HJR 60:Joint Subcommittee to Study
and Revise the State Tax Code
Task Force #1
August 19, 2002
Richmond
Task Force #1 of the joint
subcommittee studying the state tax code held its fourth meeting of the
year in Richmond. The purpose of the meeting was to hear testimony related
to specific issues on the task force list and make further recommendations
regarding such issues.
Testimony
RRESC
The first issue addressed dealt
with the creation of a permanent body to review state and local revenues
and expenditures issues on an ongoing basis. This proposal originally
came from the Morris Commission. From 1968 to 1979, a body known as the
Revenue Resources and Economic Study Commission (RRESC) existed. According
to the testimony of John L. Knapp, the research director of the Business
and Economics section of the Weldon Cooper Center for Public Service,
RRESC's mission was to study the tax structure and sources of revenue
of the Commonwealth and its localities and to recommend reforms. The membership
of RRESC consisted of senators, delegates, and the public. Initially,
the commission had a staff director, with research assistance provided
by employees from the Division of State Planning and Community Affairs,
the Department of Taxation and the Division of Legislative Services. It
finally had its own five-person staff in 1978.
One of the many topics examined
on a continual basis was the long-term outlook for state and local government
finances, using six-year projections. The commission issued numerous reports
and many of its recommendations were adopted into law. As the Senate Finance
and House Appropriations staffs, as well as those at the Department of
Taxation, the Joint Legislative Audit and Review Commission (JLARC) and
the Division of Legislative Services grew, the need for a separate RRESC
became less obvious. These additional staff members have been doing much
of the research that was formerly done by the RRESC. However, Dr. Knapp
believes not enough research is being done to examine the long-term (i.e.,
six-year) outlook for finances and that a new study commission could take
on that task.
Next, the staff directors of
the House Appropriations and Senate Finance committees explained that
each of their staffs, as well as the Department of Planning and Budget,
routinely conduct technical reviews of funding formulas contained in statutory
law and utilized in funding through the appropriations act. When a more
thorough examination is required, their staffs rely on the work of JLARC,
the State Crime Commission, joint study committees (such as this one),
or the executive branch.
In addition, legislation was
passed during the 2002 General Assembly Session that requires the governor
to submit to the General Assembly in each even-numbered year a long-term
financial plan providing a six-year financial outline consisting of (i)
the Governor's biennial budget, (ii) estimates of anticipated general
and nongeneral fund revenues for each major program, and (iii) estimates
of general and nongeneral fund appropriations required for each major
program.
It was the consensus of the
task force that, while RRESC served a valuable and useful purpose during
its tenure, it is not clear that it is currently needed with the additional
executive and legislative branch personnel doing most if not all of the
same work RRESC did. Also, with the current economic shortfall, finding
the money to create such a commission is highly unlikely.
Revenue Sharing
The 50/40/10 revenue sharing
plan proposed in the Morris Commission report as a way to return more
state income tax revenues to the localities was the next issue on which
the task force focused. Members of the Virginia Municipal League (VML)
and the Virginia Association of Counties (VACO) are still tweaking the
plan and hope to have more information for the full joint subcommittee
at its meeting in September. VML and VACO are also working on the list
of local mandates imposed by the state, their suggestions concerning how
service responsibilities could be better provided at the state and local
levels, and which level of government should pay for the services.
Appeals
Finally, regarding the appeals
process issue, the Tax Commissioner described a number of ways the "pay-to-play"
requirement and the creation of a separate tribunal might be addressed.
The task force discussed allowing the posting of a bond instead of paying
the tax, classifying an appeal to the Department of Taxation as a case
decision under the APA, having an appellate officer in the Department
of Taxation who deals only with appeals, and creating an external appeals
process similar to the current process used by the Board of Insurance
regarding managed care. The task force did not make a final recommendation
regarding the appeals process.
