Joint Subcommittee to Study and Revise Virginia's State Tax Code

HJR 60 (2002)
HJR 685/SJR 387 (2001)

September 12, 2002

The joint subcommittee that has been studying Virginia's tax code held it's third meeting of the year in Richmond and heard from the staff on follow-up information on questions raised during the August task force meetings and received the two task forces' reports that contained legislative recommendations. In addition to the August meetings, each task force met in May, June, and July to receive information about and discuss the issues assigned.

The joint subcommittee also determined what its work schedule would be for the remainder of this year and that it would be necessary to continue the study for one more year.

Staff Presentation

Staff presented information provided by the Department of Taxation regarding the revenues that could be raised by expanding the cigarette tax to include all tobacco products (snuff, chewing tobacco, cigars, and smoking tobacco). The most common way that states tax tobacco products other than cigarettes is to levy a tax on the wholesale price of the tobacco product. North Carolina imposes a tax of 2% on the wholesale price of such products, other than cigarettes, while Maryland imposes a 15% tax on the same tobacco products.

Assuming Virginia were to levy a 2% tax on the wholesale price of tobacco products other than cigarettes, the estimated revenues are $2.7 million in FY04, $2.9 million in FY05, and $2.9 million in FY06. Also, sales tax revenues would increase by approximately $120,000 in FY04, $130,000 in FY05, and $129,000 in FY06.

Next, a representative from the Department of Motor Vehicles (DMV) explained the process for collecting the motor vehicle sales and use tax on casual sales of vehicles. When a customer submits a completed application for a Certificate of Title and Registration, the customer may also provide documentation of the selling price, which is generally accepted as the selling price on which the sales tax is based. If the customer fails to provide such documentation, the selling price is compared to the NADA Average Trade In Price, and the tax is based on that determination. According to DMV's most recent numbers, almost $45 million was collected in sales tax revenues out of $1.2 billion in casuals sale of motor vehicles.

Recommendations

Next, the chairmen of each task force reviewed the issues assigned to the two task forces and explained the recommendations made by each. Because of the ever-growing revenue shortfall the Commonwealth is experiencing, the uncertainty about when the economy will begin to grow again, and what effect major changes in the state's tax code might have on revenues, the consensus is to extend the study for a third year and propose fewer changes during the 2003 session.

The proposed recommendations of the task forces (the applicable task force and item/issue number are shown in parentheses) are:

Adopt Orrock Subcommittee Report with standards for charitable organization sales tax exemptions, with moratorium on new exemptions. (Task Force 2 -- Item 1)
Restore conformity with federal income tax law, with the exception of accelerated depreciation and carry back loss issues to essentially eliminate fiscal impact. (Task Force 1 -- Item 1)
Revise administrative appeals process for income taxpayers to provide:

a) an independent hearing officer (Task Force 1 -- Item 8)

b) no payment of tax in advance (Task Force 2 -- Item 8)

Eliminate June accelerated sales tax collections in 2002-2004 budget -- pushes $118 million back to FY 03. (Task Force 2 -- Item 8)
Revise property tax appeals process to clarify procedures and standard of proof for taxpayer. (Task Force 2 -- Item 10)
Phase out death tax beginning in FY 05. (Task Force 2 -- Item 10)
Budget/state shall impose no new unfunded mandates on localities, and to maximum extent possible, eliminate existing ones. (Task Force 1 -- Item 7)
Enact a moratorium on new categories of sales and use tax exemptions. (Task Force 2 -- Item 4)
Maintain policy of no sales tax on access to Internet and digital downloads. (Task Force 2 -- Item 9)

Future Meetings

The joint subcommittee will next meet on September 30 to determine formally which of the recommendations it will propose for the upcoming session of the General Assembly. That subcommittee meeting will take place at 1:00 p.m. in Richmond in House Room C.

The statewide public hearings, originally scheduled for October, have been postponed until next year when the joint subcommittee makes its final major recommendations.

The closing meeting of the joint subcommittee for this year will be November 13 at which time the final report will be presented.

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