Schapiro: Tax bill creeps up on IT firm

As if the state's snakebit computer contractor, Northrop Grumman, hasn't enough to answer for. Add to complaints about rotten service, rising costs and delays in refitting IT systems, this headache: unpaid local taxes, perhaps $15 million.

But before you pop Northrop Grumman for another mess, know that the company and tax collectors apparently are working harmoniously to settle this matter, trying to determine what's been paid, what hasn't, what's subject to interest and penalties.

And while that would stand in stark contrast with the nasty shoving match between the state and Northrop Grumman over a colossal 10-year, $2.3 billion contract, the tax issue is a comparatively penny-ante reminder of the pricey complexities of privatization.

Here's the situation: As a business operating in Virginia, Northrop Grumman is required to pay taxes on hard assets, wherever they are located. For example, computers owned by Northrop Grumman and supplied to the state, and, say, located at a mental hospital in Smyth County, are subject to that locality's tangible property tax.

Since Northrop Grumman is providing Virginia with nearly 60,000 computers, and they're scattered across the state, the tax bills are numerous and vary from county to county, city to city. That's because they have different rates.

In Chesterfield County, home to headquarters Northrop Grumman shares with its lead customer, the Virginia Information Technologies Agency, the rate is $3.60 per $100 value. Fairfax City, with a couple of state liquor stores and a health department office, charges $4.13. And in Smyth County, where this story began (more on that later), the rate is $2.25

Another complication: All this gear has been moved into VDOT field offices, prisons -- you name it -- over the past three years. Northrop Grumman, which recovers sales taxes it pays on purchases made in behalf of VITA, may not have fully accounted for the equipment to local tax officials.

Thus, Northrop Grumman potentially faces a 10 percent penalty if it failed to report assets and another 10 percent if it did not pay the annual tax. Business can challenge the tax -- a process that can continue for two years if it's going smoothly; a lot longer if it goes to court.

Thank Jeff Richardson for busting the code on this commonwealth-spanning complication. He's commissioner of revenue in Smyth County.

About four months ago, Richardson learned Northrop Grumman had taken out a business license in the town of Marion for a computer operation at the mental hospital there, replacing its state-run IT department.

Richardson also checked the social services office where his wife is a clerk and noticed a tag on her computer identifying it as property of Northrop Grumman.

Richardson figured commissioners of revenue elsewhere, scrambling, as he was, for cash for their strapped localities, may have made similar discoveries -- or not.

The latter was the case. Commissioners, through their association, put together a committee to haggle with Northrop Grumman. Richardson and others say the company, which had no immediate comment, has been cooperative.

Maybe Northrop Grumman is willing to pay to make this problem go away.

Contact Jeff E. Schapiro at (804) 6496814 or . Watch his video column Thursdays on TimesDispatch.com. Follow him at twitter.com/RTDSchapiro. Listen to his analysis Fridays at 8:33 a.m. on WCVE (88.9 FM).