HJR 532

Commission on State and Local Government
Responsibility and Taxing Authority

September 22, 1997, Emporia

During the commission's fourth 1997 meeting, its members heard about real property tax issues and county taxing authority. Representatives from the Virginia Farm Bureau Federation and the Virginia Association of Counties (VACo), as well as Delegate Mitch Van Yahres, addressed the commission.

Virginia Farm Bureau Federation

A Farm Bureau representative presented an overview of the bureau's position and briefly summarized what other states have been doing recently regarding real property tax reform. In 1997, 14 states examined property tax reform, with proposals including capping property taxes or assessments, reducing property taxes or assessments, implementing homestead exemptions, and creating alternative methods for funding education. Not all were clear on how property tax cuts would be paid for, although some suggested replacing lost revenues with increases in income and sales taxes or with increased revenue projections.

It was suggested that all taxes need to be re-examined because over the years the United States has changed from an agrarian to an industrial and now to a more service-oriented society, which produces and consumes more services than manufactured goods. Therefore, tax structures need to be revisited in order to ensure an equitable tax system.

Farmers are especially concerned about the real property tax and local government's reliance on the tax to fund education and other services. They also believe that the tax burden is not equally divided among taxpayers and that farmers pay a disproportionately large share of the taxes for the amount of services they require. While land use assessment is available to farmers in 87 localities, it is not available to all farmers. Some of the localities that currently have the program are considering eliminating land use assessment in order to raise additional revenues. The fear is that unless other alternatives and a more equitable tax structure at the local level are considered and implemented, farmers as well as homeowners will be taxed off their land.

The two options mentioned for changing the reliance on real property taxes were (i) allowing localities to impose a local income tax and (ii) levying the sales tax on more services.

House Bill 1651 (1997)

Delegate Mitch Van Yahres next spoke to the commission members about a bill he introduced during the 1997 Session, HB1651, which offered another revenue raising option to localities. The legislation allowed any county or city to levy a local income tax at the rate of one percent in addition to the applicable state income tax rate. Any county or city opting for the tax would be required to reduce the real property tax rate or the tangible personal property tax rate to offset the amount of local income tax revenues collected. The income tax is considered to be a more progressive tax and therefore more equitable than some of the other taxes, such as the sales tax and real estate tax.

House Bill 2399 (1997)

Finally, VACo representatives presented HB2399, which had been referred to the commission from another subcommittee. The bill, also introduced in the 1997 Session, would give counties the same taxing authority that cities and towns currently enjoy. Many view the current disparity between the counties' taxing authority and the cities' and towns' taxing authority as inequitable.

Concern was expressed about giving the counties equal taxing authority, especially in the case of meals taxes, in which a local referendum is required before the tax may be levied. That requirement would no longer exist if counties had the same taxing authority as cities and towns. No position was taken by the commission on this matter.

Next meeting

The commission will next meet on November 20, 1997, in Herndon at the Dulles Airport Hilton. The topics for that meeting will be the earned income tax credit and the recent changes in the federal tax laws.