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Enterprise zones woo Net firms

High-tech companies moving to Virginia to cash in on the state's new technology-friendly tax plan may have gotten a sweeter deal than anticipated.

Patrick Clawson moved his multimedia company from Huntington Beach, California, to Virginia this April hoping to cash in on the state's new technology-friendly tax plan. It turns out he got an even sweeter deal than he thought.

The City Council of Winchester, Virginia, where Clawson set up shop, voted Tuesday to create a "technology zone" in its downtown area. Qualified technology companies who have offices in the 125-acre zone are eligible for sizable tax exemptions and rebates on public utilities over a five-year period.

Winchester is the first to take advantage of a law that the Virginia legislature passed in February. Senate Bill 584 allows cities to set up technology zones and offer tax exemptions for up to ten years to companies in the telecommunications, electronics, computer hardware and software manufacturing, electronic information, multimedia, and Internet access markets. To qualify, a company must have at least three employees and valued at at least $10,000.

Under Winchester's plan, technology companies will receive a quarterly 100-percent exemption during the first year on the state Business Professional Operation Licensing tax, a tax based on gross business profits. For each of the next four years, the exemption will be reduced by 20 percent--that is, 80 percent of gross revenues will be exempt for the second year, 60 percent for the third year, and so on. Depending on how the company prospers, the exemption represents significant cost savings for companies that qualify.

These businesses will also receive rebates based on the same sliding scale for telephone, electric, and cable utilities. On top of that, the town will rebate applications fees for building permits, water and sewer hookups, zoning, and the setting up of subdivisions.

The city also offers a tax haven to Internet service providers who are being threatened in other parts of the country with new taxes on Net access, in addition to the telecommunications taxes they already pay.

Clawson says his company, Telegrafix, which designs graphical interfaces for computer bulletin board systems, moved because it faced too many economic challenges in California. He believes that many businesses will follow his tracks once they evaluate rising taxes and the spiraling costs of living in established technology hubs such as Silicon Valley.

June Wilmot, executive director of the Winchester Frederick County Economic Development Commission, said the city is not worried about losing tax dollars. In fact, it hopes that the new businesses the program attracts will rescue the blighted downtown area that is the designated technology zone.

The city decided three years ago to make the Internet to cornerstone of its future economy, courting a few telecommunications companies to set up local Net access businesses in a neighborhood now dubbed Cyberstreet. The city hopes Cyberstreet will expand in the new zone and raise Winchester's municipal profile vis-a-vis Netplex, the region in Virginia where America Online makes its home.

With a population of 48,000 and a manufacturing industry based on food processing, plastics, printing, and metal fabrication, Winchester also hopes to bring new market-driven jobs to the area.

Telegrafix controller Jan Gildersleeve was a local who joined the company when it moved out from California. She said some downtown merchants in Winchester have opposed the plan, but she thinks they'll realize the benefits when more companies migrate to the area.

"This will bring new high-paying jobs," she said. "People tend to shop were they work, so it would boost existing retail."

Clawson, for one, doesn't seem worried about too many new telecommunications and computer companies coming to roost in the Winchester technology zone: "When the water rises, we all float."