If you thought the tax conformity debate took too long at the General Assembly, check out the fight at the State Corporation Commission over Dominion Energy Virginia’s corporate income tax bill. The SCC still hasn’t decided how much to cut Dominion’s base rates to reflect its lower income tax payments, but a decision is close.
There are three reasons why this case is worth exploring. Continue reading
The possibility of additional future state tax reform or tax cuts improved Monday under a new version of the pending bill that puts Virginia into conformity with the federal Tax Cuts and Jobs Act. The resulting tax revenue not returned by the modest policy changes in this bill are to be held in reserve for future action.
The language in the bill now better matches the earlier rhetoric about preventing a huge inflow of new income tax revenue.
The legal reality is no General Assembly can bind a future one, so the 2020 session could disband this new fund and just spend the money. But it is a stronger statement of policy and intent, and perhaps will add focus to the debate over tax policy which is inevitable in the 2019 legislative elections. Continue reading
The compromise income tax bill hailed for preventing a tax policy train wreck in Virginia includes one new provision not included in earlier bills, not mentioned in any of the Republican press releases and not yet included in any fiscal impact statements. Democrats wanted it.
It is yet another departure from the new federal Tax Cuts and Jobs Act. The bill maintains a formula to reduce or cap itemized deductions known as the Pease limit. TCJA removed the Pease limit at the federal level but the substitute tax bill voted on in committee Friday restores it at the state level. Continue reading
Neither the House nor Senate Republican tax plan returns more than half of the TCJA windfall. The House GOP does propose to set aside another $517 million in the first year for some form of added tax relief, to be determined later this year.
The tax relief proposals advancing in both the Virginia House of Delegates and Virginia Senate return at most half of the estimated additional state revenue created by the federal Tax Cuts and Jobs Act (TCJA) over six years.
As Virginia leaders have debated what to do about the situation, all have been working off an estimate of the additional revenue provided by an outside economic consultant last year. It projected $1.2 billion in the first two years and more than $4.5 billion in the first six years as the addition revenue Virginia would collect from conforming to the TCJA, absent changes in Virginia tax policy. Continue reading
The following updates three pieces of legislation previous featured on Bacon’s Rebellion. Each headline links to the previous posts for background.
SCC Review of Customer Pipeline Costs
Two legislators flipped their votes from subcommittee and voted no in the full House Commerce and Labor Committee, but legislation to reinforce State Corporation Commission authority to review the costs of natural gas pipelines survived on an 11-8 vote.
Delegate Israel O’Quinn, R-Bristol, and Margaret Ransone, R-Northern Neck, had supported House Bill 1718 but reversed themselves in the full committee vote Thursday afternoon. Ransone complained that she was now confused about the impact of the bill. Even more curious, new House Minority Leader Eileen Filler-Corn, D-Springfield, abstained, which normally indicates a financial conflict of interest. Continue reading
The Best Friends of the Taxpayer Face Off
The numbers to remember as the Virginia House of Delegates and State Senate start voting on income tax conformity bills, perhaps beginning tomorrow, have nothing to do with the hundreds of millions of dollars on the table or the millions of taxpayers waiting to file returns.
The key numbers are 32 and 80.
With an emergency clause on one of the two House bills, scheduled for debate Thursday, and on the only Senate bill that came out of committee today, a full 80 percent of the members of either chamber need to vote yes or they fail. Continue reading
Click for clearer view. The revenue table from the state fiscal impact statement on the internet transaction sales tax bills, about $1 billion over six years.
Both chambers of the General Assembly are on the verge of passing bills expanding the duty to collect state sales tax to internet retailers selling into Virginia, a once controversial idea that is generating far less heat than before but is still hitting resistance.
Senate Bill 1083 and House Bill 1722 still have a few differences that need to be ironed out as the session proceeds, and are proving to be a great example of that famous law of unintended consequences. Uber Eats, of all companies, is worked up about the bill. Orbitz keeps expressing concern. Continue reading
More rate adjustment clauses (RACs) on your power bill than points on this buck? Soon.
Here they go again, using your electric bill to pay for government spending programs and blurring the distinction between utility costs and taxes.
Everybody heard Thursday about that new coal ash management program adding to the pantheon of rate adjustment clauses (RACs) driving up electricity bills. Later in the day, with far less notice, a House of Delegates subcommittee approved yet another RAC and allowed potentially major new costs to inflate an existing one.
