RD145 - 2015 Executive Summary of the Joint Subcommittee to Evaluate Tax Preferences


    Executive Summary:
    Chapter 777 of the Acts of Assembly of 2012 (HB 777, Landes) created the Joint Subcommittee to Evaluate Tax Preferences and tasked it with the systematic review and evaluation of Virginia's tax preferences, which include but are not limited to tax credits, deductions, subtractions, exemptions, and exclusions. Senator Jeffrey L. McWaters served as chairman during the 2015 interim.

    The Joint Subcommittee to Evaluate Tax Preferences met once during the 2015 interim. The Joint Subcommittee reviewed sales tax exemptions for transportation services, advertising, heating fuels, and property used in research and development, as well as the income tax deduction for dependent care expenses. However, because a quorum was not present for the meeting, the Joint Subcommittee did not vote on any recommendations regarding the preferences reviewed. A draft copy of the preference reports are available on the Joint Subcommittee website at http://dls.virginia.gov/commissions/tax.htm , subject to a final approval at a future meeting.

    Sales Tax Exemption for Transportation Services

    Staff presented a report regarding subdivision 3 of § 58.1-609.5 of the Code of Virginia, which exempts "transportation charges separately stated" from the Virginia retail sales and use tax. The amount charged by the seller for transporting tangible property to the purchaser is not subject to sales tax if the charge is separately itemized on the receipt. Virginia is one of 18 states to exempt such shipping or transportation costs. The Department of Taxation estimates that the exemption accounted for approximately $65.3 million in reduced revenues in Fiscal Year 2015.

    In discussing the exemption, members raised questions about the revenue impact of the exemption as more and more consumers purchase tangible property on the Internet, thus requiring more and more shipping. Because a quorum was not present at the meeting, no vote was taken regarding a recommendation for the exemption, but the sense of the members present was that they would like to further examine the impact of this preference at a future meeting.

    Sales Tax Exemption for Advertising

    Staff presented a report regarding subdivision 5 of § 58.1-609.6 of the Code of Virginia, which exempts advertising from the Virginia retail sales and use tax. The exemption applies to the creation and placement of advertisements in the media. The majority of states that impose a sales tax exempt these transactions. The Department of Taxation estimates that the exemption accounted for approximately $100.2 million in reduced revenues in Fiscal Year 2015.

    Representatives of the Virginia Association of Broadcasters and NBC12 provided public comment regarding the exemption. The speakers supported the continuation of the exemption in its current form, as broadcasters rely on advertising revenue. Taxing advertising, they argued, would lead to a loss of revenue for the media, which would directly affect broadcasters' ability to provide local news and act as the primary source of news during an emergency. Members questioned the speakers about the revenues and operating margins of local broadcasters. The members present requested more information regarding the operating costs and revenues of local stations before making a recommendation regarding the exemption.

    Sales Tax Exemption for Heating Fuels

    Staff presented a report regarding subdivision 1 of § 58.1-609.10 of the Code of Virginia, which exempts heating fuels purchased for domestic consumption from the Virginia retail sales and use tax. While most exemptions apply to the collection of both state and local sales and use tax, this particular exemption applies to the collection of the state tax and only applies to the local tax if a locality exempts the purchase by ordinance. Virginia is one of 29 states that provide some sort of sales tax exemption for heating fuels. The Department of Taxation estimates that the exemption accounted for approximately $33.4 million in reduced revenues in Fiscal Year 2015. Because a quorum was not present at the meeting, no vote was taken regarding a recommendation for the exemption, but the sense of the members present was that they would like to continue the exemption in its current form.

    Sales Tax Exemption for Property Used in Research and Development

    Staff presented a report regarding subdivision 5 of § 58.1-609.3 of the Code of Virginia, which exempts tangible personal property used directly and exclusively in basic research, or research and development, from the Virginia retail sales and use tax. Virginia is one of 31 states that provide some sort of exemption related to research and development activities, although the scope and breadth of these exemptions vary widely. The Department of Taxation estimates that the exemption accounted for approximately $5.9 million in reduced revenues in Fiscal Year 2015. Because a quorum was not present at the meeting, no vote was taken regarding a recommendation for the exemption.

    Income Tax Deduction for Dependent Care Expenses

    Staff presented a report regarding subdivision D 3 of § 58.1-322 of the Code of Virginia, which provides an income tax deduction for expenses for household and dependent care services necessary for gainful employment. The deduction applies only to expenses that qualify for the federal Child and Dependent Care Tax Credit and is equal to the amount of expenses claimed in calculating the federal credit. Such expenses are capped at $3,000 for one qualifying dependent or $6,000 for two or more qualifying dependents. Virginia is one of 25 states that offer some sort of preference related to these expenses, although most such states offer some sort of state tax credit instead of an income tax deduction. The Department of Taxation estimates that the exemption accounted for approximately $30 million in reduced revenues in Fiscal Year 2015. Because a quorum was not present at the meeting, no vote was taken regarding a recommendation for the exemption, but the sense of the members present was that they would like to continue the exemption in its current form.

    This executive summary constitutes the 2015 report of the Joint Subcommittee to Evaluate Tax Preferences, and no further report is forthcoming.