Henrico asks for help with mail addresses

Henrico County expects to recover millions in misdirected tax dollars by instituting mailing addresses that distinguish its homes and businesses from those in the city of Richmond.

But that's only part of the solution.

To fix the larger problem, Henrico is asking the General Assembly to establish a joint study committee to examine the state's processes for identifying, collecting and remitting money to localities.

"While the ZIP code change will begin to fix an individual issue for Henrico, the larger problems are not limited to Henrico alone. These are statewide and systemic problems," county legislative liaison Michael Schnurman told General Assembly representatives last week.

Since 2001, Henrico has identified more than 400 companies whose locally generated revenue was incorrectly reported for other localities, Schnurman said.

Although many tax discrepancies between Richmond and Henrico are reconciled, it is impossible to verify each of the estimated 3 million taxable transactions that occur in Henrico each year, county Finance Director John A. Vithoulkas has said.

Vithoulkas presented legislators an example where the state disbursed sales tax collected from an Internet movie-rental business. In one month, Chesterfield County received $10.36 in sales tax collected by the company and Henrico received $11.79, but Richmond received $15,818.75.

The problem partly stems from Virginia's independent-city structure and the fact that ZIP code boundaries, designed for the efficient delivery of mail, don't always follow jurisdictional boundaries.

Some mistakes, for example, are made by out-of-state companies that do business in Henrico, whether at retail locations or through catalog or Internet sales, but send sales-tax payments to the Virginia Department of Taxation for transactions reported as having occurred in Richmond. The state then funnels the money to the named locality.

Vithoulkas said many mistakes stem from the way the state Taxation Department requires businesses to identify where sales occur -- by locality name in the address rather than the ZIP code. Local commissioners of the revenue and finance officials also have had their access cut off to certain state Taxation Department records, making it more difficult for them to spot errors, he said.

The Taxation Department also charges local governments administration fees for dispersing locally generated sales taxes.

"In 2007, Henrico alone paid $327,000 to have its local revenues misidentified, collected, miscoded and remitted inaccurately," Schnurman said.

Contact Melodie N. Martin at (804) 649-6290 or .