Local governments primarily finance their operations with revenue they generate from their own taxes and fees. Additionally, local governments receive revenue from the state government and federal government.
Types of Local Revenue
Real property tax. The Constitution of Virginia grants local governments the sole right to tax real estate. Further, it requires that (1) all property shall be taxed (except for classifications that are made exempt by the General Assembly); (2) all taxes shall be uniform on the same class of subjects; and (3) all assessments of property shall be at fair market value. The real property tax is the single largest source of local government revenue. For cities and counties combined it represents about 46 percent of all local revenue.
The amount of revenue generated by the real property taxes depends on the total assessed valuation and the tax rate. Cities are generally required to reassess every two years. Counties reassess every one to six years. The board of equalization is a three to five person board typically appointed by the circuit court to hear complaints about real estate assessments. There is no upper limit on the tax rate that localities can impose on real property. (In recent years, many localities have lowered the rates for seniors and residents with disabilities. Local governments are required to exempt the property of veterans who are 100 percent disabled.)
Tangible personal property tax: The Constitution of Virginia grants localities the exclusive right to tax tangible personal property. The personal property tax is the second largest source of revenue for localities. The tax is applied to items such as motor vehicles, business furniture and fixtures, boats, recreational vehicles, and farming equipment. The tax is imposed where the property has situs; i.e., the physical location of the property on the tax day, or where it is normally garaged or kept. A portion of the personal property tax on personally owned vehicles is now paid by the state on behalf of the taxpayer.
Machinery and Tools Tax: The machinery and tools tax is a form of the personal property tax assessed on manufacturing, mining, or processing equipment.
Local sales and use tax. The local sales and use tax is levied by every city and county in Virginia at the maximum rate of 1.0 percent. It is collected by the state along with the state sales tax. The county and its towns, based on the ratio of the town’s school-age population to that of the entire county, share one-half of each county’s 1.0 percent sales tax.
Of the state’s 5.0 percent sales tax (4.0 percent state tax and 1.0 percent local tax), 1.25 percent is distributed to cities, counties, and those towns that operate a school division, based on the ratio of a locality’s school-age population to the school-age population statewide.
Service Delivery
Virginia’s local government revenue structure supports a diverse number of local government services. These include:
Law Enforcement (If you are interested in learning more, click here)
Fire and Emergency Medical Services (If you are interested in learning more, click here)
Emergency Management (If you are interested in learning more, click here)
Public Works (If you are interested in learning more, click here)
Public Education (If you are interested in learning more, click here)
Human Services (If you are interested in learning more, click here)
Parks and Recreation (If you are interested in learning more, click here)
Libraries (If you are interested in learning more, click here)
Planning (If you are interested in learning more, click here)
Economic Development (If you are interested in learning more, click here)
General Management (If you are interested in learning more, click here)
In this video Mr. Kimball Payne, city manager for Lynchburg, Virginia, and Ms. Bonnie Svrcek, deputy city manager for Lynchburg, Virginia, describe the complex and challenging world of financing and delivering local government services in the 21st century.