Future Work
Although the task force did
not make any further recommendations concerning the issues before it,
its members did decide that they should also take a closer look at the
service responsibilities of both state and local government and whether
some changes should be made in which level of government provides what
service. The widely held opinion was that the amount of revenues needed
and tax relief available cannot properly be determined without deciding
whether some changes in the delivery of services are necessary in order
to serve the citizens of the Commonwealth in the best and most efficient
manner. Discussion of an additional meeting of a subcommittee of the task
force was mentioned but no date was set and no members appointed to the
subcommittee. Several task force members expressed concern over the shortfall
in revenues of the Commonwealth and suggested that any major tax restructuring
might have to be delayed and that the study be continued for a third year.
The chairman of Task Force #1 will report to the full joint subcommittee
at its next meeting on September 12th in Richmond.
Task Force #2
July 30, 2002
Richmond
The task force's third
meeting began with comments from Delegate McDonnell regarding future meetings
and public hearings. Delegate McDonnell reminded attendees that Task Force
#1 and Task Force #2 will meet on August 19, 2002. The full joint subcommittee
will meet on September 12 at 10:00 a.m. and September 30 at 1:00 p.m.
Public hearings across the state will begin in October.
Presentations
- The vice president and director
of membership for the Virginia Retail Merchants Association gave a presentation
on the accelerated sales tax collections. Task force members requested
additional information on the policies and procedures of other states
related to sales tax collections.
- The director of community
relations for the American Lung Association of Virginia presented information
on nationwide cigarette tax statistics, including tax increases nationwide.
- A representative of various
commercial property owners gave a presentation on the real estate tax
appeals process, presenting information from a working group that included
assessors, assistant county attorneys and representatives from the Virginia
Municipal League and the Virginia Association of Counties. Following
his presentation, Delegate McDonnell appointed Delegate Griffith to
work with the group on the real estate tax appeals process.
- A citizen from the Newport
News area gave personal testimony regarding the equalization process
in the Newport News area.
- Staff made a presentation
regarding the BPOL Task Force.
Previous Issues
Staff presented follow-up items
from the Task Force #2 meeting (June 26). The items included the following:
- Taxpayer appeals and "pay
to play" provisions. Delegate McDonnell asked Delegate Johnson
to work with the Tax Commissioner on the feasibility of i) an independent
hearing examiner and ii) prepayment for appeals.
- Estimated revenues from a
statewide 1 percent local individual income tax (presented by Virginia
Department of Taxation).
- Impact of the increasing
federal taxable estate threshold and options for repealing the Virginia
estate tax (presented by Virginia Department of Taxation).
- General fund dollars spent
on transportation.
- Projected additional revenue
from increasing the motor vehicle, aircraft, and watercraft sales and
use taxes.
August 19, 2002
Richmond
Tax Exemption Subcommittee Report
At the fourth and final meeting
of the task force, Delegate Robert D. Orrock, Sr., chairman of the House
Finance Special Subcommittee on Sales and Use Tax Exemptions for Nonprofit
Entities, presented the final report of the subcommittee. The subcommittee
recommended that, effective July 1, 2004, the Department of Taxation administratively
grant sales and use tax exemptions to any nonprofit entity that meets
the following criteria, to be established by the General Assembly:
A.
1. The entity is federally
tax exempt (i) under § 501 (c) (3) or (ii) under § 501 (c)
(4) and the entity (if it is under § 501 (c) (4)) is organized
for charitable purposes; or
2. The entity has annual
receipts less than the threshold required under § 501 (c) (3)
and § 501 (c) (4) ($5,000); and
B. The entity is serving the
public good and provides a statement as to the specific public good
being served; and
C. The entity is in compliance
with state solicitation laws; and
D. The entity's administrative
costs are less than _____, relative to its gross revenue (no consensus
on specific restriction); and
E. If the entity's gross
annual revenue was $250,000 or greater in the previous year, then the
entity must provide a financial audit performed by an independent certified
public accountant; and
F. If the entity filed a federal
990 or 990 EZ tax form with IRS, then it must provide a copy of such
form to the Tax Department.
G. If the entity does not
file a federal 990 or 990 EZ tax form with IRS, then the entity must
provide the following information:
1. A list of the board of
directors or other responsible agents of the entity (comprised of
at least two individuals), with names and addresses (addresses must
be where the individual physically can be found); and
2. The location where the
financial records of the entity are available for public inspection.
