Subcommittee to Study and Revise Virginia's State Tax Code
HJR 60 (2002)
HJR 685/SJR 387 (2001)
November 13, 2002
During its final meeting for 2002, the joint subcommittee
received several brief reports regarding a number of issues and ended
with the approval of twelve recommendations by a majority of the members
present. Topics included the Streamlined Sales Tax Project, real estate
tax assessments and appeals to Boards of Equalization, state tax appeals
to a hearing officer and the elimination of the "pay to play" requirement,
reporting requirements for casual sales of motor vehicles, and local sales
tax revenues versus BPOL tax revenues.
Having just returned from the Streamlined Sales Tax
Project ("Project") meeting in Chicago, Senator Hanger reported on the
Project. Virginia is one of 35 implementing states participating in the
Project with a goal of reducing the burden of tax compliance. They have
been working on a written draft agreement that 31 of the states voted
on November 12 to support. The agreement explains what states have to
do to implement the plan. Some of the provisions include state level administration
of sales and use tax collections, simplification of rates, uniform definitions,
and uniform sourcing rules. Once 10 states representing twenty percent
of the United States population have amended their laws to implement the
program, then the U.S. Congress will be asked to consider making the program
applicable nationwide. The joint subcommittee agreed to continue to follow
Legislation dealing with real estate assessments and
boards of equalization was reviewed. There was much discussion by the
joint subcommittee related to the burden of proof that was the main issue
of contention between local government and the business community. The
burden involves a two-prong test that the taxpayer has to satisfy in order
to prevail at the board of equalization level. A second area of contention
between local government and the business community is the statute of
limitations. It was proposed that there be a three-year statute of limitations
for appealing to the circuit court plus a mandatory appeal to the board
of equalization with a one-year statute of limitations for all localities.
Currently, there is no statewide mandatory board of equalization appeal
and a handful of localities have a one-year statute to appeal to the circuit
court. The subcommittee adopted the three-year statute of limitations
for appeals to the circuit court but there was ongoing concern about the
burden of proof on the taxpayer.
The Tax Commissioner next reviewed again how the tax
appeals process would work at the state level with a separate hearing
officer appointed by the Department of Taxation. Due to lack of support
from the business community and the need for additional funding in the
Department in order to implement the process, the joint subcommittee decided
to study this issue further next year.
The second issue addressed by the Tax Commissioner
dealt with the requirement currently in the tax code that taxpayers who
decide to adjudicate their tax liability must first pay the amount assessed
("pay to play"). A proposal was made and adopted by the joint subcommittee
that will eliminate that requirement. Legislation will be introduced during
the 2003 General Assembly Session to accomplish this.
Next, a proposal was made with regard to the collection
of the motor vehicle sales and use tax as a result of a casual sale of
a motor vehicle. It was proposed that a purchaser of a motor vehicle that
is 5 years old or less will report to DMV the greater of the purchase
price or the NADA value (less $1,500) of the motor vehicle when titling
the vehicle and paying the sales and use tax. The joint subcommittee approved
the proposal and added it to its list of recommendations.
The final speaker, who was from VML, presented a chart
showing how much in revenues localities would raise from a half-percent
increase in the sales and use tax and how much they currently raise from
the BPOL tax. The chart was broken down locality by locality. It was determined
that the information would be a good starting point when examining the
BPOL tax issues further in 2003.
Finally, the joint subcommittee discussed one of the
requirement of the House Finance (Orrock) Subcommittee report dealing
with the percentage allowed for administration costs of nonprofit organizations.
Current law says no more than forty percent of gross annual revenues may
be spent on administration costs. There was some discussion of making
it a sliding scale (i.e. 40% for organizations with gross revenues less
than $1,000,000 and 20% for those with gross revenues of $1,000,000 or
more) but it was decided to leave it at 40 percent.
Recommendations and Draft Report
As its final act of the year, a majority of the joint
subcommittee approved an initial draft of its report and its recommendations.
Two members abstained from voting while two voted against approval. Their
concern centered on the issue of revenue neutrality, one of the principles
adopted by the joint subcommittee to guide them in their decision-making
regarding changes to the state tax code and how revenues are collected.
At least two of the recommendations, if adopted by the legislature during
the 2003 General Assembly Session, most likely will have a negative fiscal
impact resulting in a reduction in general fund revenues without any offsetting
recommendation that would increase general fund revenues during the same
period. It was agreed that in 2003, the joint subcommittee would continue
to discuss and look for additional revenue sources.
The approved recommendations (and actions required,
if any) are:
1. Adopt House Finance (Orrock) Subcommittee Report
with standards for charitable organization sales tax exemptions. (Legislation)
2. Restore conformity with federal income tax law,
with the exception of accelerated depreciation and carry back loss issues
to essentially eliminate fiscal impact. (Budget amendment)
3. Revise administrative appeals process for income
taxpayers to provide for no payment of tax in advance of adjudication.
4. Eliminate June accelerated sales tax collections
in 2002-2004 budget -- pushes $118 million back to FY 03. (Budget amendment)
5. Revise property tax appeals process to clarify
procedures and standard of proof for taxpayer. (Legislation)
6. Phase out estate tax beginning in FY 2005. (Legislation)
7. Impose no new unfunded state mandates on localities,
and to maximum extent possible, eliminate existing ones.
8. Support a moratorium on new sales and use tax
9. Maintain policy of no sales tax on access to
Internet and digital downloads.
10. Continue working with the national Streamlined
Sales Tax Project.
11. Require purchaser to report the greater of (i)
the actual purchase price, or (ii) the NADA value less $1,500) for casual
sales of motor vehicles that are no more than five years old when titling
the vehicle and paying the sales and use tax. (Legislation)
12. Continue the study in 2003 with final report
in December 2003. (Resolution)
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