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Budget Deal In Richmond Is A Horrible Mistake

By Greg L | 21 February 2013 | Virginia Politics | 9 Comments

The looming budget deal in Richmond will raise sales taxes 20% in Northern Virginia, hike the “grantor’s tax” on real estate transactions by $0.40 per hundred, and hike the sales tax on automobiles by 33%.  All this so Richmond can continue to throw money to fix transportation problems where they don’t exist and fail to address problems where they do.  I can’t imagine how any self-described fiscal conservative could even consider such a horrid idea.

Bob Marshall lays out the crap sandwich we’re almost certainly going to be force-fed like this:

Dear Fellow Virginians,

Well, now we know the tax hikes for sure!  The House/Senate Transportation Bill (HB 2313) Conference Committee brought both bodies their Conference Report today.  I intend to vote NO on final passage.  Please contact your delegate/senator today and urge them to vote no.  The bill includes the following tax increases:

  • Replace the current 17.5 cents per gallon flat tax on gasoline with a 3.5 % wholesale sales tax paid by distributors, which will be passed on to consumers, and a 6 % wholesale sales tax on diesel fuel.   
  • Increase the 5% retail sales and use tax paid statewide on most purchases to 6% in Northern Virginia and Hampton Roads and 5.3 % in the rest of the state.
  • Apply a $100 annual fee on alternative fuel vehicles, including hybrids.     
  • Increase the current 3% sales tax paid on the purchase of motor vehicles to 4%.
  • Increase the amount of general fund money diverted to fund transportation from .50 % to .675 %, raising roughly $200 million when fully phased in.
  • The sales tax in Northern Virginia and Hampton Roads will be 6% instead of the 5.3% in the rest of the state.
  • In Northern Virginia there will be an increase of 40 cents per hundred dollars on the sale of a house.  That’s an extra $1600 on the sale of a $400,000 home.
  • Also in Northern Virginia there will be a 2 % occupancy tax for hotels.
  • If Congress passes the Marketplace Equity Act (which requires on line businesses to collect sales taxes) the proceeds will be distributed as follows:  55.55% for schools;  22.2% for local governments with no restrictions;  and 22.2% for roads and transit.  If Congress does not pass the Internet sales tax collections act, an additional 1.6 %  tax would be added to the wholesale gas tax.

Not all of the sales tax increase (the extra .3% statewide or extra 1% in Northern Virginia & Hampton Roads) will go to transportation.  Part will go to schools and other general fund programs.  There is no prohibition from using more of the tax increase for things other than transportation, nor anything to stop reinstating the gas tax on top of all the other taxes in future! 

NOT FIXING WHAT IS BROKEN:  In this session, the House of Delegates:

  1.   Rejected an attempt to increase representation of Northern Virginia and Hampton Roads on the Commonwealth Transportation Board, the VDOT agency that decides which projects are funded.  The current CTB is weighted in favor of districts drawn from the 1930’s.
  2.   Agreed to fund two roads which proponents hope will spur economic development: (A) $1.4 Billion for a 55 mile toll road parallel to existing Rt. 460 (Suffolk to Prince George), a project which VDOT says will create 4,000 jobs but lists no traffic counts; (B) Increase by $554 million for a total of $1.3 Billion to finish and four lane Rt. 58 to the intersection of I-77/I-81, a road that carries only 7900 cars daily.
  3.  Declined to alter the decades old transportation funding formula for the allocation of money to VDOT construction districts. This will perpetuate the practice of funding rural rather than urban areas.  Apparently, if rural law makers vote for these higher taxes, they have been assured that no change will occur to the funding formula.

UPDATE: NLS has a soundbyte of Governor McDonnell in 2009 promising that he would not raise taxes in order to fund transportation, the exact opposite of the crap sandwich he is pushing for now.  The colorful language just helps to make the point clear, dontcha think?

