Minutes 04/15/1958 - Laserfiche WebLink

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The easiest and most automatic way in which to achieve this sort of tax equality among Martinsville business and occupational licensees would be to levy a tax directly upon value added by handling. This tax would be levied at a single rate. Assuming that the city plans to keep its total revenue from business and occupational license taxes at the 1954 level, the rate would be 88~ per $100 of value added. This rate would apply equally to all licensees. Administrative objections to ~ tax directly ~ value~. The city of Norfolk adopted such a tax in 194b;'""and abandoned it the following year. Since value added by handling is arrived at by deducting cost of goods from gross receipts, a tax levied directly upon value added by handling carries with it many of the administrative problems inherent in the net income tax. The argument made before this committee by the representative of the city's laundries that one half of the laundries' pick-up and delivery expense should be treated as cost of goods as analogous to "freight inn gives ample illustration of the problem of administering a value added tax. Returns have to be carefully audited and loopholes plugged as they develop. NorfoDc found the task beyond its capacity and since the abandonment of the tax there, no other Virginia city has cared to experiment with it. The administrative compromise - the clas~ified gross receipts~. The value added tax being too difficult of administration to make it desirable as a local tax, an effort was made to design a gross receipts tax which would approximate as closely as possible the principle of an equal tax per dollar of value added by handling. Since different types of businesses operate at different ratios of value added by handling to gross receipts, the classified gross receipts tax must necessarily involve rate differentials. If a retail merchant's cost of goods represents 70 per cent of his gross receipts, leaving 30 per cent of gross receipts as value added by hancUing, while a wholesaler's cost of goods equals 85 per cent of his gross receipts, leaving a. value added by handling equal to 15 per cent of gross receipts, the tax rate per $100 of gross receipts applied to wholesalers must be one half that applied to retailers to result in an equal charge per $100 of value added by handling. The number of classifications. The Martinsville ordinance separates local businesses-rnto nine major classes. These classes were determined partially on the basis of major groupings in the classification of businesses and occupations by the United States Bureau of the Census, but primarily the study of value added data. Thus, businesses and occupations were originally separated into retailers, wholesalers, professions, service enterprises, amusements, and manufac turers. A study of the figures for service enterprises shm{ed that the variation among sub-classes in terms of value added ratio made it possible to break the major class into three separate groups. On the other hand, though it was noted that some retail merchants operate at value added ratios as low as the average for vrholesalers, or even lower, while others shoTI ratios higher than some of the service enterprises, the retail classification was not broken down. This again represented a compromise with problems of administration. So many retail units sell such a variety of goods (department stores and drug stores, for example) that a classified merchants ta~ would be more difficult to administer than the value added tax itself. (2 )