RCLCO Study on the Impact of Taxation and Other Costs

Total occupancy costs for each submarket.
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RCLCO (Robert Charles Lesser & Co.) was retained by Arlington Economic Development to conduct a study that compares the impact of taxation and other occupancy costs for office tenants in specific Washington area submarkets. The analysis evaluated the relative costs associated with a prospective tenant choosing an office location in Arlington submarkets (Rosslyn, Crystal City, R-B Corridor) compared to office submarkets in Tyson's Corner, Washington D.C. (Downtown, NOMA, Golden Triangle and Capitol Riverfront) and Maryland (Bethesda, Rockville and Silver Spring).

RCLCO examined the full range of state and local tax structures to understand which elements of the various tax codes would apply to the office occupancy of a business. In addition they also evaluated Class A rents and expenses that are typically included in a full-service lease, such as utilities, property insurance and operating expenses. Costs were analyzed for three “typical” prospective tenants: a corporation, a non-profit association and a federal agency.

The results of the cost comparison indicate that all Arlington submarkets are more affordable than the District for corporations, associations and federal agencies. On average, a downtown D.C. location is 34% more expensive for a typical corporate tenant and 39% more expensive for a nonprofit association or federal agency than Arlington. The cost of locating in the emerging office submarkets of NOMA and Capitol Riverfront is 14% to 16% higher.

Arlington’s competitive position with the office submarket of Tyson's Corner and Maryland submarkets is mixed. As an office location, Arlington is less affordable than the suburban locations of Rockville and Silver Spring. However, Rosslyn, the most expensive submarket in Arlington, is less affordable than Tyson’s Corner and Bethesda. Crystal City and Other R-B Corridor submarkets are more affordable as office locations.

A further examination of the two major categories of costs – 1) costs typically included in a full-service lease and 2) costs paid directly by tenants – provides insights into how tax structures affect types of users and why merely comparing tax rates does not provide a complete picture of the full tenant cost burden across jurisdictions. For example, Arlington corporations must pay personal property and gross receipts taxes, and Maryland corporations pay neither of these taxes. However, income taxes – which are required in both jurisdictions – are much higher in Maryland than in Virginia resulting in a slightly higher total cost for Maryland corporations. Costs paid directly by corporations in the District are substantially higher than in Virginia or Maryland jurisdictions. Tyson's Corner has the lowest costs paid directly by corporation tenants among all submarkets in this analysis.

For nonprofit associations, direct tenant costs are more affordable in the District primarily because they are exempt from personal property tax in the district, but must pay this tax in Virginia and Maryland.

For more information on taxes in Arlington, including information on tax payments, contact Arlington's Commissioner of the Revenue

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