Norfolk clears path to tax contractors on Navy base

NORFOLK

The city hopes to generate new and much-needed funds by taxing contractors and other companies that operate at Norfolk Naval Station.

Commissioner of the Revenue Sharon McDonald said she has reached an "unprecedented agreement" with Rear Adm. Mark Boensel, the commander of the Mid-Atlantic Naval Region, that will help her collect taxes.

While the military is not taxed for land, contractors and other businesses that operate on government installations could be subject to local taxes, including a business license and business personal property tax. McDonald's office has identified 59 contractors that had not paid taxes while working on Norfolk Naval Station between 2005 and 2010.

She recovered more than $2 million in back taxes.

For the city, information about potentially taxable contractors is "the elusive pot of gold at the end of the rainbow," McDonald said.

In Hampton, where Commissioner of the Revenue Ross A. Mugler said his office has collected from military contractors for years, taxes from such businesses bring in more than $1 million a year. Mugler and several other local commissioners of the revenue said they review employment listings, websites and other publications to identify businesses operating on military installations in their communities.

McDonald said her office has struggled to identify contractors and other businesses on the base, in part, because of "severe but necessary access restrictions." New websites that list information about contractors working on military installations helped McDonald identify the 59 delinquent businesses in the past year, but she said access to the base is crucial for identifying retail operations.

An Aug. 12 letter to McDonald from the Navy outlines protocol and points of contact that will help the commissioner do her job.McDonald also will receive an annual list of boat owners and vessel types docked at the naval station marina.

While active-duty service members are exempt from paying taxes on their boats, McDonald said it's possible some retired military personnel keep their boats there and have not been paying taxes.

The letter also gives McDonald permission to tour the base twice a year to conduct investigations and inspections.

Beth Baker, a public affairs officer for the Mid-Atlantic Naval Region, would not describe the letter from the Navy to McDonald as an agreement but rather a document that updates and outlines protocols that previously existed.

"The Navy has never done anything nor would we ever do anything to interfere with the commissioner's responsibilities," Baker said. "If she wanted to access the installation, she simply needed to call."

McDonald said accessing the businesses on the base was never as simple as that. It took more than nine months to iron out the details of the arrangement, said Charlie Hartig, spokesman for McDonald's office.

"We would not have gone through all that trouble if it would've taken only a phone call," he said.

The formality of the letter is important, McDonald said.

"Because we never had the ability to freely get on the base and canvass, we didn't know who was there," McDonald said. "Now I don't have to sneak around or wait to hire a military person so that I can do my job. I have an agreement, a letter of understanding, that acknowledges my right to be on that base."

Commissioners of the revenue in Virginia Beach, Newport News and Hampton said they have collected taxes and prosecuted delinquent taxpayers on military installations in their cities for years.

Often, said Dottie Shurtz, deputy commissioner for business revenue in Virginia Beach, businesses with jobs on military bases asked about acquiring licenses.

"I think people want to do the right thing most of the time," Shurtz said.

McDonald said some contractors at Norfolk Naval Station paid taxes. Others among the 59 contractors that did not pay knew they were breaking the law.

"You finally caught me," McDonald said a contractor told one of her auditors.

"It took you long enough," McDonald said, quoting another.

Half a dozen of the contractors who were on the list of 59 did not return phone calls Wednesday.

Sarah Hutchins, (757) 446-2326, sarah.hutchins@pilotonline.com