The duration of each exemption
granted by the Tax Department shall be no less than five years and no
greater than seven years. To maintain an exemption that otherwise would
expire, each entity must provide the Tax Department the same information
as required upon initial exemption and meet the same criteria.
The Tax Department shall develop
all other reasonable rules and regulations necessary to carry out the
exemption process within the constraints set forth herein. The Tax Department
shall file an annual report with the Chairmen of the House Finance Committee,
the House Appropriations Committee, and the Senate Finance Committee,
setting forth the annual fiscal impact of the exemptions for nonprofit
entities.
BPOL
Staff presented an update on
the BPOL work group of interested parties. That work group, which has
not reached a consensus on any alternatives to recommend, will meet again
the first week of September.
A spokesman for the Retail Merchants
Association of Greater Richmond, the Retail Alliance of Hampton Roads,
and the Virginia Retail Merchants Association presented two alternatives
for replacing the BPOL tax: (i) gradually eliminate BPOL over a five-year
period and replace the revenue with a .5 percent increase in the sales
and use tax and, at the end of five years, by a .25 percent increase in
the corporate income tax, or, alternatively, (ii) gradually eliminate
BPOL over a 10-year period and replace the lost revenue with a .5 percent
increase in the sales and use tax, and, at the end of the 10-year period,
by a .25 percent increase in the corporate income tax.
Taxing Authority
Delegate Robert D. Hull discussed
a prior legislative study regarding local revenue resources (House Document
69, 1995) and recommended that legislation be adopted giving counties
the same taxing authority as cities and towns, as was provided in a bill
he introduced last session (HB 16). Representatives of various amusement
industries urged the task force not to authorize counties to impose amusement
taxes.
Motor Vehicles
The president of the Virginia
Automobile Dealers Association made a presentation recommending that the
sales and use tax on motor vehicles not be increased. He suggested that
the task force examine revenue lost through the understatement of the
actual purchase price on "casual sales" (i.e., sales not from
a dealer).
Previous Meeting
Staff presented follow-up information
from the July 30th task force meeting including: (i) categories of services
on which sales and use tax might be imposed, (ii) state-by-state comparisons
in vendors' payment schedules for remitting sales and use taxes collected,
(iii) state-by-state comparisons of state death taxes, (iv) state-by-state
comparisons of cigarette taxes, (v) local cigarette tax rates in Virginia,
(vi) estimates for a tax on the manufacture of cigarettes, (vii) estimates
on the fiscal impact of reducing the taxable price of a motor vehicle
by the value of any trade-in, and (viii) information on the general and
non-general funds for transportation in Virginia.
Recommendations
The task force then considered
each of the issues that had been assigned to it. Some of the task force's
recommendations included: (i) adoption of the Orrock Subcommittee's
recommendations on sales and use tax exemptions for nonprofit entities,
with the proviso that the current moratorium on any new sales and use
tax exemptions continue at least until budget pressures ease; (ii) impose
the sales and use tax on personal services and repair services, and consider
removing the exemption provided to various public service corporations;
(iii) eliminate the accelerated sales tax payments by vendors; (iv) maintain
the status quo of no new taxes on Internet access or digital downloads;
and (v) eliminate the 1978 "freeze date" in Virginia's
estate tax so that the tax will be phased out over a four-year period
like most other states in conformity with the federal Tax Relief Act of
2001. For a full accounting of all action taken on each issue, refer to
the revised Task Force #2 Issue Form posted on the HJR 60 Joint Subcommittee
website.
The task force will report its
recommendations to the full HJR 60 Joint Subcommittee on September 12,
2002, at 10:00 a.m. in Senate Room A of the General Assembly Building.
Co-Chairmen:
The Hon. Emmett W. Hanger
The Hon. Robert F. McDonnell
For information, contact:
Joan E. Putney
Mark Vucci
David Rosenberg
Division of Legislative Services
Website: http://dls.state.va.us/taxcode.htm
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