Virginia is for lovers… of taxes

You may read time and time again that Virginia is a state (commonwealth) that is the least burdensome on taxes. But is it? If you look at the numbers, what you actually pay taxes on, I think it’s the opposite. On paper, in a perfect utopia, it is. But the reality is, it isn’t.

In a way, it’s a bit like saying “there’s no financial burden to owning a car” but conveniently leaving out the bits that are basically required – like paying for your registration, oil changes, brake fluid changes, tire rotations, tire replacement, etc. Eventually, all these costs add up and owning a car can be a financial burden. Living and working somewhere is also the same. Between state and federal income taxes, there could be personal property taxes – a very antiquated way of collecting taxes before income taxes were a thing. Going back to the car ownership analogy, Virginia still has a personal property tax for individuals on vehicles. That means you’re given a tax bill, depending on the county, once or twice per year that you must pay for the simple pleasure of owning a necessity. If you don’t pay, like any tax, your wages can be garnished, your vehicle’s registration can be blocked, your assets taken. So how do you not pay this tax, legally? You don’t own a car.

But let’s talk business. Virginia, like many states, has a personal property tax that applies to businesses. In addition to income, businesses must also pay taxes based on the “fair market value” of that asset. Fair Market Value means that if the market decides that a specific office desk chair is worth $250, you pay a percentage of $250, depreciating, until you meet a maximum age regardless of what you paid for the chair. If you bought it for $25 used, you still must pay the appropriate tax rate, based on the year you purchased it at the fair market value.

How Virginia has implemented this business personal property tax has a glaring flaw. There is a creative license to each county as to how to tax tangible property. Some counties will only tax tangible property that is physically located in your principle location in the county. Others can tax tangible personal property physically located in another state! That’s not right or fair. Additionally, the taxation rules vary. For instance, our former county considers servers “obsolete” after 5 years – that means a 0% tax rate. Other counties, like Stafford County, will keep charging 5% of the “retail market value” of computer equipment until it’s disposed of. Does that sound right, or fair?

Further, the tax law says that if anything is used for business, you have to pay tax on it and again, there is a creative license here.

Business tangible property includes property owned by the business, property owned personally and used in the business on a full- or part-time basis, property received as a gift, property that is leased or rented, and property that is fully depreciated or expensed for federal tax purposes.

Fairfax County (Understanding Tangible Business Personal Property)

I didn’t ask our company CPA firm or our lawyer about this, but it sounds like, if you fairly regularly travel for work, and do work from airports and air planes, you must count the value of airports and air planes used by you. Again, nothing in the law says you don’t include these items because if you travel a lot full-time, it’s “used in the business”. Common sense says you wouldn’t include these items, but in my experience of business ownership, you cannot assume anything.

As a remote company, this means that if a hypothetical team member is working for us out of Florida, we would owe taxes on the computer, desk, and chair that they may have purchased with their own money and is not our property. That’s not fair.

Personal Property Taxes are ‘Destructive’

At least that is what the State of Michigan thinks. In 2011, Michigan passed the 2011 PA 39 which abolished the destructive Michigan Business Tax. This means that new businesses to the state, like ours, are not subject to the personal property tax. Existing businesses will have their personal property taxes slowly removed until 2024 when all businesses will no longer have personal property tax bills.

This law repealing the taxes has the following provisions:

• Beginning January 1, 2014, all new business personal property valued at $40,000 or less will be exempt from the tax.
• Beginning January 1, 2016, all new business personal property, as well as all personal property purchased between 2013 and 2015, will be exempt from the tax.
• Beginning January 1, 2016, all business personal property at least 10 years old will be exempt from the tax. This will continually roll old personal property off the tax rolls until all business property is exempt in 2024.

Can you guess what happened next? Within a few months of the law going into effect, Michigan’s unemployment rate dropped from 15% to 8.9% – this was in 2012.

The current unemployment rate in Michigan as of July 2023 is 3.6%.

Further, Michigan currently has tax incentives for data centers to move to Michigan. That means companies like ours, that invest in high paying technology jobs, are able to buy data center equipment with a sales tax exemption. That saves big money.

For the record, this tax repeal was signed in by a Republican governor.

Everyone wins with simplified taxes

Michigan still has to make money. Instead of taxing businesses to death to the point where they either go out of business completely due to bankruptcy or leave the state (taking jobs and hurting the local economy), the corporate tax rate is a flat 6%. That means we don’t have to adjust the value of every server, every switch, every laptop, every computer monitor, every desk – in case you weren’t paying attention, that means every year, we have to do a complete inventory at remote, secure data center locations. Instead, we will just be paying a flat 6% of our income.

