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

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

November 13, 2001

Meeting for the fourth time this year, the joint subcommittee appointed to study and revise the state tax code heard from several interested parties in its process of listening to concerns about and suggested changes to the state tax code. This was the first meeting that was opened up to interested group representatives and individuals for the purpose of addressing the joint subcommittee about their specific issues.

Presentations by Organizations' Representatives and Individuals

Representatives from four organizations and one individual addressed the joint subcommittee. The organizations were the Virginia Chamber of Commerce ("Chamber"), the National Association of Retired Federal Employees ("NARFE"), the Colony Condominium ("Colony"), and the Homebuilders Association of Virginia ("Homebuilders"). The individual was a taxpayer from the City of Newport News.

The Chamber favors a tax system that is "equitable and broad-based and that fosters a favorable business climate, encourages economic development and promotes prosperity for all Virginians." It believes that the tax burden should be distributed mainly among income, sales and property taxes. Finally, the tax system should be competitive with other states'.

Property taxes should remain as the major locally imposed source of local revenues. Any consideration of eliminating the personal property tax on personally owned motor vehicles must be part of a comprehensive revision of taxes and should include business-owned cars and light trucks in order to be equitable. Consideration could even be given to limiting property taxes to real property only; however, localities should not be allowed to establish a different tax rate for residential and commercial/industrial property.

With regard to sales and use taxes, the Chamber recognizes (i) the validity and usefulness of a competitive single-rate tax applied in a uniform manner on a statewide basis, and (ii) its importance as a revenue source for state and local governments. The Chamber supports Virginia's participation in the Streamlined Sales and Use Tax Project in order to ensure uniform definitions and other administrative matters that will simplify the implementation of the tax across state lines, if and when that happens. Finally with regard to the sales and use tax, the Chamber supports the exemptions that assist the business community while at the same time calling for containment of numerous organizational exemptions that narrow the tax base.

The income tax, according to the Chamber, should not have high marginal tax rates nor an excessive number of brackets. Business and personal rates should continue to be similar and conformity with federal law should also continue. The corporate income tax rate should remain competitive to keep businesses in Virginia, thereby providing employment to numerous citizens. The numerous tax preferences (exemptions, deductions, and credits) move the Commonwealth further out of line with the federal tax law every time one is added and contribute to complexity in administration and understanding.

The Chamber opposes any tax imposed on taxpayers' gross receipts, such as the BPOL tax, but understands that it is a substantial revenue producer for localities and would require some means of replacement in order to be eliminated. Also, the administration of local taxes should be uniform. Finally, an administrative appeals procedure for all taxes that allows a simple, complete, and fair resolution of all tax issues is vital to a fair tax system, according to the Chamber. Reasonable audit authority should be granted and government employees should conduct tax audits. Taxpayers must have fair opportunities to contest tax liabilities that are unfairly assessed.

With regard to the Commonwealth's revenue system, the Chamber supports consideration of (i) sharing a portion of state income tax revenues with localities, (ii) transferring mandated social and health services from the localities to the state, (iii) funding fully the state's share of the Standards of Quality, and (iv) creating special local financing authorities funded by taxes imposed by citizens on themselves if the General Assembly fails to provide adequate funding for transportation and infrastructure needs.

NARFE focused on two issues. The first was the taxation of social security benefits, which it opposes vehemently. Currently, such benefits are excluded from income at the state level. The second issue involves the age deduction which allows certain elderly taxpayers to annually subtract $6,000 ($12,000 if filed jointly) or $12,000 ($24,000 if filing jointly), depending on age, in calculating their Virginia taxable income. Again, NARFE sees any change in this as a tax increase to be avoided at all costs. Many of the Commonwealth's elderly are on fixed income and cannot afford a tax increase, according to NARFE.

The Colony, a Virginia Beach condominium, had a problem with the BPOL tax being imposed on a common expenses fee that was paid by unit owners. Legislation will be proposed during the 2002 Session to clarify that such fees should not be considered gross receipts for purposes of the BPOL tax.

The final organization addressing the joint subcommittee was the Homebuilders Association. The Homebuilders support property tax reform if it helps the housing industry, which was described as "the engine driving the U.S. economy" (one in eight jobs in Virginia is related to the housing industry). The Homebuilders also support revenue sharing of the state income tax with localities, the ability of localities to impose new taxes on their taxpayers, and equal taxing authority for cities and counties.

The final speaker, the individual from the City of Newport News, described himself as "an outspoken critic of the property tax system." His concerns focused on helping the little guy. He pointed out that there is no definition in the Code of Virginia or in the Manual for Local Boards of Equalization of "equalization." Therefore, his concern was that members on local boards of equalization do not know what the term means and cannot properly carry out their duties. The other major concern was how unfair the personal property tax assessments and the appeals process are.

December meeting

Finally, the joint subcommittee discussed its upcoming final meeting for 2001. Several more organizations will address the joint subcommittee at that meeting and the 2002 work plan will be developed. This final meeting is scheduled for December 17 in Senate Room A.


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