SD14 - Criteria for Evaluating Retail Sales and Use Tax Exemption Legislation

  • Published: 1989
  • Author: Joint Subcommittee
  • Enabling Authority: Senate Joint Resolution 70 (Regular Session, 1988)

Executive Summary:
This joint subcommittee was established pursuant to Senate Joint Resolution No. 70 to continue the 1987 joint subcommittee studying criteria for evaluating retail sales and use tax exemption legislation. The 1987 subcommittee determined that when the sales tax was originally created in 1966, the number of exemptions was limited to 21 numbered paragraphs. However, today there are more than 100 exemptions existing in §§ 58.1-602, 58.1-608 and 58.1-610. The joint subcommittee concluded that the expansion of exemptions had substantially eroded the sales tax base, and to prevent further erosion, it seemed desirable to establish a consistent method of evaluating exemption legislation. The 1987 joint subcommittee submitted two items of legislation which were enacted by the 1988 General Assembly: (i) Senate Joint Resolution No. 70, and (ii) Senate Bill No. 314. Senate Joint Resolution No. 70 charged the Secretary of Finance and the Commissioner of the Department of Taxation with the following responsibilities:

1. To establish an appropriate division of existing exemptions into no more than five categories;

2. To develop specific criteria for evaluating the fiscal, economic and policy impact of each category of exemptions; and

3. To evaluate each category of exemptions using the criteria developed and to report the findings to the General Assembly on the basis of one category per year.

Senate Bill No. 314 authorized the Tax Commissioner to collect the following information from taxpayers to facilitate the study process authorized by Senate Joint Resolution No. 70:

1. Exempt purchases or sales;

2. Qualification for exempt purchases; and

3. Direct or indirect government assistance received.

Senator Charles J. Colgan and Delegate Warren G. Stambaugh continued to serve as Chairman and Vice Chairman, respectively of SJR 70. The 1988 General Assembly also appointed two new citizen members to the joint subcommittee, namely Marion E. Mason, Leggett Department Stores, and Alfred J. Wells, Jr., Ethyl Corporation.

The joint subcommittee held two meetings in 1988, at which they considered Secretary Connock's proposals regarding:

A. The criteria which the General Assembly should adopt in evaluating existing and future exemptions;

B. The categories which exemptions should be divided into for analysis;

C. The process for handling carryover bills and new bills; and

D. A study process for evaluating exemption legislation in 1989 and after.