This allows us to invest more in our business, which means we’ll invest more in Michigan. Could we be neighbors to Liquid Web? Absolutely! Howdy, neighbors!

Additionally, huge savings on tax bills means we’re able to keep our rates low. When our tax rates are through the roof (our current tax rate for hardware acquired in Tax Year 2023 is 60% – no, I’m not kidding!), we have to charge more. When we have to charge more for taxes, that’s less money we have to invest in jobs. That’s less money we have to invest in data center facilities. That’s less money we have to invest in our team members – from base salary, to paying for education, healthcare, and anything else our team needs – including reasonable salary increases that are above inflation. In Virginia, we cannot do that. Paying 60% on equipment is ludicrous. Even paying 35% is ludicrous.

Look, I am not against taxes. We need them. They’re a necessary evil. It’s how we pay for roads, schools, emergency services, and how we improve the quality of life where we live, work, and play. But taxes need to be fair. Big companies get the tax breaks to move into an area – and these tax breaks often exclude personal property taxes – they just get taxed on their income. And the taxes resume normally after 10 years or so, the point when tools, equipment, and other physical assets have depreciated to the bare minimum. That means small businesses like ours are forced to pick up the financial slack, and we simply cannot.

So long, farewell, au revoir, auf wiedersehen

And this is where our story in Virginia ends. Virginia, the self-proclaimed “Internet Capital” only likes Big Tech. The policies and laws in the Commonwealth are anti-small business. There are too many open ends that allow creative licenses for the wrong people to hurt “the backbone of this country.” At least, that’s what every Virginian politician loves to say while ensuring a small business like NodeSpace cannot thrive and cannot grow. So, we’re taking our assets and saying so long, farewll, au revoir, and auf wiedersehen to this small business death trap.

You’ll find us near the base of the thumb in the mitten. We’re relocating to Ypsilanti, and breathing a sigh of relief. (It’s right there-ish… actually, lower. Like where the thumb-bone meets the hand.)

Why we left

The proverbial straw was learning that on July 28, 2023, Twitter reinstated an account that was suspended for posting CSAM because the account’s 500,000 followers complained the account was suspended. Musk tweeted that the offending material was “deleted” and the account would be reinstated. Ridiculous.

We stand behind our policies. If one of our clients posted such vile material, not only would they be permanently banned from our services, we would naturally involve law enforcement, and report them to the services we use to “vet” clients, such as FraudRecord to warn other hosting providers.

We won’t be back

We would only likely come back to Twitter should Musk eventually sell it off or have 0% control or say in the company and platform. But that is unlikely. It’s his toy and he’s hyperfocused on it. He’s stuck in 1999, but we’re not. So we’re going to keep marching forward. We urge others to do the same.

I was recently made aware of a bankruptcy filling made by a company registered in Georgia using our former name. In some unfortunate turn of events, several bankruptcy filings were linking to our former corporate website. Upon investigation, this other company has been using the name for a significant time before us and therefore we made the decision to rename our company to prevent any confusion with our clients and business partners and to no longer associate with that name.

When we chose the name, we were using a domain name that we had in our portfolio and we did not do a proper and thorough due diligence when deciding to change our name. In order to eliminate any confusion and potential harm to our company, our membership held an emergency meeting this evening and voted to rename the company, effective immediately. We had a serious lapse in judgement that we could have avoided with a simple web search.

Our new company name is NodeSpace Technologies, LLC and we are updating this name across all of our properties and vendors. Additionally, we are introducing https://www.nodespace.tech as our new corporate website. https://www.nodespace.com will continue to function as our main sales website.

I further want to reiterate that NodeSpace has not filed for bankruptcy and our company is financially stable. We look forward to continuing to serve our clients for years to come.

Sincerely,

Travis Newton
Chief Technology Officer & Founder

NodeSpace Technologies was founded in 2010 by a team of passionate web enthusiasts who wanted to create a hosting platform that would meet the needs of modern web users. Our vision is to empower our customers with the tools and resources they need to create and manage their online presence with ease and confidence. Our mission is to provide high-quality web hosting and cloud services that are affordable, flexible and user-friendly. Our values are customer satisfaction, innovation, security and sustainability.

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