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

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

December 17, 2001

The joint subcommittee appointed to study and revise the state tax code held its fifth and final meeting of 2001in Richmond and heard from several interested parties, in its continual effort to gather information relating to concerns about and suggested changes to the state tax code. This was the second meeting during which group representatives and individuals were invited to address the joint subcommittee, with the November meeting being the first. In addition, representatives from the Virginia Municipal League ("VML") and the Virginia Association of Counties ("VACo") supplied answers to questions raised during their presentations to the subcommittee during its November meeting. Finally, one of the joint subcommittee members, who also served on Governor Gilmore's Commission on Government Finance Reform for the 21st Century, gave a brief overview of that commission's final report and recommendations to the subcommittee.

Representatives of Interested Organizations

The organizations that sent representatives to speak to the joint subcommittee in December included the Virginia Retail Merchants' Association ("Retail Merchants"), the Commissioners of the Revenue Association ("CRA"), the Virginia Manufacturers' Association ("VMA"), the Virginia Interfaith Center for Public Policy ("Interfaith Center"), the Apartment and Office Building Association of Greater Washington ("AOBA"), the Virginia Association for Commercial Real Estate ("VACRE"), and the Retail Alliance.

The Retail Merchants oppose any regional referendum on retail sales tax because it could "open Pandora's box." Instead, uniformity should be maintained throughout the state with regard to the retail sales tax. Furthermore, they encourage the Commonwealth's participation in the streamlined sales tax project. Finally, the Retail Merchants favor the state providing localities with another source of revenues while eliminating the business, professional, and occupation license tax and the merchants' capital tax.

The CRA representative expressed the group's awareness of the complexity of the tax code and explained that the complexity allows flexibility in administering the taxes and ensures compromise. An expanded role for the commissioners of the revenue in administering all taxes having a local connection, emphasizing convenience for and face-to-face contact with the taxpayer, was suggested to the subcommittee.

Whatever substantive changes in the Commonwealth's state and local tax system might be recommended by the joint subcommittee, the CRA believes the principles of fairness and equity should be paramount in the subcommittee's deliberations. Furthermore, while uniformity may seem to be a laubable goal, one must not lose sight of the fact that economic, geographical, and demographic differences exist throughout the Commonwealth, making a "one size fits all" approach impractical. However, the CRA, the Weldon Cooper Center for Public Service and the State Compensation Board have created an educational program to ensure more uniformity as elected officers are trained. Commissioners of the revenue are underutilized when it comes to providing traditional state services and are more than willing to provide, with proper training and technology, more services with a higher degree of accessibility for the Commonwealth's citizens. The CRA concluded by offering its assistance to the joint subcommittee in developing a more efficient, accessible government having a fair and equitable tax system.

Four issues were addressed by the VMA. First, it favors the continued use of income, sales, and property taxes rather than creating new taxes that increase the number of returns filed by business and administered by government. Second, redistribution of existing taxes, based on specific local needs, is preferable to additional new taxes. Third, the Commonwealth should participate in the streamlined sales tax project. And fourth, taxpayers should be able to dispute a tax assessment prior to paying the tax, which is the current requirement. Taxpayers must "pay in order to play" (i.e. pay the tax before they may go to court). There are many ways the Commonwealth could change the current policy ranging from keeping the existing procedures but not requiring payment as a prerequisite to a court suit, to possibly creating an administrative board to hear taxpayers' appeals for both state and local tax assessments.

The focus of the comments by the Interfaith Center's representative was on tax equity; how the Virginia tax code affects those in poverty. Recognizing that taxation issues are of concern to all, the representative pointed out that they have an even greater effect on those living in poverty. It was suggested that a representative from the Center on Budget and Policy Priorities be invited to address the joint subcommittee during 2002 to offer its assessment of the burdens on and opportunities for relief for those living below the poverty line.

The AOBA and VACRE spokesperson talked about the unfairness of the local real estate assessment and appeals process. Many taxpayers pay the tax rather than fight city hall because the burden of proof is so difficult to overcome. The localities' Boards of Equalization should have the authority to determine fair market value. The taxpayer could appeal a real estate assessment to that board or the commissioner of the revenue and then go to court if dissatisfied with the board's or commissioner's decision, rather than go straight to court as is the case under current law. More uniform statewide assessment procedures for personal and real property based on a uniform fair market value methodology and better training for local assessors would improve the system greatly.

The final speaker for interested organizations spoke on behalf of the Retail Alliance, an organization representing over 1800 Hampton Roads retail businesses. The focus of his comments was the business, professional and occupational license (BPOL) tax. A good tax structure should (i) favor economic growth; (ii) take the taxpayer's ability to pay into consideration; (iii) be equitable and broadly based; and (iv) be simple to administer. The BPOL tax, according to the Retail Alliance, fails on all counts. The 1996 BPOL tax reform improved the administration of the tax but it is still intrinsically inequitable. While the business community does not have a proposed replacement for the BPOL tax, the Retail Alliance expressed an interest in working with the joint subcommittee, the Virginia Chamber, other business groups and local governments in all the tax issues facing the subcommittee.

2002 Legislation

Following a presentation by VML and VACo during which answers were given to questions arising from their November presentation to the joint subcommittee, two pieces of legislation, both being resolutions, were discussed and circulated for signatures. One of the resolutions supports the participation by members of the General Assembly, or their designees, in the Streamlined Sales Tax Project. The other continues the joint subcommittee's study of the state tax code and adds four more members, bringing the total membership to eighteen. The new members include one from the House of Delegates, one from the Senate, the Secretary of Finance and the Tax Commissioner. Both resolutions will be filed during the 2002 General Assembly Session.

Finally, the creation of two task forces comprised of members of the joint subcommittee and a tentative meeting schedule for 2003 were discussed. The full committee would meet in April, followed by task force meetings in May, June and July. The full committee's next meeting would be in August with a public hearing in September. The task forces would hold their last meetings in October with the full committee issuing its report with recommendations during its final meeting in November. Membership on the two task forces will be determined at the full committee's first meeting in 2002.


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