GENERAL INFORMATION

The City of Alexandria welcomes you and appreciates your interest in conducting business in the City. The City extends this privilege to all qualified corporations, partnerships, and individuals who wish to engage in business here. 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 application and with the calculation of the yearly business license tax.

In order to obtain a City business license, you must complete an annual business license application and, where necessary, pay a business license tax which is based on the gross receipts that your business earns during the prior year in business. Because the new business does not have prior year's gross receipts for a full year in business, the business license applicant is allowed to estimate the business' gross receipts earnings until the business has completed its first full calendar year in business. This period is called the business license base adjustment period. During this time, a business is allowed to pay the business license tax based on estimated gross receipts rather than actual gross receipts. This period extends from the day a new business begins through the end of the business' first complete calendar year in business.

If a new business underestimates its gross receipts earned during its first year of business, it will pay an additional tax amount when renewing its application during the business license renewal season (yearly business license applications and tax payments are due to the Alexandria Business Tax Branch on or before January 31 of each tax year). This additional tax amount is calculated by determining the difference between the estimated and actual figures entered on the renewal application presented to the City at license renewal. However, if a business overestimates its gross receipts earned, a credit is applied to the tax amount due at the business license renewal season.

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. We hope you will find the examples helpful. The City welcomes your business and encourages you to call the Business Tax Branch at (703) 703-838-4680 if you have any questions or concerns.

TAX CALCULATION FOR A NEW BUSINESS

A new business license tax is based on an estimate until the business has been in operation for one full calendar year. For example, a firm that starts business on January 1 will estimate its gross receipts for one year. Whereas, a firm that starts business after January 1 will estimate its gross receipts for two tax years (the firm's short first year of operation and the firm's second year of operation).

The amount of tax a new business will pay is determined by multiplying the tax rate 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). If a business has overpaid or underpaid, based on its estimate, the tax amount will be adjusted after that calendar year.

If a business has a short first calendar year of operations, a final license base adjustment will be made after the second calendar year. From this point on, the amount of tax the business pays for all prospective annual licenses will be based on the previous year's actual gross receipts.

EXAMPLE:

On March 1, 1991 (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 1991) the company paid a tax of $196.00 ($56,000 x .0035 (business service tax rate)=$196.00).

On its 1992 business license renewal application (year 2), ABC Corporation reported that its actual gross receipts for 1991 (year 1) were $96,000. Because ABC Corporation earned more in 1991 (its short first year of operations) than it estimated, it must pay a tax on the difference. The business license taxes (paid by January 31, 1992) for the 1992 business license is calculated as follows:

1. Because ABC Corporation underpaid its 1991 (year 1) taxes, the company must pay an additional tax. The additional tax is calculated by subtracting the estimated gross receipts of $56,000 from the actual gross receipts of $96,000 to arrive at a license base adjustment of $40,000 ($96,000 - $56,000 = $40,000).
2. The additional tax is calculated by multiplying the license base adjustment of $40,000 by the tax rate. ($40,000 x .0035 = $140.00). ABC owes the City an additional $140.00 for its first year of operation.
3. Because ABC Corporation was not in business for a full year, the company must estimate again for calendar year 1992 (year 2). On its 1992 business license application, ABC estimated that it would earn $125,000 during calendar 1992 (year 2). The business license tax due on January 31, 1992 for the 1992 business license (year 2) would be $437.50 ($125,000 x .0035 = $437.50).
4. ABC's total tax due on January 31, 1992 would be $577.50. $140.00 for the correction of the year 1 estimate and $437.50 for the year 2 license ($140.00 + $437.50 = $577.50).

As of January 1993, ABC Corporation would have been in operation for one full calendar year. When the company applied for its 1993 (year 3) business license, the company could no longer pay based on an estimate.

On its 1993 business license renewal application (due January 31, 1993), ABC Corporation reported 1992 (year 2) actual gross receipts of $140,000. The business license taxes paid by January 31, 1993 with the 1993 (year 3) business license application are calculated as follows:

1. Since ABC Corporation earned more in 1992 (year 2) than it estimated, the company underpaid its 1992 (year 2) taxes. The company must pay an additional tax, which is calculated by subtracting the estimated gross receipts of $125,000 from the actual gross receipts of $140,000 to arrive at a license base adjustment of $15,000 ($140,000 - $125,000 = $15,000).
2. The additional tax is calculated by multiplying the license base adjustment of $15,000 by the tax rate. ($15,000 x .0035 = $52.50). ABC owes the City an additional $52.50 for its second year in operation.
3. Also, ABC Corporation must pay a tax for the 1993 (year 3) business license of $490.00. The tax for the 1993 license (year 3) is based on the previous year's (year 2) actual gross receipts, which is the first full calendar year of operation. The 1993 business license tax of $490.00 is calculated by multiplying the 1992 (year 2) actual gross receipts ($140,000) by tax rate of .0035 ($140,000 x .0035 = $490.00).
4. ABC Corporation's total tax due on January 31, 1993 would be $542.50, $52.50 for the correction of the year 2 estimate and $490.00 for the year 3 license ($52.50 + $490.00 = $542.50).

After January 31, 1993, ABC Corporation's annual business license tax will be based on the prior year's actual gross receipts.

NOTE: In the above example, if ABC Corporation had paid taxes on an overestimate rather than an underestimate of actual gross receipts, the company would be issued a credit for any overpayment of taxes.

 

 

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