From: Winfield L. Ryan
Virginia Power
Richmond, Virginia
October 9, 1998
Answer. No. The current taxation scheme requires the regulated public utilities to pay a gross receipts tax on its gross revenue. This tax is then passed on to ratepayers as part of cost of service. Non-regulated generators of electricity pay a corporate net income tax, which is a tax on profits. Gross receipts taxes generate substantially more taxes than the corporate net income tax. In a competitive environment, this difference in tax schemes will create a competitive advantage to non-regulated and out-of-state generators of electricity as compared to heretofore in-state regulated generators of electricity. In addition to the task force's proposal to replace the gross receipts tax with a corporate net income tax, it should provide for a $3 per ton coal tax credit to be applied against the corporate net income tax for purchases of Virginia coal.
2. Which mechanisms are appropriate replacement mechanisms for the state gross receipts tax:
a. Corporate income tax on generation.
b. "Declining block" consumption tax?
Answer. A declining block consumption tax, which should more properly be styled the revised utility tax. Such a designation would eliminate the misconception that the levy is a new tax or a tax increase. This type of tax resolves a lot of thorny tax issues and is easy to administer if the local distribution company administers the tax. It is preferable to the corporate income tax since the corporate income tax is already being proposed to be levied on generators of electricity. (The corporate income tax will produce a level playing field of taxation for all providers of electricity.) The proposed declining block consumption tax is to provide the state revenue in addition to the corporate income tax to make up the difference in revenues that the corporate income tax will produce under the proposed tax scheme from what the gross receipts tax produces under the current tax scheme. The introduction of the declining block consumption tax should be carefully planned. The state should make it clear to consumers that the levy is not a tax increase, but merely a replacement for the gross receipts tax previously passed through to consumers in their electric bills.
3. Should the "declining block" consumption tax include:
a. Local gross receipts taxes
b. State Corporation Commission special assessment?
Answer. The declining block consumption tax should include the local gross receipts taxes and the State Corporation Commission ("SCC") special assessment because it is easy to administer and resolves the nexus issues. The "declining block" consumption tax is based on a per kilowatt basis. As such, it would be easy to include the local gross receipts taxes and SCC special assessment within the tax.
4. Describe the appropriate tax treatment for:
a. Investor-owned utilities
b. Electric cooperatives
c. Municipal electric systems?
Answer. See answer to question 1.
5. Which state agency should administer any tax program designed to replace the current gross receipts tax?
Answer. Either the Department of Taxation or the SCC could administer the declining block consumption tax. The nature of the tax should make it relatively easy to administer. In addition, it is recommended that an educational effort be planned by the state to inform consumers about the competitive market, which will include programs to tell consumers about the new tax scheme.
6. What action should the General Assembly take to protect/preserve the current revenues received from real property taxes on generation facilities?
Answer. The localities should be given the authority to assess and adjust the property tax rates on generation facilities. The assessment should be based on fair market value principles in accordance with the Virginia Constitution. All generators of electricity should be taxed consistently within the localities. Localities will then have the ability within the confines of the law to preserve the status quo.
7. Who should perform assessments on property owned by suppliers of electricity?
Answer. See answer to question 6.
8. What assessment method should be used on property owned by suppliers of electricity?
Answer. See answer to question 6.
9. What action should the General Assembly take to protect/preserve the current revenues received from the consumer utility tax?
Answer. The consumer utility tax should be based on a per kilowatt basis rather than a dollar amount. This would preserve the revenue stream even if the price of electricity declines. Also, it would provide a mechanism for the local distribution company to determine the proper amount of tax to collect even if it is not the ultimate supplier of electricity.
10. Who should collect and remit the consumer utility tax to localities?
Answer. See answer to question 9.
bc: Ms. Eva Teig
Mr. Stuart Bolton