A Series of Hidden Tax Hikes In the Bag

The bag tax is 5 pence in Scotland, but will be 5 pennies here in Virginia.

By Steve Haner

Politicians hate taxes that voters pay by check and love taxes that are buried deep on invoices or fully invisible. The 2020 General Assembly is raising taxes right and left (mostly left) but focused on that second method. These will be tax increases most people will never spot.

Governor Ralph Northam’s record introduced budget was based on several proposed tax increases (and of course the extra money collected by breaking his promise to continue last year’s tax reform effort). But legislators have not been shy, only sly, about building on that base with additional levies. 

Since the Governor was already proposing to raise Virginia’s motor fuels taxes, collected at the wholesale level and never seen on receipts, this was the perfect time to add addition revenue to the existing regional transportation tax regimes.

Since the Governor was already proposing to raise Virginia’s cigarette tax, also collected by wholesalers, this was the perfect time to expand the authority for a local tobacco tax to all those Virginia counties not allowed to impose it.

At least you may be able to see on future store receipts the new 5 cent tax on plastic bags.

House Bill 534 produced a curious roll call. It initially received 50 votes and failed, needing a hard count of 51 (the rule with tax bills). It received 52 votes on the second try, but the official roll call notes six Democrats “voted aye but intended to vote nay.” Intentions notwithstanding, they voted to impose a statewide nickel tax on plastic bags , with retailers keeping a penny from each transaction.

Another set of taxes that won’t be easy to spot will be imposed by all the counties granted new tax authority, including a meals tax of up to 6% with no required referendum. The difference between city and county taxing authority has been source of friction for a long time, with the business entities subject to these excise taxes shouting vive le difference.

There is a doozie of a fiscal impact statement on the bills that extend to Virginia counties more of the taxing powers now enjoyed by cities, this one prepared by the Joint Legislative Audit and Review Commission. Should every county made eligible impose every tax at the maximum authorized rate, they would collect $528 million in the first year of imposition and $570 million two years later.

Most of that would come from the authorized 6% tax on prepared meals and beverages. Now 43 counties have no meals tax, and 52 impose a tax of 4%. Would they all impose the maximum rate immediately? Probably not. They will eventually, count on it. Lesser revenues will flow from the new allowed taxes on admissions, cigarettes and transient occupancy.

If you haven’t noticed, gasoline is cheap right now. This makes it easier for the political class to add to those taxes, and the State Senate and House of Delegates are now discussing either an 8 or 12 cent increase in the basic state tax for transportation uses (and then indexed for inflation). But the basic statewide tax is no longer the only thing to consider.

The House has approved a new Central Virginia Transportation Authority and its funding scheme, using 7.6 more cents per gallon on gas and another 0.7% on the general sales and use tax, bringing it to a total of 6%. House Bill 1541’s most recent impact statement projects $179 million collected in the first year and $207 million by 2026.

The Hampton Roads region already has those regional taxes for transportation, but it is building upon them with House Bill 1726 and Senate Bill 1038, adding a regional grantors tax on real estate transactions, and another 1% to the transient occupancy tax on hotel rooms. The take on that will be $22 million in the first year and $26 million by 2026.

Not to be left out, the Northern Virginia region is also padding its transportation fund with higher grantor’s and transient occupancy taxes, with much of the funds devoted to transit. There is no published fiscal impact statement on House Bill 729. These are largely invisible taxes, so who cares?  They are certainly hoping you won’t notice.

The regional taxes for transportation are proving so popular the General Assembly may extend them, at least the additional fuel taxes, to all parts of the state that haven’t set up their own authorities. Senate Bill 452 does not spread the additional sales tax imposed for the regional authorities, however, just the added 7.6 cents in fuel tax. There was no House companion on this, so its chances of full passage are diminished. It also lacks (surprise) a fiscal impact statement with projected revenue.

Regional transportation taxes are now inspiring local school construction levies, an additional 1% on the sales tax. Halifax County started this trend last year. Pending House bills add about seven Southside Virginia localities to the list, bringing the sales tax in those (also collected off Internet sales now) to 6.3%. A pending Senate bill adds Gloucester County. This will spread statewide very, very soon.

The Lowly Litter Tax. Companion bills raise the litter tax paid by manufacturers, wholesalers, distributors and retailers from $10 to $20 (per year), and the higher tax paid by companies in the beverage trade from $25 to $50. The additional litter tax raises less than $1 million statewide. But it is a tax increase, somewhat ironic given the tax exists as an alternative to bag or bottle taxes.

Utility Gross Receipts Taxes. The General Assembly doesn’t want the State Corporation Commission to have much authority, but it will be well funded while it stands aside on utility regulation. House Bill 129 raises the allowed tax on public service companies to fund the SCC from 0.2% of their gross receipts to 0.26%, increases a tax on natural gas a similar amount, and raises small taxes imposed on electricity consumption.

The SCC must know how much more money it intends to raise, but fails to report it in the fiscal impact statement. It does note the allowed tax rates haven’t changed in 70 years, but these are excise taxes, so revenue rises with economic value. Without doubt, all the companies paying them pass through the cost of such taxes to their customers.

No legislation can change the basic fact that only people pay taxes.