vini Franchetti (Tuscany) for our Sicily/Tuscany Wine Dinner!
Sunday, Oct 9 @ 6pm
Special Guest: This wine dinner we will be hosting the wine maker