As a longtime tax credit for Charlottesville tech businesses nears the end of its life, city officials are looking for ways to expand the incentive to reach more local innovators.
In 2001, the city declared itself Virginia’s first “technology zone,” and began offering 50 percent relief on business license taxes for companies 5 years old or younger located within the city limits.
The credit served 47 city businesses last year and cost $105,000, or about $2,200 per business, in foregone tax revenue, said Todd Divers, Charlottesville commissioner of revenue.
The technology zone is set to expire Dec. 31, a deadline that Mayor Mike Signer said gives staff and the City Council enough time to revamp the stimulus.
“I am interested in how we could activate our credit, to make it more strategic and make it more targeted, a little bit more nimble,” Signer said.
Ideally, Signer said, a renewed credit would look similar to a technology zone Fredericksburg put in place in 2010.
That city’s incentive is limited to five commercial districts — one in downtown, two in the Central Park commercial district and two on major roads feeding the city — and is tiered to cater to brand-new and expanding businesses.
To qualify, existing tech businesses must either create at least five new jobs or attract $125,000 or more in capital investment. New businesses must bring at least 10 jobs or $250,000 or more in capital investment.
Those that qualify sign a three- to five-year agreement with the city and must submit performance data annually, said Bill Freehling, Fredericksburg’s interim director of economic development and tourism.
Qualified Fredericksburg businesses can receive a 100 percent discount on business license taxes and machinery and tools taxes for up to three years and 50 percent discounts for years four and five, according to the city’s website.
Fredericksburg also offers personal property tax grants of up to 30 percent for the first two years of a business’ existence, 50 percent for years three and four and up to 70 percent for year five.
Following that model more closely could breathe some life into Charlottesville’s credit, which, Signer said, should be better utilized.
“We just sort of have a one-size-fits-all, 50-percent citywide relief, that’s it,” he said. “While I think that it is a really good effort, the problem with it that I see is that it fades into the background because it is not that tailored and it is not that strategic.”
Four companies this year took advantage of Fredericksburg’s technology zones, Freehling said, and keeping tabs on those companies means significant staff time each year.
Companies that take advantage of the Fredericksburg credit must show each year that they are still meeting the terms of their agreement with the city, Freehling said.
If a company agrees to create at least 10 jobs, for example, it must show annually that it continues to meet those benchmarks.
That means work for city staff.
“We review it once a year, so it creates a decent amount of work at the beginning of the year,” Freehling said.
For Michael Prichard, founder and chief technology officer at WillowTree Apps, the Charlottesville tax credit was a real boon in the company’s earliest days.
“It was quite useful, as we were self-financed and every dollar counts, especially when you are starting a business,” Prichard said.
Though the incentive program does not carry an enormous dollar figure, Prichard said, the money means a lot to small companies.
“I feel phasing this program out will add another barrier to promoting technology companies in the area,” he said. “The beginning of a startup is very difficult and all the help the city can give is paramount.”
Charlottesville’s director of economic development, Chris Engel, said he and his staff will seek direction on the credit from the City Council at its meeting Oct. 17 .
“The technology zone has been a useful tool in growing the tech sector in the city as it sends a signal that we are interested in helping technology businesses succeed,” Engel said. “I hope it will be renewed in some form or another.”