Everybody knows (and hates) the car tax, right? Imagine you bought a six-year-old used car, but when the county sent you the tax bill it based the tax on the brand-new-off-the-lot price paid by the original owner. Imagine if the Tax Man then smiled and said, this is your annual assessment for the rest of the life of the car, and the next owner pays that, too.
Well, that is what Virginia law does to manufacturers and others who fall under the most insane tax on the books, the local machinery and tools tax. If a locality chooses, the original price paid by the original owner is the basis for tax forever, even for the next owner of the machine and the next owner after that.
House Bill 2640, which meets its first big test Monday morning in the House Finance Committee, would tax machinery and tools on the price actually paid for them by that business, assuming it was an arm’s length transaction. The outcry from the various local governments and their associations is an instructive lesson in greed and shortsightedness.
Source: Tax Foundation
An average tax collections per capita of $4,560 ranked Virginia 23rd in the country for highest state and local tax burden in Fiscal 2016, according to the 2019 Tax Foundation report. That’s up from $4,204 and a 26th rank in Fiscal 2014.
Is it worth it? Are we getting a big bang for our buck, or are we, as the northernmost Southern state, becoming more and more like the Northeastern and Mid-Atlantic states?
Virginia’s most effective tax collector is inflation.
Virginia’s long refusal to adjust any element of its income tax for slow but constant inflation means that each year, a slightly higher percentage of your growing income is taxed, and the rising costs of living shrink the value of the standard deduction and push more of your income into the top tax bracket.
In 1990 Virginia’s income tax looked like it does today – an $800 personal exemption, a $3,000 standard deduction for a single taxpayer, and income above $17,000 was taxed at the maximum rate of 5.75 percent.
Had the 1990 tax code also included a provision to adjust those amounts annually for inflation, today the personal exemption would be $1,578, the individual standard deduction $5,916 and the top tax rate would not kick in until $33,524. The higher personal exemption and standard deduction combined would eliminate the tax bite on almost $9,000 income for a family of four – saving over $500.
Senate Finance Committee data highlights the “conformity” tax impact on Virginia corporations. The Governor’s Office data lumps in all forms of businesses, implying a smaller impact on Virginia business. (Click for larger view.)
In proposals which would further distance Virginia from the tax reforms of President Donald Trump, the General Assembly is being asked to let Virginia corporations keep two major deductions no longer allowed at the federal level.
If the General Assembly agrees, the chance for a general corporate income tax rate reduction probably goes away. The protection of a well-connected few will outweigh a possible benefit to the many, which seems to be what always happens when Virginia tries tax reform.
U.S. retail gasoline prices adjusted for inflation. Source: EIA . The blue line is the adjusted price, looking back into the 1970s. Note the peak just about when Virginia thought it wiser to tax a percentage of price rather than a fixed tax per gallon. Find the interactive version here: https://www.eia.gov/outlooks/steo/realprices/
In the middle of a booming economy, with many state revenue sources surging, flat transportation revenues were the focus of warnings Monday in presentations by Virginia Secretary of Finance Aubrey Layne and Secretary of Transportation Shannon Valentine.
“I think we are heading for a cliff,” Layne told the House Appropriations Committee. “For the first time in our history, we’re seeing no increase in fuel tax revenue while vehicle miles traveled goes up.”
The House Finance Committee will hold its first meeting of the 2019 General Assembly Monday morning, finally starting public discussion of Virginia’s response to a major federal tax overhaul from 13 months ago that will…
No! Belay that! All House bills dealing with how Virginia conforms to that federal change, and what other policy changes might follow, have been assigned to the House Rules Committee, chaired by Speaker Kirk Cox and meeting whenever the Speaker decides for it to meet. The one bill on the issue assigned to Finance is likely to also be referred to Rules tomorrow.
Are You In The Hugo Zone?
Delegate Tim Hugo (R-Centreville) is the point person for a state income tax proposal centered on less-than-full conformity with the federal Tax Cuts and Jobs Act. It only helps a narrow subset of Virginia taxpayers, those in The Hugo Zone. We will now try to take you there. (If you want to imagine Rod Serling’s voice in your head, feel free.)
Under straight conformity, as proposed by Governor Ralph Northam, a taxpayer taking the federal standard deduction would be stuck with the state standard, as well. Under straight conformity, deductions for local taxes on either return would be capped at $10,000. Hugo, standing Friday with several key House Republicans, announced a bill to put Virginia out of conformity on those two points.