Sharing of revenues… Are some paying Charlottesville by mistake?

Visit the Henrico County website and you will see a prominent plea for its County taxpayers… “Keep your tax dollars in Henrico.”  At first glance, you might assume it was an effort to support local businesses.  Actually, local businesses and local shoppers can be part of the problem when they mistakenly pay their taxes to the neighboring City of Richmond.

“Each year, thousands of Henrico County residents and businesses inadvertently pay their taxes to the City of Richmond…resulting in an estimated $5 million loss in tax revenue…” according to the Henrico County website.

The source of the confusion is apparently the fact that there are many “Richmond, VA” mailing addresses in Henrico County.  Henrico wants to eliminate their Richmond mailing addresses in favor of “Henrico, VA” to ensure they receive their share of tax revenues.  Next month, the U.S. Postal Service is sending out a survey asking Henrico residents, at least those without overlapping zip codes, if they support the address change.

Links related to this story

• Examples of How a Tax can be Incorrectly Paid to Another Locality
• Background on Henrico's campaign to change mailing addresses
• Richmond Times-Dispatch Editorial--"Going Postal"

Does tax confusion exist in Charlottesville-Albemarle?

“Sixty percent of our households have Charlottesville addresses,” said Robert Walters, Albemarle County’s Chief of Administration/Taxation.  “It has cost us a lot of money in the past, some of which is irreversible.”  Just like in Henrico, officials here say address confusion and overlapping zip codes exist in the City of Charlottesville and in Albemarle County.  Payments can be mistakenly sent in both directions.  Walters’ counterpart in the City is Lee Richards, Charlottesville’s elected Commissioner of Revenue.  Richards says he works closely with Walters to reconcile the books and ensure each locality gets the tax revenues it deserves.

The problem is not with local real estate property taxes.  That is an asset that doesn’t move around.  The challenge is on items like personal property taxes, business sales taxes, business license taxes, and consumer utility taxes.  “Some taxpayers legitimately don’t know if they live in the City or the County,” said Walters, who believes the biggest source of lost revenue is in personal property taxes.

The Department of Motor Vehicles might track an incorrect location for a vehicle thus generating a bill for personal property taxes from the wrong locality.  While long time County residents would likely be surprised by a tax bill from the City of Charlottesville.  People leasing property or living in the community on a short term basis sometimes do even know which locality they live in.  Walters says Albemarle has not yet quantified the potential loss of revenues in this area.

Misdirected sales tax payments

The County’s second biggest area of concern relates to sales taxes.  In 2006, Walters identified about $100,000 in revenues that were paid to the City and needed to be returned.  The state provides each locality with monthly reports on sales tax revenues.  Reviewing these reports line by line is a very time consuming process for both City and County staff.  “It is a manually intensive problem to keep track,” said Walters who told Charlottesville Tomorrow that this investigative work is harder to complete in a Finance Department with two staff positions frozen and one recently eliminated.

Richards says the City of Charlottesville also has to devote resources to this problem.  He has one full-time employee reviewing sales tax reports for errors and another helping businesses in the City file their monthly sales tax payments.  “Businesses are often confused about all the taxes and we work with them,” Richards told Charlottesville Tomorrow.  “They come in here and we actually do the sales tax return that goes to Richmond.  We take their check and directly ship it to Richmond. The business people leave here knowing their taxes are done correctly.”  Charlottesville, as a result, is certain it will get the tax proceeds.

Richards says the City takes a very proactive approach, but he acknowledged that the County of Albemarle had a much greater potential to benefit from the catching of mistakes.  In some cases, sales taxes are paid to the Virginia Department of Taxation and earmarked for the wrong locality by a multi-location retailer, a national contractor, or a Internet retailer. 

For example, an office supply company with stores in both localities might make an accounting decision at its national or regional office with little knowledge that a Charlottesville mailing address on a store might be related to taxable activity in Albemarle County.  Charlottesville could then be the recipient of the 1% local share of the State’s 5% sales tax.

Walters and Richards both said they are as vigilant as possible with the resources they have available.  The County’s Walters says he has been in touch with Henrico and that he intends to pursue improvements in Albemarle’s collection efforts.  “Like Henrico, we have a number of shared zip codes, and that is part of our problem.”

From the state’s perspective, businesses are on their honor to report and pay their taxes accurately by jurisdiction.  “We count on businesses to police themselves,” said Joel Davidson, Public Relations Manager for the Virginia Department of Taxation. 

According to Davidson, it tends to only be a significant problem around big cities like Richmond.  “Whenever we are made aware of misallocated revenues, and both localities agree, the tax department corrects the problem,” Davidson told Charlottesville Tomorrow.

At this point, nobody is calling for the post office to create a postmark for “Albemarle, VA,” but the exact size of the problem has not been fully quantified.  According to Henrico’s website, it took them a decade of “unfruitful” negotiations to reach the breaking point.  Now they are explaining to taxpayers that they might get $5 million from Richmond if they change their mailing address.

Brian Wheeler

Comments

[Brian Wheeler]

The Washington Post published a story this week on a Fairfax County retailer mistakenly paying taxes to the City of Alexandria.

1/13/09 * W. Post -- In Search Of Taxes That Go Astray: Va. Counties Chase Missing Money

"Fairfax officials were told yesterday that the misrouted taxes from the busy Target store will yield $1 million in found money at a time when a looming $650 million shortfall means that every extra penny counts."

Brian Wheeler
Charlottesville Tomorrow