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Commonwealth's Counties

Problematic Legislation Would Hamper Local Tax Collections

Two bills have been introduced that would require significant changes to the local tax collection process.  Although the bills are generally understood to have been initiated as a result of issues with meals tax collections in one locality, the bills apply statewide, and several of the bills’ provisions apply to all local taxes.

HB 1483 (McQuinn) and SB 294 (DeSteph) contain the following provisions:

  • Require voluntary tax payments that are accompanied by a tax return to be applied to the period covered by the tax return or pursuant to the taxpayer’s written instructions. Currently, tax payments are applied to the most delinquent taxes first, to ensure that the older taxes can be collected before the statute of limitations expires, but localities have the authority to provide otherwise by ordinance; this bill would remove that authority.
  • Bar the accrual of interest beyond 90 days while an application for correction by the locality, administrative appeal, or judicial appeal is pending for meals taxes. The imposition of interest on unpaid taxes is intended to encourage compliance.  While the administrative appeals process includes certain deadlines for actions, judicial appeals can be lengthy, and the litigation schedule is generally driven by the taxpayer and his or her counsel.
  • Require a notice to the taxpayer before imposing a levy for unpaid taxes (an execution against property to enforce delinquent taxes, such as placing a “boot” on a vehicle for unpaid personal property taxes). Concerns about this provision include the degree to which it will slow tax collections and increase costs to secure compliance, and whether property subject to levy would be removed from the locality.
  • Enable a court to award reasonable attorney fees to the prevailing party in an appeal. While in theory this provision could allow the locality to be awarded attorney fees in the case of an unsuccessful appeal, there are concerns that this provision will encourage litigation of tax appeals, imposing costs to localities to defend these cases.

HB 1483 also includes language allowing the locality and the taxpayer to agree to settle a meals tax liability pursuant to an offer in compromise if an initial application for correction is denied.  An offer in compromise is a process that allows an assessing officer to settle a disputed assessment if the official determines that there is doubt as to the taxpayer’s liability, or the treasurer to settle the assessment when the treasurer determines that collection of the entire amount due is in doubt and that the best interests of the locality would be served by the compromise.

VACo has conveyed concerns to the patrons about the breadth of these bills and their expected harmful effects on local tax collections and will be having further discussions with proponents of the bills.  HB 1483 has been referred to the House Finance Committee and SB 294 has been referred to the Senate Finance and Appropriations Committee.

VACo Contact:  Katie Boyle

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