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City of Alexandria, VA City of Alexandria, VA
Finance
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Page updated Mar 29, 2013 1:25 PM
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How Business License Tax Is Calculated

The City extends the privilege of conducting business in the City to all qualified corporations, partnerships, and individuals. In order to further the City's strong commitment to providing efficient and responsive services to the community, this document has been designed to assist new businesses in the preparation of their annual business license applications and with the calculation of the yearly business license tax.

The following is a detailed explanation of the calculation method used in computing the business license tax for a new business, a business undergoing a business license base adjustment, and a business that has moved into the regular yearly business license renewal cycle. Each of these phases of the license calculation process will be explained and an example will be provided to illustrate the calculation process.

Tax Calculation

For questions about doing business in the City, contact:

Business Tax
301 King Street, Room 1700
Alexandria, VA 22314
703.746.3903
Email: Email button(1)

 


Tax Calculation for a New Business

Note: The tax rate structure below does not apply to the following business tax categories: regulatory activities, contractors, wholesalers, rents commercial and residential property, amusements and utility companies. 

A new business license tax is based on an estimate for its first year of operation. The amount of tax a new business will pay is determined by the estimated gross receipts the business anticipates earning, from the beginning date of operation to the end of the calendar year (December 31 of each year). The amount of tax for new businesses with estimated receipts of $2 million or greater is determined by multiplying the tax rate by the estimated gross receipts. Whenever a license tax is computed upon estimated gross receipts of $2 million or greater, the business license tax will be adjusted for any underpayment or overpayment at the end of that calendar year.

In the first year of operation, the license tax for new businesses is calculated as follows: 

Estimated Gross ReceiptsLicense Tax Calculation
$0 - $99,999$0
$100,000 - $1,999,999$50 Flat Fee
$2,000,000 and aboveGross Receipts X Tax Rate

For the second year of operation, the amount of tax the business pays for all prospective annual licenses will be based on the previous year's actual gross receipts, unless the actual gross receipts for the first license year of the business were $2 million or greater.

If the actual gross receipts were $2 million or greater for the first license year of operation and business start date is after January 1, a business must estimate gross receipts for its second license year of operation. However, if the actual gross receipts were $2 million or greater for the first license year of operation and the business start date is January 1, the amount of tax will no longer be based on an estimate of gross receipts. The amount of tax the business will pay will be based on the prior year's actual gross receipts with an adjustment made for any underpayment or overpayment from the prior year's estimate.

After the first year, the license tax for all businesses is calculated as follows: 

Estimated or Actual
Gross Receipts
License Tax Calculation
$0 - $9,999$0
$10,000 - $99,999$50 Flat Fee
$100,000 and aboveGross Receipts X Tax Rate

 

 


 

Example 1 (First year estimated gross receipts below $2 million): 

On March 1, 2011 (year 1), ABC Corporation, a building maintenance firm, commenced business in the City and estimated its gross receipts for the calendar year at $56,000. When ABC Corporation obtained its original business license (March 2011) the company paid no tax because its estimated gross receipts were below $100,000.

On its 2012 business license renewal application (year 2), ABC Corporation reported that its actual gross receipts for 2011 (year 1) were $196,000. This will be the basis for the business license tax in 2012 (year 2). The business license tax due on March 1, 2012, for the 2012 business license (year 2) is $686.00 ($196,000 x .0035 = $686.00).

ABC Corporation's annual business license tax for all subsequent years will be based on the prior year's actual gross receipts.

Example 2 (First year estimated gross receipts $2 million or greater and start date after January 1):

On March 1, 2011 (year 1), Building, Inc., a building maintenance firm, commenced business in the City and estimated its gross receipts for the calendar year at $2 million. When Building, Inc. obtained its original business license (March 2011), the company paid $7,000 in business license tax ($2 million X tax rate of .0035 = $7,000).

On its 2012 business license renewal application (year 2), Building, Inc. reported that its actual gross receipts for 2011 (year 1) were $2.5 million. The business license taxes (paid by March 1, 2012) for the 2012 business license is calculated as follows:

  1. Since Building, Inc.'s actual 2011 gross receipts were greater than the estimated $2 million, it must pay an adjusted tax, which is calculated by subtracting the estimated gross receipts of $2 million from the actual gross receipts of $2.5 million to arrive at a license base adjustment of $500,000. ($2,500,000 - $2,000,000 = $500,000). Building, Inc. would owe the City an additional $1,750 for the underpayment of 2011 taxes ($500,000 X .0035 = $1,750).
  2. On its 2012 business license application, Building, Inc. estimated that it would earn $3 million during calendar 2012 (year 2). The business license tax due on March 1, 2012, for the 2012 business license (year 2) would be $10,500. ($3 million x .0035 = $10,500).
  3. Building, Inc.'s total tax due on March 1, 2012, would be $12,250: $1,750 for the adjustment of the year 1 estimate and $10,500 for the year 2 license ($10,500 + $1,750 = $12,250).

