Sunday, June 03, 2012

Repealing the Admissions Tax won't blow Richmond's budget


The City of Richmond imposes a 7% tax on admissions to most events in the city—exempting museums and a few other institutions. I believe that this tax is unwise, inefficient, and discourages the formation of new businesses in Richmond's downtown and city core.

I'm not a paid lobbyist; I simply believe that Richmond's long term best interests lie in becoming an entertainment center for central Virginia and a tourist destination for the entire world. The City of Richmond's Admissions Tax is a formidable barrier to entry for the kinds of businesses Richmond needs to attract in the near future.

Revenue From the Admissions Tax

The City of Richmond imposes five taxes on various kinds of consumption:

• The Local 1% Sales Tax
• The Sales Tax for Education
• The Prepared Food Tax (i.e. the "Meals Tax")
• The Lodging Tax
• The Admissions Tax

For the fiscal year ended June 30, 2010, the City of Richmond took in a total of $634,534,129 in taxes and other revenues. Of this total, consumption taxes accounted for a total of $79,583,726, or about 12.88% of the city's total annual revenues. Drilling down further reveals that the Admissions Tax accounted for $2,181,971, or roughly 0.34% of all of Richmond's total annual revenues.

As a source of revenue, the Admissions Tax lags far behind the different kinds of sales tax, the prepared food tax, and the lodging tax imposed by the City of Richmond. Indeed, by discouraging the formation of businesses that provide ticketed entertainment within the City of Richmond, the admissions tax actually reduces the collection of these other taxes.

It's obvious from the outset that the size of the hole in Richmond's budget that would be created by the repeal of the admissions tax is not a very large one. The repeal of the admissions tax will not tear a giant hole in Richmond's budget; on the contrary, it should be very easy to offset this loss of revenue.


Revenue Enhancements to Offset Admissions Tax Repeal

The following sources represent sources of additional income for the City of Richmond that both result from admissions tax repeal and offset the lost tax revenue from admissions tax repeal.

Immediate Increase in Collections from certain City Taxes

Repealing the admissions tax will encourage more arts related businesses to begin sponsoring ticketed events in Richmond. An increase in musical performances, art exhibits, and other arts related events that charge admission will also lead to more potential customers in Richmond consuming other goods and services that are taxed more efficiently by the city. If the Richmond Coliseum books additional concerts, then more people will rent hotel rooms downtown and eat at Richmond restaurants, generating an uptick in the collection of revenue from hotel taxes and meal taxes. People who visit Richmond and shop at retail establishments will pay sales tax.

To take a recent example, consider the recent Picasso exhibition at the Virginia Museum of Fine Arts. According to a study by the consulting firm of Chmura Economics and Analytics that was quoted in the July 7, 2011 edition of the Richmond Times Dispatch, the Picasso exhibition drew almost $29 million in additional business to Richmond and Central Virginia and resulted in an additional $933,000 in state and local tax income. None of this additional tax revenue was from the admissions tax, because the Virginia Museum of Fine Arts is exempted from Richmond's admissions tax. By increasing the number of ticketed cultural events in Richmond, the repeal of the admissions tax will boost the revenue collected from the meals tax, hotel tax, and sales tax.

If the admissions tax is repealed, the City of Richmond will almost immediately begin to see an increase in the collections of these other taxes as more and more venues for musical, cultural, and artistic events open in the city.


Long Term Enhancement of the Real Estate Tax Base

The City of Richmond's single largest source of tax income is the city's real estate tax. In the city's FY2011 budget, the real estate tax accounts for $228,179,051, or nearly 55% of projected tax revenues. This is in spite of the fact that large portions of the City of Richmond's business real estate remains empty and unleased—most notably the area comprising the mayor's proposed arts district. Filling up the empty retail real estate in Central Richmond with an arts community and arts businesses could dramatically impact the value of real estate across much of central Richmond. An increase in Richmond's real estate tax base of a single percentage point (1%) would, in the long term, more than offset the cost of repealing the admissions tax.

Conclusion

The revenue lost from the repeal of the admissions tax will be replaced several times over by increased collections of the meals, hotel, sales and real estate taxes.

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