In the closing days of the session, Virginia legislators passed a transportation funding bill. The full bill text is provided by Americans for 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. Reform here (PDF). The Competitive Enterprise Institute (CEI) also has a brief summary here. The Washington Post reports that the bill is supposed to raise an additional $880 million per year.
The main takeaway is that, if approved by the Governor, Virginia will raise its 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. from 5.0 percent to 5.3 percent statewide, and further to 6.0 percent in Northern Virginia and the Hampton Roads area. The state’s retail gasoline tax will be repealed, but replaced by an equivalent tax on wholesale gasoline. (This tax will be somewhat lower if the federal government authorizes the state to impose its sales tax on Internet purchases from out-of-state retailers.) Car taxes go up statewide, as does a license tax on electric vehicles. Northern Virginia will see higher real estate transfer and hotel taxes. The bill also prohibits new tolling on I-95 south of Fredericksburg.
Sales & Use Tax
- Raises the state sales and use tax from 5.0 percent to 5.3 percent, effective July 1, 2013. Of this increase, 0.175 percent goes to highway maintenance and operations, 0.050 percent goes to intercity rail, and 0.075 percent goes to mass transit.
- An existing sales tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax. for out-of-state mail order catalog items under $100 is removed.
- Imposes an additional 0.7 percent sales tax in the counties and cities of the Northern Virginia Transportation Authority and the Hampton Roads Region (the tax will thus total 6 percent in those areas). The additional sales tax will not apply to purchases of groceries but will otherwise have the same tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. as the state tax, and will be collected by the state on one consolidated return.
- Requires the tax commissioner to give sellers at least 30 days’ notice of local sales tax changes, and that changes can only become effective on the first day of a calendar quarter. Holds sellers harmless for sales tax collection errors caused by erroneous state information.
- Caps state use tax on equipment brought into the state for performing contracts at 5 percent. Sales of aircraft are also taxed at 2 percent and watercraft at 2 percent with a maximum tax of $1,000.
- Repeals the 17.5 cent gasoline tax effective July 1, 2013, replacing it with a 3.5 percent wholesale gasoline tax. The tax will be computed and modified twice each year based on the average wholesale price, on January 1 and July 1. The average wholesale price calculation cannot be less than the actual wholesale price of self-serve gasoline on February 20, 2013 (which news reports say equals $3.50 per gallon). At that $3.50 per gallon rate, what was a 17.5 cent tax will now be at minimum a 12.25 cent tax ($3.50 X 3.5 percent).
- A similar formula is used for taxing diesel, which presently pays a 17.5 cent tax and after July 1, 2013, will pay a 6 percent wholesale tax.
- If Congress does not enact legislation by January 1, 2015 giving Virginia the authority to collect sales tax from remote sellers with no physical presence in the state, the 3.5 percent tax will instead become a 5.1 percent tax, effective January 1, 2015. Again, the average wholesale price calculation cannot be less than the actual wholesale price of self-serve gasoline on February 20, 2013; at that $3.50 per gallon rate, what was a 17.5 cent tax will now be at minimum a 17.85 cent tax ($3.50 X 5.1 percent). The tax can now go up with any rise in gasoline prices, although in a manner now less transparent to consumers.
- Expands the existing 2.1 percent gasoline wholesaler tax in the Northern Virginia Transportation Authority region to the Hampton Roads region.
- Tax on the sale of a car, presently 3 percent, will rise to 4 percent (July 1, 2013), then to 4.1 percent (July 1, 2014), then to 4.2 percent (July 1, 2015), then to 4.3 percent (July 1, 2016). The minimum tax is raised from $35 to $75.
- Raises the statewide $50 license tax for electric vehicles to $100.
- Changes license tax due date for all vehicles from the last day of December to the date of registration and each subsequent renewal.
- Imposes a real estate transfer tax of 0.25 percent, termed a “regional congestion relief fee,” for land or property transfers in the Northern Virginia Transportation Authority area.
- Imposes a 3 percent hotel tax, on top of existing hotel taxes, in the Northern Virginia Transportation Authority area.
- Dedicates $300 million of the new revenue to the Metrorail silver line extension to Dulles International Airport.
- Prohibits tolls on Interstate 95 south of Fredericksburg without further approval by the Legislature. Virginia had applied for a waiver from the federal government to do so in a limited fashion, so this kills that.
- Northern Virginia Transportation Authority consists of the Counties of Arlington, Fairfax, Loudoun, and Prince William, and the Cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park.
- Hampton Roads region consists of Counties of Gloucester, Isle of Wight, James City, and York, and the cities of Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg.
Previous TF blog coverage:
- Crunch Time for Virginia Transportation Funding Plan Monday, February 11, 2013 – 13:15
- Virginia House Passes Modified Version of Governor McDonnell’s Transportation Plan Wednesday, February 6, 2013 – 17:00
- VA Democrats Don’t Like McDonnell’s Transportation Plan, Offer Something Strikingly SimilarWednesday, January 16, 2013 – 13:30
- Virginia Governor Proposes Smoke & Mirrors Transportation Financing Plan Tuesday, January 8, 2013 – 18:00
- Virginia Regional Divides Lurk Behind Transportation Financing Debate Tuesday, January 8, 2013 – 09:45
- Virginia May Consider Gasoline Tax Increase Tuesday, December 11, 2012 – 09:45