As of January 2013, Building, Inc. will have been in operation for one full calendar year. When the company applies for its 2013 (year 3) business license, the company will no longer pay based on an estimate. On its 2013 business license renewal application, Building, Inc. will report 2012 (year 2) actual gross receipts of $3.5 million. The business license taxes due by March 1, 2013 with the 2013(year 3) business license application are calculated as follows:

  1. Since Building, Inc. earned more in 2012 (year 2) than it estimated, the company must pay an adjusted tax, which is calculated by subtracting the estimated gross receipts of $3 million from the actual gross receipts of $3.5 million to arrive at a license base adjustment of $500,000 ($3,500,000 - $3,000,000 = $500,000). Building, Inc. would owe the City an additional $1,750 for the underpayment of 2012 taxes ($500,000 X .0035 = $1,750).
  2. Also, Building, Inc. must pay a tax for the 2013 (year 3) business license of $12, 250. ($3.5 million x .0035 = $12,250).
  3. Building, Inc.'s total tax due on March 1, 2013, would be $14,000: $1,750 for the adjustment of the year 2 estimate and $12,250 for the year 3 license ($1,750 + $12,250 = $14,000).

Building, Inc.'s annual business license tax for all subsequent years will be based on the prior year's actual gross receipts.

Example 3 (First year estimated gross receipts $2 million or greater but actual gross receipts less than $2 million):

On March 1, 2011 (year 1), Building, Inc., a building maintenance firm, commenced business in the City and estimated its gross receipts for the calendar year at $2 million. When Building, Inc. obtained its original business license (March 2011), the company paid $7,000 in business license tax ($2 million X tax rate of .0035 = $7,000).

On its 2012 business license renewal application (year 2), Building, Inc. reported that its actual gross receipts for 2011 (year 1) were $1.5 million. The business license taxes (paid by March 1, 2012) for the 2012 business license is calculated as follows:

  1. Since Building, Inc.'s actual 2011 gross receipts were less than the estimated $2 million, it is due a refund, which is calculated by subtracting the $50 minimum tax from the tax paid for 2011. The City would owe Building, Inc. $6,950 for the overpayment of 2011 taxes ($7,000 - $50 = $6,950).
  2. On its 2012 business license application, Building, Inc. would calculate its tax based on 2011 actual gross receipts of $1.5 million, yielding a tax of $5,250 ($1,500,000 X .0035 = $5,250).
  3. Since the tax due of $5,250 for 2012 is less than the overpayment of $6,050 on 2011 taxes, Building, Inc. would be owed a refund of $1,700 ($6,950 - $5,250 = $1,700).

Building, Inc.'s annual business license tax for all subsequent years will be based on the prior year's actual gross receipts.

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Tax Calculation for an Existing Business

There is no estimation of gross receipts for existing businesses. Instead, the business license tax is based solely on the previous year's actual gross receipts. The license tax for existing businesses is calculated as follows:

Estimated or Actual
Gross Receipts
License Tax Calculation
$0 - $9,999$0
$10,000 - $99,999$50 Flat Fee
$100,000 and aboveGross Receipts X Tax Rate

 

 

 

 

Example:  As of January 2012, CR Business Services had been in operation for ten years. On its 2012 business license renewal application (due March 1, 2012), CR Business Services reported 2011 actual gross receipts of $140,000. The business license taxes paid by March 1, 2012 are calculated as follows:

  • CR Business Services must pay a tax for the 2012 business license of $490.00. The tax for the 2012 license is based on the previous year's actual gross receipts. The 2012 business license tax of $490.00 is calculated by multiplying the 2011 actual gross receipts ($140,000) by the tax rate of .0035
    ($140,000 x .0035 = $490.00).

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301 King St.
Alexandria, VA 22314
703.746.3900
Fax: 703.838.4987
E-mail

Office Hours:
Monday - Friday
8 a.m. - 5 p.m.