Coronavirus Outbreak Virginia

Customers Tim Beinz and John Kuentz walk into a restaurant Monday, March 16, 2020, in Richmond, Va. The two are part of a construction crew.

(The Center Square) – Some members of Virginia's business community are worried economic recovery from the response to COVID-19 could be hindered by greater taxing power granted to county governments.

In legislation supported by the Democratic majority in the General Assembly and signed by Gov. Ralph Northam that went into effect Wednesday, county governments can impose on consumers up to a 6 percent tax for prepared meals. It also allows for higher taxes on entertainment venues.

Nicole Riley, the Virginia state director for the National Federation of Independent Business, told The Center Square her organization opposes higher taxes, particularly when it targets certain businesses. This new authority for counties not only targets specific industries, she said, but it targets some industries that have been hurt the most by COVID-19.

Other organizations had similar concerns.

“Folks are already skeptical of going out [to eat],” Robert Melvin, the director of government affairs at the Virginia Restaurant, Lodging & Travel Association, told The Center Square. “... It’s just going to add a whole additional burden to those restaurants.”

Melvin said a lot of people don’t have disposable income because they are out of work, and many sectors of the economy are struggling. An additional tax on these services, he warned, will make it harder for the local economies to recover. He said no locality should consider any type of tax increase until the economy has recovered fully.

“It would be very irresponsible for any county, at this point, to be considering any of these taxes,” Melvin said.

Because of the ongoing COVID-19 restrictions on businesses, Riley said no one is really running at full capacity, except for essential retail businesses. Although restaurants are allowed to operate at full capacity, they still must adhere to strict social distancing guidelines between tables, which effectively reduces capacity. She said it’s not clear how long this will go on.

County governments should try to live within their means through spending reductions rather than raising taxes, Riley said. When a government is unable to do so, she said it should impose broader taxes that don’t directly affect certain businesses over others.

Del. Vivian Watts, D-Annandale, who was a primary author of the tax legislation, told The Center Square the law does not impose any additional taxes on these businesses. It lets county governments have a broader range of options for tax increases, rather than turning to only higher real estate taxes.

“This makes it a totally local decision to reflect the local economy,” said Watts, who expects local governments to weigh the effects of COVID-19 when deciding if or when to impose additional taxes on these industries.

Watts said studies have demonstrated businesses don’t make decisions on where to go based solely on taxes. She said businesses focus more on good education and good policing. She said it’s rare a business would trade better schooling and policing for lower taxes.

Real estate tax increases are regressive and those costs often get passed down to renters, Watts said. She said she’s glad Virginia modernized this aspect of its tax system, which no longer forces counties to rely so heavily on one source of taxes.

A higher tax on gasoline, cigarettes and other tobacco products also went into effect Wednesday. On May 1, 2021, county governments will be allowed to collect a transient occupancy tax, which is a tax paid by hotels based on the number of rooms or space it has.

Staff Reporter

Tyler Arnold reports on Virginia and West Virginia for The Center Square. He previously worked for the Cause of Action Institute and has been published in Business Insider, USA TODAY College, National Review Online and the Washington Free Beacon.