HJR 60: Joint Subcommittee to Study
and Revise the State Tax Code
November
13, 2002
Richmond
During its final meeting for
2002, the joint subcommittee received several brief reports regarding
a number of issues and ended with the approval of 12 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.
Sales Tax Project
Having just returned from the
Streamlined Sales Tax Project meeting in Chicago, Senator Hanger reported
that Virginia is one of 35 implementing states participating in the project,
with a goal of reducing the burden of tax compliance. Thirty-one of the
states voted on November 12 to support a written draft agreement, which
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 20 percent of the United States population have amended their
laws to implement the program, Congress will be asked to consider making
the program applicable nationwide. The joint subcommittee agreed to continue
to follow the project.
Real Estate Assessments
Legislation dealing with real
estate assessments and boards of equalization was reviewed. There was
much discussion by joint subcommittee members related to the burden of
proof, which 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 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.
State Tax Appeals
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.
Motor Vehicles
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 five 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.
Local Taxes
The final speaker, from the
Virginia Municipal League, 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 BPOL tax. It was determined
that the information would be a good starting point when examining the
BPOL tax issues further in 2003.
Nonprofit Organizations
Finally, the joint subcommittee
discussed one of the requirements of the House Finance Subcommittee report
dealing with the percentage allowed for administration costs of nonprofit
organizations. Current law says no more than 40 percent of gross annual
revenues may be spent on administration costs. There was some discussion
of making it a sliding scale (i.e., 40 percent for organizations with
gross revenues less than $1 million and 20 percent for those with gross
revenues of $1 million or more), but it was decided to leave it at 40
percent.
Recommendations and Draft Report
A majority of the joint subcommittee
approved an initial draft of its report and 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 it in its decision-making regarding
changes to the state tax code and how revenues are collected. At least
two of the recommendations, if adopted 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 increase in
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 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 (legislation).
4. Eliminate June accelerated
sales tax collections in 2002-2004 budget—pushes $118 million back
to fiscal year 2003 (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 fiscal year 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 exemptions.
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).
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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