The Virginia, Maryland & Delaware Association of Electric Cooperatives ("VMD Association" representing, in Virginia, A&N Electric Cooperative, BARC Electric Cooperative, Community Electric Cooperative, Craig-Botetourt Electric Cooperative, Mecklenburg Electric Cooperative, Northern Neck Electric Cooperative, Inc., Northern Virginia Electric Cooperative, Powell Valley Electric Cooperative, Prince George Electric Cooperative, Rappahannock Electric Cooperative, Shenandoah Valley Electric Cooperative and Southside Electric Cooperative, Inc.) and Old Dominion Electric Cooperative ("Old Dominion") (collectively, the "Cooperatives") join in submitting these responses to the questions prepared by the SJR 91 Task Force on State and Local Taxation.
1. Should the current taxation scheme for electric utilities remain in effect if the General Assembly makes the policy decision to allow retail competition?
No. If retail competition is allowed in Virginia the out-of-state providers will be given a competitive advantage because their sales will not be subject to the gross receipts tax ("GRT").
2. Which mechanisms are appropriate replacement mechanisms for the state gross receipts tax:
a. Corporate income tax on generation.
Yes. If the GRT is eliminated, then the Commonwealth's lost revenue should be replaced by combination of (a) an electric consumption tax ("ECT"), as discussed below, and (b) a corporate income tax ("CIT"). If a CIT is adopted, then the CIT should be based on "federal taxable income." This approach is consistent with Virginia Code Section 58.1-402, which applies to other corporate taxpayers. The definition of federal taxable income recognizes the differences in corporate structures.
Virginia is a tax conformity state in other tax matters, and should continue to follow that principle in this case.
b. "Declining block" consumption tax
Yes. The majority of the tax revenue presently raised by the GRT should be replaced with the ECT. Replacing the GRT with an ECT will ensure uniformity in taxing all consumers of electricity, and revenue neutrality in the state.
3. Should the "declining block" consumption tax include:
a. Local gross receipts taxes
Yes. To ensure that the electricity provided by out-of-state providers is taxed the same as electricity provided by in-state providers, the ECT rates should replace all taxes based on gross receipts. Localities should have the option of adjusting the state's minimum ECT rates to ensure no loss of revenue.
b. State Corporation Commission special assessment
Yes. The ECT rates should include the SCC special assessment.
4. Describe the appropriate tax treatment for:
a. Investor-owned utilities
Investor-owned utilities should be subject to the same state CIT provisions as other corporate taxpayers, and pay a state CIT based on federal taxable income.
b. Electric cooperatives
To the extent that only the generation portion of the electric utility activity is taxed, then cooperatives should be subject to the same state CIT provisions as all other corporate taxpayers, and pay a state CIT based on federal taxable income.
c. Municipal electric systems
Although municipal electric systems may be exempt from a CIT, all consumers of electricity in the state should be subject to a uniform ECT.
5. Which state agency should administer any tax program designed to replace the current gross receipts tax?
The Department of Taxation should have overall responsibility to ensure consistent application of the CIT and uniform tax treatment of all corporate taxpayers. The SCC should support this effort, particularly to the extent that nongeneration activities are exempt, to ensure a proper functional allocation between generation and nongeneration business segments. The SCC should also have oversight of the ECT.
6. What action should the General Assembly take to protect/preserve the current revenues received from real property taxes on generation facilities?
All generating assets-whether regulated or unregulated-should be taxed on an equitable method. To the extent that the state or a locality suffers a loss in revenue as a result, the difference could be made up in the ECT rate. Localities may be given the option of increasing the ECT rate to supplement local revenue.
7. Who should perform assessments on property owned by suppliers of electricity?
All property owned by electric generators should be subject to uniform central assessment.
8. What assessment method should be used on property owned by suppliers of electricity?
The assessment method should be "book cost" as defined by generally accepted accounting principles.
9. What action should the General Assembly take to protect/preserve the current revenues received from the consumer utility tax?
See answer to 3 (a) above.
10. Who should collect and remit the consumer utility tax to localities?
The ECT should be collected and remitted to the Commonwealth by the retail power distributors.