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Marriage Penalty, Local Taxes On Businesses Hurting Virginia's Reputation As Low-Tax State

Virginia has a reputation as a state with low taxes and a friendly business environment. A new study challenges that reputation, however.

A new report by the Tax Foundation has some bad news for Virginia, which ranks 31st in terms of its tax climate. "This has been a ranking that has been worsening over a number of years,” according to Jared Walczak at the Tax Foundation.

"I think you’ve seen that slide in rankings on a lot of different metrics, and we’ve certainly seen it on taxes — mainly the state getting worse by standing still while competitor states are finding ways to get better.”

Digging deeper into the numbers, Virginia ranks particularly low in the individual income tax climate. Walczak says that’s in part because of the marriage penalty. “Married couples will pay more in many cases if they file together. Virginia does have a tax credit that’s designed to address that to some degree, but it doesn’t quite do it.”

He says Virginia is also unusual at the local level because it has three different types of taxes he calls anachronistic:  A business and professional occupancy license known as a BPOL tax. Plus the machinery and tools tax, a tangible personal property tax. And the inventory tax, the merchants capital tax. Virginia is the only state that has all three of these at the local level, which sets the commonwealth back in the rankings.

Click here to read the full Tax Foundation report

This report, provided by Virginia Public Radio, was made possible with support from the Virginia Education Association.

Michael Pope is an author and journalist who lives in Old Town Alexandria.