Virginia Tourism Development Financing Program Granted $600,000 STIF Assistance to its First Project

In 2011, Virginia adopted a new sales tax incentive program to stimulate tourism development.  The Commonwealth of Virginia Tourism Development Financing Program provides tourism-related projects with assistance in amounts up to 20% of total project costs.  Pledged sales taxes are used to repay bank loans or retire bonds issued to bridge a project’s financing gap.

The tourism financing program can only be used for projects located in tourism zones, which can be established by any city, town or county.  Projects in tourism zones are eligible for public assistance, such as reductions in fees and pledges of gross receipt taxes, for up to 20 years.

The Virginia Tourism Development Financing program is unique in that it pledges portions of the State and local sales tax to tourism projects.  In order for a project to be eligible for this sales tax incentive program, a local government must:

  • Establish a tourism zone;
  • Adopt a tourism development plan;
  • Determine whether a proposed project has a funding deficiency; and
  • Enter into an agreement with the project developer to develop the tourism facility.

To qualify for this financing program, a developer must prove that at least 80% of a project’s funding is secured from equity and debt financing. Once a project is certified by the State Comptroller, the State may pledge its 1% State sales and use tax generated by the project only if the local government pledges its 1% local sales taxes. The project developer is also required to pay a program access fee to match the amount of State assistance paid to the project.  The pledged assistance plus the program access fees are used to pay principal and interest on the financing secured to close the funding gap.

This financing program is available for a wide range of tourism-related projects. In June 2012, a Hyatt Place Hotel with office and retail space in Fredericksburg became the first project to qualify. This hotel project, the second phase of a residential, retail and office development by the University of Mary Washington Foundation, has a $13 Million budget and is anticipated to contribute approximately $3.27 million in new taxes to the City over the next 10 years. It is anticipated that the Project will receive up to $620,000 in assistance from the State and the City under this program.

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