Task Force on State and Local Taxation of Electric Utilities
July 15, 1997, Richmond
The task force continued its study of the potential taxation and revenue implications associated with the introduction of competition in the electric utility industry. The task force was briefed on initiatives enacted by other states as well as the Virginia's tax changes resulting from restructuring in the telecommunications industry. Members also agreed to request assistance from the State Corporation Commission (SCC) in placing tax information on consumers' monthly billing statements and to provide federal tax data to the Department of Taxation.
Prior to the changes adopted in the late 1980s, telecommunications companies in Virginia were taxed on a gross receipts basis. The Department of Taxation provided an overview of the changes made in taxing these companies, primarily switching from a gross receipts tax to a corporate income tax. To cushion the impact of the change and prevent revenue shortfall, the Commonwealth phased in these changes over a 10-year period and initiated a minimum tax and a tax credit.
The minimum tax on telecommunications companies was based on the gross receipts certified by the SCC, and tax credits were awarded when the corporate income tax paid by a telecommunications company exceeded 1.3 percent of gross receipts. This tax credit was reduced by 10 percent each year and expires after taxable year 1998.
The Department of Taxation stated that it would need company-specific data, notably federal tax returns, in order to determine the revenue impacts that result if electric utilities switch from the present gross receipts tax to a corporate income tax. The department will use the data from these federal tax returns to prepare an analysis of the revenue impact of changing tax schemes. Members of the task force agreed to cooperate in furnishing the needed data, and the department will present its analysis at the next meeting of the task force.
Legislative activity in other states regarding taxation of electric utilities indicates that many tax and revenue issues are still unresolved. Several of the states that have enacted bills allowing retail competition have not decided on a corresponding change in tax policy. These states have established committees to study the most efficient way to keep tax revenues constant and avoid the creation of a business environment that treats local and out-of-state electric utility companies differently for taxation purposes.
In a letter to the task force, the Virginia Association of Counties encouraged the task force to take steps to educate all consumers of the amount of tax currently paid by users of electricity. The task force agreed to ask the full joint subcommittee to request the SCC to work with Virginia's electric utilities to facilitate placing this information on monthly electric billing statements.
The task force will meet again on August 5, 1997, to continue working on recommendations to the SJR 259 joint subcommittee. The task force will hear about the current tax structure for electric cooperatives in the Commonwealth, receive a briefing on a study commissioned by Virginia Power on the potential tax and revenue consequences of restructuring, and hear analysis by the Department of Taxation on the revenue implications of switching from a gross receipts tax to a corporate income tax.
The Honorable Jackson E. Reasor, Jr., Chairman
Legislative Services contact: Rob Omberg