Falls Church Jumps on Tech Zone Bandwagon

Falls Church Jumps on Tech Zone Bandwagon

By Bob Starzynski
Staff Writer

Falls Church, Va., officials hope a new tax-incentive program will spark the kind of high-technology business growth that the city's neighbors elsewhere in Fairfax County have enjoyed for the past decade.

On April 1, Falls Church will become the second jurisdiction in Virginia to host a technology zone program that offers tax breaks to high-tech companies.

Under the plan, qualified companies in Falls Church can avoid having to pay their business, professional and occupational license taxes for three years. The BPOL tax, also referred to as a gross receipts tax, is the business equivalent of personal income tax and typically ranges from one-tenth to one-half of a percent of revenue.

Proponents of the Falls Church tech zone want to attract the types of software, communications and systems integration companies that for years have flocked to the Dulles Corridor. While many counties and jurisdictions offer such tax incentives on a case-by-case basis, such industry-wide tax waivers as the one in Falls Church are still uncommon.

"The perception has been for a long time that Falls Church is not a good place to do business," said David Holmes, the recently appointed executive director of Falls Church's Economic Development Authority. "The fact that the city is pioneering this program is an attention-getter."

Holmes came to Falls Church seven weeks ago after similar stints in Yonkers, N.Y., and New Haven, Conn. Until now, Falls Church, an independent city of 10,000 people, did not have a director of economic development, let alone a government authority to handle the task.

"Tax incentives can be very appealing to technology companies," said Dale Powell, president of Irving Group, a commercial real estate company in McLean, Va., that focuses on the technology market. "The tech zone could be a huge help for Falls Church."

Holmes did not have an exact count of technology companies in Falls Church but said that considering the city's size and available office space, the number is far below Fairfax County, home to such prime tech addresses as Vienna, Reston, Herndon and McLean.

Historically, technology businesses have moved to the outskirts of metropolitan areas, where office space is cheaper and closer to bedroom communities. Low-rise office parks in Herndon are therefore more attractive than older, smaller offices in Falls Church.

Holmes, who spent several years in the commercial real estate market, hopes to change the offering of office space in his new jurisdiction.

"I am now working with several developers to create new, dense, mixed-use space," Holmes said. Such projects would include large office buildings with street-side retail space and parking garages.

The technology zone program is an incentive for growth of companies already established in Falls Church and an incentive for relocation of companies outside of the city, Holmes said.

When deciding on the structure and feasibility of the program, Falls Church officials turned to Winchester, Va., a town 65 miles west of Washington. The rural, historic town of 22,000 became the first community in the state to implement a technology zone program last year.

"Since we put the program in place, we have had three businesses qualify for the program," said Lise Sundrela, the technology zone administrator in Winchester, "and a fourth is going to move next month from outside the community."

In Winchester, two of the program's companies were already in the program's geographic zone. The third company moved into the zone but was already in the region.

Sundrela cautioned that it is difficult to measure the success of the program in Winchester because it has not been heavily marketed outside the region and because the town did not set an expectation of business it would draw. "We simply wanted another tool for economic development."

The BPOL tax and personal property tax - a tax on the assets of a company - are considered to be the two most burdensome taxes in the technology industry. Small technology companies that have large costs of research, development, marketing and equipment will frequently shop around for the most economical location rather than taking the prime, class-A space that a law firm or advertising agency with the same revenue would select.

In Falls Church, the technology zone program could draw small businesses from around the Washington region. Said Holmes: "Falls Church is known as a residential community. If all goes well, it will be known as a technology incubator community."

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