Adopted by the 1994 Session of the General Assembly, HJR 160 established a joint subcommittee to examine local revenue resources. The resolution directed the subcommittee to identify and examine all local taxes and fees, review the equity of each tax and fee assessed, determine whether changes are needed in the tax structure relative to Virginia's changing economy, and recommend possible alternatives for replacement or consolidation of local taxes and fees.

As the Virginia economy expanded over the course of the last decade, local tax revenue increased substantially, particularly with regard to real property and tangible personal property taxes. Localities continue to rely heavily on property taxes, which comprise almost 64 percent of their total local-source revenue. Despite the increases, Virginia taxpayers have a relatively low tax burden. According to 1991 U.S. Census Bureau data, Virginia is ranked among the 50 states and the District of Columbia as 23rd on a per capita basis and only 44th when the state-local tax burden is measured as a percentage of personal income.

Localities derive their taxing authority from three major sources. The Virginia Constitution segregates real estate, coal and other mineral lands, and tangible personal property exclusively for taxation by local governments. Beyond their constitutional authority, localities' taxing authority is primarily statutory. The one exception to the statutory grant of authority is the Uniform Charter Powers Act, which is subject to inclusion in municipal charters. A major difference resulting from this general grant of taxing authority is that cities and towns which incorporate it into their charters may levy taxes in addition to those imposed by counties, but unlike counties, they are not subject to the rate limitations set out in the Code.

Major sources of local tax revenue include property taxes (including the real, personal property, machinery and tools and merchant's capital taxes); retail sales and use taxes; consumer utility taxes; motor vehicle license taxes; business, professional, and occupational license taxes; transient occupancy taxes; recordation taxes; taxes on wills and grants of administration; bank franchise taxes; severance taxes; and recreation taxes. In addition to these sources of tax revenue, additional revenues are raised from other sources such as charges for services, licenses and permit fees, and fines and forfeitures assessed for violations of local ordinances. While an examination of fees is part of the subcommittee's charge, the primary focus of this report is tax revenue sources.

In examining the revenue structure of local governments, the subcommittee considered whether existing sources of revenue achieve the committed objective of local governments in a manner designed to prevent undue burdens upon the taxpayers; whether the various sources of revenue are adequate under present rates; and whether additional and new potential sources of revenue exist.

The subcommittee did not reach a point where any conclusions could be drawn or any recommendations made. Many items were raised for subcommittee consideration that need further examination. By authority of HJR 487 (1995) (Appendix H), which established the Commission on State and Local Government Responsibility and Taxing Authority, the study of this topic will continue and be extended to the broader issues of state and local government responsibility and taxing authority.