HR 5004: House Finances Subcommittee on Income and Sales Tax Preferences

August 23, 2004
Richmond

The purpose of the special subcommittee’s second meeting was for the members to receive more specific details about the numerous tax preferences found in Title 58.1 of the Code of Virginia. Information on income tax and sales and use tax preferences was shared with the members. No action was taken at the meeting’s conclusion except to announce there would be a public hearing during the next meeting, and the subcommittee would like to hear from interested parties, especially businesses that benefit from tax preferences.

Introduction

Following Chairman Drake’s opening remarks, Legislative Services staff offered some “food for thought” in an effort to assist the members of the special subcommittee in deciding what approach they might take to the study. A copy of a report entitled “Report of the Subcommittee Studying Criteria for Sales Tax Exemption Bills” was briefly reviewed. The report came out of a study done in 1979 by members from both the House and Senate Finance Committees.

That subcommittee developed a list of criteria and questions to consider when examining sales and use tax exemption bills. It was agreed that many of the criteria could be adapted to income tax preferences as well:

1. What is the purpose of the exemption and what is it intended to achieve?
2. Does the exemption benefit many or just a few and is it the equitable approach?
3. Would it reduce the broad-based nature of the sales tax?
4. Would granting this exemption lead to other bills granting similar exemptions?
5. Would the exemption benefit only a segment of the population?
6. Do similar products receive an exemption under current law?
7. What is the fiscal impact of the exemption and how will the reduction in revenues be handled by the state?
   

Staff Presentations

Representatives of the Department of Taxation presented information about the income tax preferences. Their presentation was in three charts: Virginia Income Tax Credits, Virginia Individual Income Tax Subtractions and Deductions, and Virginia Corporate Income Tax Subtractions and Deductions. Each chart included the Code section, name, description, date enacted, rationale and the amount of credits claimed or the aggregate amount of subtractions or deductions claimed.

The Sales and Use Tax Expenditure Studies were explained, along with why and when the Department of Taxation prepared them. The studies were produced from 1989 to 1995 and examined all the sales tax exemptions. Their purpose was to give legislators another way to examine the exemptions to determine if they were accomplishing what they were intended to accomplish so that legislators could eliminate those that were not. No exemptions were ever repealed as a result of the studies, and because they required substantial time and manpower to create, they were discontinued in 1996.

Finally, Legislative Services staff summarized information regarding sales and use tax exemptions. This included each exemption category and the year enacted, with emphasis on the original 22 exemptions that have been in the Code since 1966. Also, the rationale for the exemption, the fiscal impact based on the expenditure studies done by the Department of Taxation in the early 1990s, and what the surrounding states do. Most of the original 22 exemptions were exempt because (i) they were subject to another tax and therefore would have been double taxed if the retail sales and use tax was imposed, (ii) they were deemed to be consumer necessities, (iii) they were administratively burdensome, or (iv) equity issues were involved.

[The “Report of the Subcommittee Studying Criteria for Sales Tax Exemption Bills,” income tax charts, the sale and use tax expenditure study presentation, and the sales and use tax charts may be viewed in full at the Division of Legislative Services website under Interim Study Committees, Tax Studies, HR 5004, Meetings, August 23rd, Handouts.]

Next Meeting

At the subcommittee’s September 28th meeting, the business community and interested parties were asked to address the subcommittee and explain why the tax preferences are important to them.

Chairman:
The Hon. Thelma Drake

For information, contact:
Joan E. Putney
Division of Legislative Services

Website:
http://dls.state.va.us/hr5004taxcode.htm

Privacy Statement | Legislative Services | General Assembly