SJR 91

Task Force on State and Local Taxation

October 1, 1998, Richmond

Revenues received from property taxes imposed on electric utilities and consumer utility taxes collected and remitted by electric utilities represent a significant source of funds for localities. The SJR 91 Task Force on State and Local Taxation is exploring methods of adjusting the tax treatment of suppliers of electricity in a manner that will maintain the current revenue levels while treating all suppliers of electricity in a similar manner.

Assessment of Real Property

During the October 1, 1998, meeting of the task force, representatives of local government and two commissioners of revenue provided testimony on the methodologies used to assess real property owned by public service companies and independent power producers.

Under current law, the State Corporation Commission (SCC) assesses the property of public service companies. The certified assessment is sent to the locality in which the property is located, and the locality applies the real property tax rate to the assessed value. Independent power producers, on the other hand, have their property assessed by the locality in which the property is located. A real estate tax rate is applied to the land, and a separate machinery and tools rate is applied to equipment.

Testimony from several commissioners of revenue illustrated the differences in the methodologies used by the localities and the SCC. In addition to the different rates (machinery and tools, real property) that may be applied, the testimony highlighted the different depreciation schedules used by localities and the SCC to determine the value of the land and equipment.

Municipal Electric Utilities

A representative of the Municipal Electric Power Association of Virginia (MEPAV) testified about the treatment of municipal electric customers, particularly in light of the "declining block" taxation proposal embodied in two 1998 carryover bills (SB 619 and SB 620) currently being considered by the task force. MEPAV expressed concern that municipal electric customers would be billed directly for any consumption tax and recommended that any consumption tax be levied at the wholesale transaction level, thereby avoiding a direct tax on municipal electric customers.

Electric Cooperatives

The Virginia, Maryland and Delaware Association of Electric Cooperatives and the Old Dominion Electric Cooperative spoke to the task force regarding the proposed corporate income tax on generation. The cooperatives urged the task force to recommend a corporate income tax based on federal taxable income. The cooperatives stated that such an approach is consistent with current state law and that the definition of federal taxable income recognizes the differences in corporate structures.

Consumer Utility Tax

Proceeds from the consumer utility tax are the largest source of revenue derived from electric utilities. Currently, this tax is billed directly to each customer residing in a locality that imposes the tax. The rates vary from locality to locality, and the incumbent utility is responsible for collecting and remitting the tax to the locality. Representatives of local government expressed concern that these revenues do not decline in a restructured electricity market and that all services now subject to the consumer utility tax continue to be taxed. Suggested methods of protecting this revenue include (i) requiring distributors of electricity to bill customers and remit the proceeds to localities; (ii) retaining the current statutory language addressing rates, caps, and "grandfather" provisions for certain localities; and (iii) adding a new statutory provision clarifying that the authorized tax applies to the total utility service received, including any portion not regulated by the SCC.

Preparation of Final Report

Staff prepared for the stakeholders a list of issues to be addressed in the task force's final report to the SJR 91 joint subcommittee. Each representative is requested to provide responses to the questions in order that staff may prepare a comparative matrix and draft final report. The responses, due back to staff by October 9, 1998, will be compiled in a matrix format and posted on the task force website before the next task force meeting. The time and place of this meeting will be announced as well as posted on the website.

The Honorable John Watkins, Co-Chairman
The Honorable Chip Woodrum, Co-Chairman
Legislative Services contact: Robert A. Omberg