HR 5004: House Finances Subcommittee on Income and Sales Tax Preferences
August 23, 2004
The purpose of the
special subcommittees second meeting was for the members to receive
more specific details about the numerous tax preferences found in Title
58.1 of the Code of Virginia. Information on income tax and sales and
use tax preferences was shared with the members. No action was taken at
the meetings conclusion except to announce there would be a public
hearing during the next meeting, and the subcommittee would like to hear
from interested parties, especially businesses that benefit from tax preferences.
Drakes opening remarks, Legislative Services staff offered some
food for thought in an effort to assist the members of the
special subcommittee in deciding what approach they might take to the
study. A copy of a report entitled Report of the Subcommittee Studying
Criteria for Sales Tax Exemption Bills was briefly reviewed. The
report came out of a study done in 1979 by members from both the House
and Senate Finance Committees.
developed a list of criteria and questions to consider when examining
sales and use tax exemption bills. It was agreed that many of the criteria
could be adapted to income tax preferences as well:
- What is the purpose
of the exemption and what is it intended to achieve?
- Does the exemption
benefit many or just a few and is it the equitable approach?
- Would it reduce
the broad-based nature of the sales tax?
- Would granting
this exemption lead to other bills granting similar exemptions?
- Would the exemption
benefit only a segment of the population?
- Do similar products
receive an exemption under current law?
- What is the fiscal
impact of the exemption and how will the reduction in revenues be handled
by the state?
the Department of Taxation presented information about the income tax
preferences. Their presentation was in three charts: Virginia Income Tax
Credits, Virginia Individual Income Tax Subtractions and Deductions, and
Virginia Corporate Income Tax Subtractions and Deductions. Each chart
included the Code section, name, description, date enacted, rationale
and the amount of credits claimed or the aggregate amount of subtractions
or deductions claimed.
The Sales and Use
Tax Expenditure Studies were explained, along with why and when the Department
of Taxation prepared them. The studies were produced from 1989 to 1995
and examined all the sales tax exemptions. Their purpose was to give legislators
another way to examine the exemptions to determine if they were accomplishing
what they were intended to accomplish so that legislators could eliminate
those that were not. No exemptions were ever repealed as a result of the
studies, and because they required substantial time and manpower to create,
they were discontinued in 1996.
Services staff summarized information regarding sales and use tax exemptions.
This included each exemption category and the year enacted, with emphasis
on the original 22 exemptions that have been in the Code since 1966. Also,
the rationale for the exemption, the fiscal impact based on the expenditure
studies done by the Department of Taxation in the early 1990s, and what
the surrounding states do. Most of the original 22 exemptions were exempt
because (i) they were subject to another tax and therefore would have
been double taxed if the retail sales and use tax was imposed, (ii) they
were deemed to be consumer necessities, (iii) they were administratively
burdensome, or (iv) equity issues were involved.
of the Subcommittee Studying Criteria for Sales Tax Exemption Bills,
income tax charts, the sale and use tax expenditure study presentation,
and the sales and use tax charts may be viewed in full at the Division
of Legislative Services website under Interim Study Committees, Tax Studies,
HR 5004, Meetings, August 23rd, Handouts.]
At the subcommittees
September 28th meeting, the business community and interested parties
were asked to address the subcommittee and explain why the tax preferences
are important to them.
The Hon. Thelma Drake
Division of Legislative Services
of Legislative Services > Legislative
Record > 2004
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