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McDonnell Modifies Virginia’s New Transportation Taxes by Expanding Their Scope, Sort Of

2 min readBy: Joseph Bishop-Henchman

We earlier described Virginia’s passage of new transportation taxes, which include higher sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es in the northern Virginia and Hampton Roads regions and higher hotel and real estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. es in northern Virginia. Although not exactly the plan Governor Bob McDonnell (R) asked for, it looked close enough to most observers and he was expected to sign it into law.

Enter Virginia Attorney General Ken Cuccinelli, widely expected to the 2014 Republican gubernatorial nominee. He noted in an advisory opinion (PDF) last Friday that Virginia’s Constitution contains a uniformity clause, which requires that all taxes imposed by the Legislature be uniform across the entire state.

Because the law does not impose the new taxes equally across the state geographically, but only in certain areas, it violates the uniformity clause. (A similar law was struck down in 2008 for allowing regional authorities to impose new taxes without voter approval, to get around northern Virginia voters’ consistent habit of rejecting regional taxes.)

So, McDonnell exercised his power to amend the statute and expand the new taxes statewide. Sort of. The new taxes apply “statewide” to any region that meets the following carefully convoluted criteria: any planning district with at least 1.5 million people as of 2010, at least 1.2 million registered vehicles, and at least 15 million transit passengers. Not surprisingly, only the Hampton Roads region and northern Virginia fit this criteria. From the Stafford County Sun:

McDonnell's amendments to the bill, filed late Monday night, would: reduce a proposed annual fee on hybrid and alternative fuel vehicles from $100 to $64; trim a 1.3-percentage point increase in the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on motor vehicles to 1.15 percentage points, phased in over three years; decrease new taxes on real estate transactions and overnight lodgings in Northern Virginia for regional initiatives there; and tie the new taxes for regional initiatives — including a higher retail sales tax than the rest of the state — to specific criteria such as population, vehicles, and transit use as proxies for highway congestion and pollution.

"So empirical criteria as opposed to naming regions," said McDonnell, who added that the criteria "theoretically could be met by any region of the state."

Currently, only the Northern Virginia and Hampton Roads planning districts meet the criteria — at least 1.5 million people in the 2010 census, at least 1.2 million registered motor vehicles, and at least 15 million transit passengers a year.

This dodge allows Virginia’s new taxes to get around the Constitution’s requirement that taxes be imposed uniformly across the state. Now they are uniform technically but not for practical purposes. Maybe it’s the right policy, given the greater transportation needs of the two regions in question, but it’s bad constitutional practice.