Should the City Enact a C&I Tax on Commercial Properties to Fund Transportation Projects?

Background

During the FY2027 budget discussions, City Council requested that staff review the use of the Commercial and Industrial Tax (C&I) to fund transportation projects for the FY2028 budget year. The goal is to have an additional source of revenue dedicated to transportation that does not raise the tax burden on homeowners. An initial review was presented at the City Council Work Session on August 24, 2026, and is summarized in this post.

The C&I tax is explained in the earlier Pulse post, City Staff, Council Explore Applying a Commercial and Industrial (C&I) Real Estate Tax, January 30, 2026.

The Commercial and Industrial (C&I) Real Estate Tax

The Virginia Code (Section 58.1-3221.3) allows the member localities of the Northern Virginia Transportation Authority (NVTA) to impose a C&I tax up to 12.5 cents per $100 of assessed value of commercial and industrial property, excluding commercial property that is used for residential purposes, such as apartments and senior living establishments. These taxes can be used for transportation projects only. In the case of mixed-use buildings, the commercial areas of these structures would be taxable, but the residential dwelling units would be exempt.

Localities that impose a C&I tax can access a greater share of NVTA funds for local projects, called NVTA 30%. Alternatively, localities can set aside the equivalent amount, called C&IE, from general revenues for transportation projects to access NVTA 30% funds.

Of the NVTA member localities, Arlington County, Fairfax County, and Fairfax City impose a 12.5 cents C&I tax on commercial properties. The other localities contribute a C&IE amount from general revenues.

C&IE was $1.42 million of the FY2027 budget

For FY2027, the City set aside $1.42 million as its C&IE, approximately equal to 2.22 cents on the real estate tax. These funds came from general tax revenues; real estate taxes comprise 70% and the majority of that is from single-family homes.

The City can replace the C&IE completely or partially with a new C&I tax of 12.5 cents or less on commercial real estate.  The City’s commercial real estate assessed value is approximately $1.136 billion. Each penny of tax would raise $113,600 of C&I tax revenue.

C&I tax can only be used for projects that expand transportation

City Finance Director David So pointed out that there are restrictions on the C&I tax. It can only be used for projects that expand transportation facilities, but not maintenance. Examples include:

• New road construction.
• New public transit construction.
• Transportation projects that add new capacity, service or access, including bike lanes.
• Operating costs and debt service on bonds related to the above.

Mr. So identified $650,000 of current projects that would qualify, including new sidewalks and bike infrastructure, in the slide below. That would be the equivalent of imposing a 6-cent C&I tax. If an additional 6.5 cents tax were added, i.e. the maximum of 12.5 cents per $100 of assessed value allowed, it would raise an additional $750,000 for more sidewalk links, bike paths, intersection improvements, transportation technology, traffic management systems, and more. (The C&IE funds have slightly fewer restrictions, an advantage that has been cited in the past for not implementing the C&I tax.)

Taxes on commercial properties have been flat since 2021

Mr. So reported that his office’s analysis showed real estate tax revenues from existing commercial properties, including apartments and senior living buildings, have been relatively flat since 2021, as shown in the table below. This is because the assessed values of these properties increased only 21% in 6 years, while the tax rates dropped 12.9%.

Commercial Tax Revenue (includes apartments and nursing homes)
	FY2021	FY2022	FY2023	FY2024	FY2025	FY2026	FY2027
Base (Pre-2021)	$18.5M	$21.1M	$16.4M	$17.0M	$18.5M	$18.3M	$18.8M
New Construction	$0.0M	$0.7M	$0.9M	$1.5M	$3.7M	$6.2M	$6.9M
Total Revenue	$18.5M	$21.8M	$17.3M	$18.4M	$22.2M	$24.5M	$25.8M

Mr. So said that it was too onerous for staff to separate out the residential commercial properties from the non-residential properties in the data. Only the non-residential properties would be subject to the C&I tax. However, the Pulse post City Staff, Council Explore Applying a Commercial and Industrial (C&I) Real Estate Tax, January 30, 2026, provides further analysis of assessments and taxes paid by the biggest commercial properties in the City over the last 10 years.

City Council comments

Council Member Arthur Agin noted that these properties have actually had a tax reduction when inflation is considered.

Council Member Erin Flynn said residential properties have grown so much faster that their taxes have increased each year despite falling tax rates. [See Pulse post Single-Family Homeowners Bear the Cost of the City’s Growth, December 3, 2025.] She saw this as a policy matter to recalibrate the tax burden so that commercial property owners are contributing their fair share of taxes to support the schools and local government including the capital investments for infrastructure.

Mr. Agin said that the goal in looking at C&I is not to increase taxes but to make sure the City has funds for transportation. He said the last budget showed that the City was $550,000 short of funds for maintaining the roads.

Mayor Letty Hardi summarized the discussion saying, “Some say this is a good way to create new revenue, some have also said this is a good way to rebalance the (tax) base. I think there is a way to do both, but that is an important policy consideration.” She wanted to know the average C&I tax bill.

Next steps: Public engagement in the fall

Deputy City Manager Andy Young said that instituting a tax like this would require public engagement, especially with commercial property owners, the Economic Development Authority, and the Greater Falls Church Chamber of Commerce, before development of the FY2028 budget in November/December 2026.

Council Members provided suggestions about how staff could communicate the C&I tax to commercial property owners. They asked staff to give the City Council a preview of their messaging.