For Immediate Release
November 24, 2003
Virginia – Governor Announces Tax Reform Plan
In an attempt to make the state’s tax system more equitable for taxpayers, while maintaining fiscal responsibility and integrity, Governor Mark Warner has introduced a broad sweeping tax reform for the Commonwealth, including proposed changes to sales, corporate income, and personal property taxes.
The Governor’s plan includes the following:
Sales and Use Tax
Sales tax rates on groceries would be lowered from 4% to 2.5% by the year 2005 on a phased-in basis (i.e., the tax would be reduced to 3% on July 1, 2004 and to 2.5% on July 1, 2005). However, tax on non-food items would be increased from 3.5% to 4.5%. With a local tax rate of 1%, total tax on non-food items would be raise to 5.5%.
In addition, the accelerated sales tax filing requirement for certain retailers, adopted in 2002, would be repealed on July 1, 2004.
Personal Property Tax
The “car tax”, as it is commonly referred to, would be eliminated. In order to do so, the Governor is proposing to increase the Commonwealth’s reimbursement to local jurisdictions for qualifying vehicles, with a corresponding increase in pro rata deductions for individuals on their personal property tax bills equal to the state’s reimbursement.
Corporate Income Tax
The proposed changes to the corporate income tax would address certain loopholes in the current tax structure. The Governor’s plan would eliminate the Delaware holding company loophole. Currently, Virginia is required to prove that transactions with intangible holding companies improperly reflect Virginia income. Without the proper proof, “nowhere income” is generated by these companies. To eliminate this loophole, the state would adopt a sales throwback rule, often employed by other states, to ensure that profits on goods shipped outside the Commonwealth would be taxed in the Commonwealth, unless it can be proved that they are taxed in another state.
The Governor’s plan would also require more pass-through entities to identify their owners and would stimulate investments by conforming to recent changes in Federal law that allow a company to deduct, as business expenses, up to $100,000 in equipment and other similar purchases. Currently, Virginia only allows $25,000 in deductions.
If you would like additional information on this topic or have any questions, please contact Don Behel, Regional Vice President - Sales & Use Tax Group at (615) 851-5555. E-mail dbehel@thesaltgroup.com
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