UPDATE 2: Now that Delegate Marshall has had the time to read the conference report on HB 2313, he’s found additional problems, in addition to clarifying some of the information that he was given that was not correct:

  • The personal property tax will increase from 3.5% to 4.3%.
  • The tax on vending machine sales rises from 4.5% to 6% in NOVA and Hampton Roads and 5.3% elsewhere in the state.
  • Heavy equipment used for contracts on road construction, railroads, docks, etc. will be taxed at 4.3%, up from 3.5%
  • Except for the increased tax on motor vehicles, other tangible personal property will be taxed at 5%.
  • In Northern Virginia, commercial, industrial and residential land and building sales will have an additional tax of 25 cents per $100 of value. (A Conferee had previously told me the tax was 40 cents per $100)
  • In Northern Virginia there will be a 3 % hotel tax (Legislators were previously informed this amount was 2%)
  • While the bill shifts the 17.5 cent flat tax per gallon of gas to a 3.5% sales tax on the wholesale price of gasoline, it is speculative to claim that motorists will pay less for gas because the sales tax will be computed on the wholesale price of gas as of February 20, 2013 and will not go below this floor.
  • The sales tax on purchasing vehicles (trucks and cars) increases from the current 3% to 4% on July 1, 2013, 4.1% on July 1, 2014; 4.2 % on July 1, 2015, and 4.3% on July 1, 2016. (Legislators were told it was a straight 4% tax. In reality, the tax increases each year through 2016.)
  • If Congress does not pass the internet sales tax collection law, the tax on wholesale gasoline beginning January 1, 2015 will increase from 3.5% to 5.1%.(regular gas) and 6% (diesel). There is no provision in the law to revert back to 3.5% should Congress pass the internet tax law after 2015.

By the way, if Congress passes the internet tax, mom and pop internet stores will be forced to comply with thousands of jurisdictions’ differing tax rates. Big online companies can easily comply but their smaller competitors could be forced out of business.



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9 Comments

  1. Mom said on 21 Feb 2013 at 12:43 pm:
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    Thank God Bob is at least releasing the details of the Conference Report. I just got an e-mail from the Governor’s Office begging to encourage House and Senate support for the Conference Report without providing any details regarding what’s in it, particularly as it regards NOVA. They got a profane e-mail in response. As they want to share our message, I may send a similar one to press@governor.virginia.gov.

  2. David C.F. Ray said on 21 Feb 2013 at 12:49 pm:
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    I couldn’t be more outraged over this tax rape.

    And let no one miss this key point — this tax rape CANNOT become law without GOP legislators serving as accessories BEFORE and DURING the fact.

    This tax increase is not only a wanton violation of the Taxpayer Protection Pledge signed by many GOP legislators, it’s also an effective repeal of the Reagan model of lowering taxes to promote real economic growth.

    And politically, this bill makes no sense. EVERY time in the aughts that the GOP-controlled General Assembly voted to raise taxes (2002 sales tax referendum, 2004 Warner tax hike, 2007 Tim Kaine tax hike — the infamous H.B. 3202), the GOP LOST seats in the House of Delegates, and in 2007, we LOST control of the State Senate. And remember, 3202 was billed as the KEY to maintaining GOP control of the Senate.

    This bill calls for EVERY Republican who calls himself a conservative to denounce this raid of the taxpayers’ hard earned dollars and to join with leaders like Bob Marshall to stop this rape!

  3. Anonymous said on 21 Feb 2013 at 8:31 pm:
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    This is Gov Bobs plan

  4. Scout said on 21 Feb 2013 at 9:51 pm:
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    I would be interested in the Greg and/or David plan for funding Virginia’s transportation infrastructure for the 21st century. I don’t think the criteria for assessing the effectiveness of funding mechanisms is whether the GOP does well in the next election, as is suggested by the often insightful Mr. Ray.

    I suspect the original plan proposed by the Governor was the optimal plan to secure funding that had a chance of enactment. It didn’t make it and we appear to have ended up with a dilution or hybridization of that plan. Absent a brilliant alternative (doing nothing wouldn’t qualify, in my view), I think this may be the best achievable result.

  5. Jack Slimp said on 22 Feb 2013 at 9:39 am:
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    And prices are high enough in Northern Virginia already, which funds a large portion of the rest of the state — so now the idea is to stiff us with new taxes higher than the rest of the state!?! Is that even legal?

  6. Gidget in Fairfax said on 22 Feb 2013 at 4:31 pm:
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    Until and unless they change the funding formula, NoVa and HR will continue to be sucked dry of tax money with the lion’s share going to other jurisdictions.

