SD12 - Report of the Joint Subcommittee Studying the Rolling Stock Tax

  • Published: 1985
  • Author: Joint Subcommittee Studying the Rolling Stock Tax
  • Enabling Authority: Senate Joint Resolution 75 (Regular Session, 1983)

Executive Summary:
The joint subcommittee was formed as a result of Senate Joint Resolution No. 75 passed during the 1983 Session of the General Assembly. The resolution directed the joint subcommittee to study the rolling stock tax on railroads, freight car companies, and certain motor vehicle carriers, which is imposed in lieu of local property taxes. In addition, the joint subcommittee was directed to examine the local property tax on trucks, which is imposed on those trucks which are not subject to the rolling stock tax.

The rolling stock tax of railroads, freight car companies and certificated motor vehicle carriers (certificated by SCC to operate a fixed route in Virginia) are subject to a state-administered rolling stock tax in lieu of the local tangible personal property tax. The current rolling stock tax rate is $1.00/$100 of assessed value and has remained unchanged since 1926. However, the vast majority of all trucks are not certificated by the SCC and are, therefore, subject to the local tangible personal property tax which is substantially higher than the rolling stock tax - the statewide average local personal property tax rate is approaching $4.00/$100 of assessed value.

The joint subcommittee has observed the inconsistency in the distribution of revenues generated from the rolling stock tax. Local tangible personal property taxes are collected by each locality based on the situs of the property. Rolling stock tax revenue is not all returned to the locality. The rolling stock tax on railroads and freight car companies is collected by the Commonwealth and retained in the general fund. The rolling stock tax on motor vehicle carriers is collected by the Commonwealth and returned to each locality based on the miles traveled in each locality by the motor vehicle carriers. The joint subcommittee notes that in all other southern states the rolling stock tax generated from railroads and freight car companies is returned to the localities since it is in lieu of the local personal property tax. The joint subcommittee believes that the rolling stock tax, although administered and collected by the Commonwealth, should be returned to localities as are all other real and personal property taxes. The joint subcommittee recommends legislation be adopted to return this revenue to localities effective January 1, 1987, so that it does not impact the current biennium. In tax year 1984 the rolling stock tax on railroads generated approximately $5.2 million while the tax on freight car companies generated approximately $300,000.

The joint subcommittee has also examined the equity in the taxation of the rolling stock on railroads and trucking firms as compared to the way the vast majority of trucks are taxed locally under the tangible personal property tax. The effective local tangible personal property tax imposed on trucks is substantially and significantly higher than the effective tax rate of the state rolling stock tax imposed on trucks. This is based on the staff's analysis of the local tax rates and depreciation schedules for 23 localities, as well as two separate surveys conducted by the subcommittee's staff, one of which examined the estimated rolling stock tax which would have been paid by trucking firms if they had been subject to the rolling stock tax. The survey showed a rolling stock rate of $2.15 would be necessary to generate the same amount of revenue as the local tangible personal property tax. (Please see statistical data contained in Appendix A.)

The joint subcommittee has also studied the administration of the local personal property tax and has observed an extremely wide variety of depreciation schedules and approaches used to assess large trucks. The joint subcommittee notes an extremely large variation in nominal tax rates as well as effective tax rates. Under current law, the tangible personal property tax on trucks is based on the premise that you can easily determine where a particular truck is normally garaged, stored or parked. The subcommittee, however, has noticed that for vehicles as mobile as trucks the tangible personal property tax is difficult to administer because situs is not always easily determined. Some argue that because trucks are so mobile, they may actually escape taxation. It has also been observed that some local Commissioners of the Revenue have not been as vigilant as others in attempting to tax all vehicles which are sited in their locality.

Although the joint subcommittee has made significant progress in the past two years in trying to bring equity into this area, the subcommittee believes it needs one additional year to formulate a final alternative. Therefore, the joint subcommittee is recommending that it may be allowed one more year to complete its final recommendations. In the interim, as a step toward equity, the joint subcommittee is recommending that the current $1 rolling stock tax rate be increased to $1.25 in order to bring the rolling stock tax a step closer to local effective tax rates.

During the next year, the joint subcommittee will finalize its recommendations and will monitor a cabinet level study of the regulation and taxation of the transportation industry including the railroad, trucking, airline, and barge line sectors.

The joint subcommittee has also examined the impact of the legislation enacted during the 1983 Session which transferred the responsibility for the valuation and assessment of railroad property, including rolling stock, from the State Corporation Commission to the Virginia Department of Taxation. The Department changed from the SCC's original cost-minus-depreciation method to a unit valuation approach which values the entire company as a unit and then allocates back to Virginia its share of the total unit value. This change in the methodology has affected a number of localities. The joint subcommittee notes that the City of Alexandria has borne the brunt of the negative impact by receiving approximately $900,000 less in property taxes from railroads in 1984 than it did in 1983.

Finally, the joint subcommittee is introducing legislation recommended by the Department of Taxation to permit local assessing officials to apportion the assessment of interstate vehicles if such vehicles are subject to an apportioned assessment in another state.