HJR 656: Joint Subcommittee Studying Taxes, Fees, and Assessments that
Generate Little Revenue
The first meeting
of the joint subcommittee studying taxes, fees, and assessments that generate
little revenue was held in Richmond on October 17, 2005. All of the members
of the joint subcommittee, Delegates Harry Parrish (chair), Scott Lingamfelter
(vice chair), Ed Scott and Lionel Spruill and Senators Emmett Hanger and
Mary Margaret Whipple, were in attendance.
REVIEW OF HJR
Staff reviewed the
charge given to the joint subcommittee in HJR 656. The resolution requires
the joint subcommittee to study the taxes, assessments, and fees imposed
by the Commonwealth that produce little revenue in order to determine
whether they are administered efficiently, and if not, whether they can
be collected in a more efficient manner so that administrative costs may
be reduced. The work of the joint subcommittee must be completed by November
30, 2005, with an executive summary containing its findings and recommendations
submitted by the chairman no later than the first day of the 2006 General
Janie Bowen, Executive
Commissioner of the Department of Taxation (the Department), made a presentation
on the small revenue sources that the Department administers. In general,
the Department administers 30 taxes, some of which produce large amounts
of revenues (e.g. individual income tax and retail sales tax) and others
which produce small amounts of revenue (e.g. sheep assessment tax and
cotton assessment tax). While the joint resolution did not define "little
revenue," the Department administers 10 taxes that produced less
than $2 million each in fiscal year 2004 and combined produced less than
$4 million. The revenues from each of these taxes are paid into a special
fund that is used for a specific purpose. The ten taxes are (i) corn assessment
(ii) cotton assessment, (iii) egg excise, (iv) forest products, (v) litter,
(vi) peanut excise, (vii) sheep assessment, (viii) small grains, (ix)
soft drink, and (x) soybean assessment. The amount of revenue raised in
2004 ranged from a low of $11,000 (sheep assessment tax) to a high of
$1,661,000 (forest products tax).
Most of these taxes
are industry specific and have been requested by the affected industries.
While authorized by the General Assembly, members of each industry were
required to vote in a referendum before their tax was imposed. Once approved,
the special fund revenues are spent on industry-specific promotion. These
assessments are therefore self-imposed for self-promotion. Also, the industry
may vote by referendum to remove the tax. However, the litter tax and
soft drink excise tax were imposed by the General Assembly and the revenue
collected is deposited into the Litter Control and Recycling Fund. There
is no objection by the affected industries to these two taxes.
In fiscal year 2004,
the Department collected approximately $11 billion from the 30 taxes it
administers and had $64.7 million in operating costs, or about $0.59 per
$100 of collected revenue. The allocation of specific expenditures to
specific taxes is impossible, because the Department is not organized
by tax type and does not account for its expenses by tax type.
It costs approximately
$250,000 whenever a new tax is added to the Department's complex, integrated
automated system that is designed to handle the processing of over 7.5
million returns, as well as several customer service and enforcement activities.
Once the new tax is added to the system, processing costs are low. It
is the initial set-up and programming that is costly and requires an increased
general fund appropriation to the Department.
Because most expenses
for administering the collection and enforcement of taxes come out of
the Department's general fund appropriation, most revenues distributed
to special funds do not bear their respective costs. Of the 10 commodity
taxes, only two (Forest Products Fund and Peanut Fund) were directed in
the 2005 Appropriation Act to reimburse a portion of their revenues to
the general fund and even those amounts were relatively small ($33,878
from the Forest Products Tax Fund and $969 from the Peanut Fund).
The Department did
suggest two possible changes to the current operating procedures that
may reduce some of the costs in the long run. First, the Department could
standardize and simplify administrative provisions, which would reduce
the set-up costs for new taxes but would require somewhat costly modifications
to the Department's accounting system. Second, the frequency of filing
returns could be reduced but that would delay payments to the special
The members of the
joint subcommittee asked that by its next meeting the Department provide
the same kind of information for the 20 other taxes it administers. The
members also are interested in more information about each of the commodities
boards and how they use the money to promote their respective industries.
In an effort to address
the issue of how to be more efficient in collecting taxes and fees, it
was suggested that draft legislation be prepared by staff that allows
every state agency when collecting taxes and fees to only send a bill
when the amount due is more than five dollars. There currently is language
in the tax code, effective January 1, 2006, that provides localities the
option of not sending a bill for amounts less than $20.
The next meeting
of the joint subcommittee is scheduled for November 14, 2005, at 3:00
p.m. in Richmond, at which time the legislation will be reviewed, as well
as any additional information provided by the Department of Taxation.
The Hon. Harry
Joan Putney and