    This tax scheme is terrible and will no doubt end up a failure, as those in the 6% sales tax areas will just buy things they need (especially big ticket items) in the 5.3% areas. It will hurt the local economies in the areas with the higher sales tax — how can anyone not see that? Alternatively, folks may just cut back on their personal spending — skip that extra night out for dinner, etc. The revenue projections will never materialize and there will be no real solution to the transpo issues we face. I mean really… urging people to by hybrids for fuel efficiency etc. and then punishing them with a $100 tax for doing the “right thing” is just counterintuitive. And does anyone really think that charging a “wholesale” sales tax on gas won’t be passed onto the consumer anyway? These guys must think we are total idiots. I am ashamed of the Republicans supporting these schemes. They may as well be democrats in elephant costumes if you ask me.

    HB2313 should go down in flames and I hope it does. As Scout mentioned, other alternatives are required… I agree and have suggested to some legislators I know, one way to solve the transportation problems without raising taxes. Simply allow the localities to keep the 1% “local” share of the current 5% sales tax, that is generated in their jurisdiction. Unless you are a business that collects sales tax, most people don’t realize that the 5% sales tax actually consists of 4% “state” and 1% “local”. These amounts are calculated and reported separately on the sales tax filing forms. Right now, all the sales tax goes to Richmond and NoVa gets about .20¢ or so back on the dollar. Why not have the retailers send two checks? One to Richmond for their 4% and one to their locality for their 1%… Northern Virginia is the economic engine of the state, so I would imagine their 1% would be substantial… of course the state legislature MUST require the localities to “lock box” the funds strictly for transportation so they won’t squander it on other things.

    Localities that don’t have that kind of business base won’t reap as much benefit obviously, but they don’t need it anyway — and if they do need it, they can make efforts to encourage businesses to locate there. The localities must also be responsible and put the brakes on new development until their infrastructure catches up (that’s what got us into this mess to begin with)… and then they must require developers to foot the bill for the road improvements needed due to new construction.

    While this may not be a complete solution to the problem, it’s a good start and certainly worth a try for a few years before putting some businesses/areas at a distinct disadvantage by selective raising of the sales tax. Any lawyers out there? Isn’t a two tier tax illegal anyway?

    There are other options in which to raise revenues without raising taxes… for example, why not look at the current real estate tax structure for commercial properties? As I understand it, commercial real estate taxes are based on occupancy — shouldn’t they pay full boat regardless, like the rest of us? Changing that rule would result in a lot more revenue to the localities, and would push landlords into making a greater effort to get their vacant spaces full, which is to everyone’s benefit (I think the folks on this site are intelligent enough that I don’t have to explain what all the benefits would be).

    For once it would be nice for the political class to use some real common sense for a change and not just keep using the taxpayers as an ATM.

    PS to Greg: So long as the sales tax on internet purchases is charged based on the location of the online vendor and the online vendor only needs to collect, report and pay the taxes to their home-base jurisdiction, that’s not so bad. But, if the intention is to require online vendors to collect, report and pay taxes to every state based on the purchasers location, then that’s just ridiculous.

  7. J Doe said on 22 Feb 2013 at 11:09 pm:
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    @gidget. Isn’t .20 cents equal to one/fifth of 5%? Seems like NoVa is getting their 1% as prescribed.

  8. J Doe said on 24 Feb 2013 at 12:44 am:
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    Looks like the taxacrats & republicrats got together and passed a real winner here. . . I am sure this will solve all of our transportation problems.

  9. Rich said on 24 Feb 2013 at 10:29 am:
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    A love note to the fine legislators who are pushing this legislation:

    Thank you for singling out my hybrid vehicles for $100 per vehicle tax increases. I own two hybrids so I’m especially pleased to be paying an additional $200 in taxes. I know you will spend this money wisely. I look forward to expressing my special appreciation to you at election time.

    Hybrid vehicles tend to be a tad more expensive than conventional vehicles. Thus I already paid a bit more sales tax when I puchased my hybrids. Thank you for giving me the chance to now pay even more. I was trying to figure out a way of thinning out my fat wallet (it was getting really heavy). You have found a creative way to help me out. Thank you, thank you, thank you.

    My vehicle uses far less gasoline than other vehicles thus contributing less to our dependence on foreign oil. I realize that this results in me paying less than my fair share to our dear friends in the middle east. I was really sooo guiiiilty about this, so I thank you for coming up with a way for me and other hybrid owners a real chance to pay more somewhere else.

    By the way, I haven’t checked so I’m not sure if the extra two bills i’ll be paying is called a tax, fee, or something else. Please take great care how you characterize the money I’ll be paying; what you call it will make a really big difference to me.

    Much love, and looking forward to seeing you at election time,

    R

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