FROM: VML and VACo
Betty Long and Flip Hicks
DATE: October 9, 1998
RE: Questions about state and local taxation
1. The current taxation scheme for electric utilities should remain in effect if the General Assembly makes a policy decision to allow retail competition. However, local consumer utility taxes and the state and local gross receipts tax may need to be based on kilowatt hours rather than gross receipts.
2. VML and VACo have no opinion on the appropriate replacement mechanisms for the state gross receipts tax, except to recommend that the method of replacement provide sufficient revenues to adequately replace the gross receipts tax.
3. If the "declining block" consumption tax is used, it should be used to replace the three taxes currently levied on gross receipts: the state gross receipts tax, the local gross receipts tax, and the SCC special assessment tax (on gross receipts).
4. VML and VACo have no positions on the appropriate tax treatment for investor-owned utilities or electric cooperatives.
VML's adopted position on the taxation of municipally-owned electric utilities is "Electricity purchases, either inside or outside of the state, should be subject to the state's taxation at a level comparable to the current state gross receipts tax. However, the taxes paid for municipally-distributed electricity should be done in a way that avoids the direct taxation of the municipal utility or its customers. This would ensure that municipal customers pay their 'fair share' to the state, without setting a new precedent for state taxation of municipal operations.
"Municipal electric systems should continue to have the authority to set their own rates. These rates are already reviewed and approved by elected governing bodies.
"Municipal electric systems should continue to be governed by local governing bodies, not a state governing or state regulatory board."
5. VACo believes that the State Corporation Commission should continue to administer any tax program designed to replace the current gross receipts tax, particularly if it is based on energy consumption. VML would suggest that another possibility is the State Department of Taxation, which has the logistical experience of collecting taxes for and remitting them to local governments.
6. If the real estate of generating facilities declines in value, the state needs to assess the fiscal problems for the localities involved. For some localities, the generation facility is so large that a decline in property value would be a fiscal catastrophe to the local government. If this is the case, the state must step in to determine the local need for replacement funds, especially for some critical state-local services like education, health, welfare and law enforcement.
In more technical ways, the state should provide guidelines and assistance to localities if the localities must assess the real property of generation facilities.
7. The assessment on distribution systems and transmission lines in the Commonwealth of Virginia should continue to be made by the State Corporation Commission, since the SCC will still regulate the rates charged by distribution lines and transmission systems.
9. The legislature needs to ensure that local governments have the authority to use a consumption-based tax instead of a tax based on the dollar amount of the utility bill. This tax would be applicable to the distribution and transmission portions of the bill, which will be provided by in-state providers. Rate adjustments will be needed to ensure revenue neutrality.
10. The electric distribution companies should continue to collect and remit the consumer utility tax to localities. This system is already in place.