Henrico says ZIP code switch has generated $2 million

MORE:

• Henrico says ZIP code switch has generated $2 million

• Va. localities squeezed by drop in sales-tax revenue

Henrico County is reaping the rewards of a new mailing address by harvesting increasingly scarce sales-tax dollars that had been going to Richmond.

The formal transfer of multiple ZIP codes to "Henrico, VA" on Jan. 1 already has resulted in $2 million in additional tax and business license revenue, according to county finance officials. They say the switch has been a lifesaver as the recession continues to put a deep dent in taxable sales.

The county began using the mailing address informally in October as part of a campaign aimed particularly at sales on the Internet, where many vendors may have been reporting taxable sales to the wrong locality.

"I'm encouraged by what I've seen so far," Henrico Finance Director John A. Vithoulkas said. "We are tracking a little bit ahead of what we expected."

The address change represents a continuing challenge for the city of Richmond, which could face the same kind of competition for the hearts and tax dollars of Chesterfield County businesses that have city mailing addresses now.

However, Richmond officials say they have not seen any effect on sales-tax collections, which are running only 1.28 percent below the previous fiscal year at this date.

"We are not seeing any significant change in the trends experienced by the city of Richmond that are any different than the trends experienced by any other Richmond-area locality," said Tammy D. Hawley, spokeswoman for Mayor Dwight C. Jones.

Hawley would not comment on Henrico's assertions that the county has gained revenue from the address changes. "We've not analyzed our sales-tax revenue based on those addresses," she said Friday.

Chesterfield finance officials plan to report to the Board of Supervisors next month on ongoing plans for converting mailing addresses now covered by Richmond, Petersburg and Colonial Heights. They think the changes could generate an additional $1.6 million to $2 million a year for the county, primarily through the 1 percent local option sales tax that returns to the locality where it is generated.

Henrico officials estimate that at least $5 million in tax revenue generated in the county has gone to the city each year, instead of Henrico, because of the Richmond mailing address in 16 postal ZIP codes, including five that cross the city line.

In one case alone, officials said, a Henrico business that buys heavy equipment from an out-of-state dealer has paid $229,000 in sales tax to the county in the past four months, compared with $17,000 in the eight previous months.

"The whole address thing with Henrico is not a city issue -- it's really a revenue issue," Vithoulkas said. "Everybody is trying to protect their base."

For Henrico, the sales tax is a big source of income -- the county has the second-highest total of taxable sales of any locality in Virginia, trailing only Fairfax County. The county generated more than $4.9 billion in taxable sales last year, or about $17,000 per resident.

Sales have taken a big hit in a recession that has eliminated more than 6,000 jobs in Henrico. Yet county officials say their local sales-tax revenue is down only 2.4 percent so far this year, far higher than they expected at a time when collections are down statewide.

"You would expect a dramatic drop, and right now we're pretty much flat," said Edward W. Trice, the county's revenue director. "Flat is great."

Henrico officials say monthly sales-tax revenue, based on collections from two months previous, have begun to tell the story, with the county showing better results than the city and other neighboring localities in the past two months. In April, for example, Henrico's sales-tax revenue dropped 0.25 percent compared with the same month a year ago, while revenue declined almost 26 percent in Richmond, nearly 24 percent in Hanover County and more than 13 percent in Chesterfield.

Allan Carmody, director of budget and finance in Chesterfield, cautioned against reading too much into monthly sales-tax results. He said his county's sales-tax revenue is down about 5.5 percent to 6 percent for the year to date.

"You don't see any consistency in month over month totals," he said.

Henrico officials are happy with the results any way they read them. They didn't realize the economy was heading into deep recession when they proposed the address change, but they say the switch has been a salvation.

"It was just luck, coincidence, call it what you want," Vithoulkas said, "but the timing could not have been better."

Contact Michael Martz at (804) 649-6964 or mmartz@timesdispatch.com.