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Update on Finance Legislation, including Grocery Tax Bills

Grocery tax bills defeated in the Senate, advance in the HouseOn January 18, the Senate Finance and Appropriations Committee considered SB 850 (Suetterlein), which would have eliminated the local option sales and use tax on food for human consumption and essential personal hygiene products and replaced the lost revenue via a supplemental school payment that would be distributed from remaining state sales tax revenues.  The Committee voted to pass the bill by indefinitely by a vote of 12-4.  The Committee took similar action on SB 1008 (DeSteph), which would have authorized cities and counties to exempt food for human consumption and essential personal hygiene products from the local option sales tax.  In the House, HB 1484 (McNamara), the companion bill to SB 850, has been reported from the House Finance Committee and referred to the House Appropriations Committee.  Although VACo appreciates the patrons’ intention to replace lost revenue to localities, VACo is opposed to revisiting the compromise that was negotiated in 2022 and took effect January 1.  Eliminating this local revenue source would leave localities reliant on the state to backfill these funds.

Personal property valuation legislation to be referred to study:  HB 1402 (March), which would have required tangible personal property that is employed in a trade or business, and machinery and tools, to be valued according to the federal Modified Accelerated Cost Recovery System (MACRS), was heard in a subcommittee of House Finance on Monday evening and recommended to be tabled and referred for study.  MACRS is a method of recovering the costs of business or income-producing property through deductions for depreciation on federal income taxes.  Under MACRS, once property is fully depreciated, it is considered to have no value.  Current assessment practices recognize that older property retains residual fair market value.  VACo opposed the legislation due to concerns about its significant revenue impact to local governments, as well as the administrative complexity of the MACRS system.

One BPOL bill tabled; one still under consideration:  HB 1920 (Hope) would exempt certain blogs and online news websites from BPOL.  VACo addressed the bill in subcommittee and encouraged members to refer the legislation to study so that its impact on localities could be fully considered.  The bill was tabled by House Finance Committee’s Subcommittee #2.  HB 2200 (Robinson) would provide a deduction from BPOL for anti-cancer drugs purchased by a medical practice and administered within a physician-patient relationship to patients. The exemption applies to drugs that are administered to a patient whose costs for treatment are paid for by Medicare, Medicaid, or TRICARE.  VACo has been in contact with proponents of the bill to discuss alternative approaches, such as the existing regulatory authority for localities to establish subclassifications of businesses within the statutory categories and impose lower rates on, or provide exemptions for, these subclassifications, but is opposed to a mandatory carveout.

Legislation regarding penalties on unpaid business taxes amended:  HB 1685 (Greenhalgh), as introduced, would have capped the maximum penalties that could be assessed on certain unpaid business taxes, in addition to requiring certain notice to the taxpayer.  After discussions with VACo and the Commissioners of the Revenue Association and the Treasurers’ Association, the patron removed provisions dealing with penalties, instead focusing the legislation on required notices to the taxpayer.  VACo appreciates Delegate Greenhalgh’s willingness to address VACo’s concerns.

Bill placing limitations on local ability to adopt real estate tax rate considered:  HB 1749 (Walker) would limit local ability to raise revenues by imposing a new process for adoption of the real estate tax rate in situations in which real property assessments are increasing.  Under current law, when any annual assessment, biennial assessment, or general reassessment of real property by a county, city, or town would result in an increase of one percent or more in the total real property tax levied, the locality has two options: reduce the tax rate for the forthcoming tax year so as to produce no more than 101 percent of the previous year’s real property tax levies, or, if deemed necessary by the governing body, a rate that produces more than 101 percent of the previous year’s levies may be imposed after conducting a public hearing on the issue.  Statutory provisions govern the timing and manner of public notice of the hearing, as well as stipulating the contents of the notice.

Under the bill, if the proposed increase to the tax rate (above the lowered rate that would otherwise be required) is less than three percent, the increase could be approved by a majority vote of the governing body after a public hearing, which could not be held on the same day as the annual budget hearing.  A proposed increase of more than three but less than five percent could be approved after public hearing, but would require a supermajority vote of two-thirds of the governing body.  An increase to the rate of levy of 5 percent or greater would require a referendum.  The bill was heard in a subcommittee of House Finance on Tuesday evening.  After significant discussion, the bill was retained with the subcommittee; the legislation is likely to be reconsidered at a future meeting.

Legislation dealing with refunds for real property tax exemptions advancesHB 1470 (Watts) and HB 2361 (Wiley) provide that taxpayers who are eligible for the real property tax exemptions for disabled veterans and their surviving spouses and for the surviving spouses of servicemembers killed in action are entitled to refunds of taxes paid retroactive to their date of eligibility, potentially extending back to the date the exemptions were first enacted (2011 for the disabled veterans and surviving spouse exemption and 2015 for the exemption for surviving spouses of servicemembers killed in action).  Refunds for most local taxes extend back to the current and three prior years, and the bills seek to clarify some ambiguity between the statutes enacting the property tax exemptions and the general statute governing tax refunds.  VACo has been working with the patrons and seeking to establish a reasonable lookback period that does not expose localities to potentially large, unanticipated refunds while also affording taxpayers a fair opportunity to apply for exemptions.  HB 1470 was heard in subcommittee on Friday, January 20, and reported from the full committee on Wednesday, January 25.

Other finance bills of interest

HB 1486 (Webert) expands the list of certain farm machinery and farm implements that a locality may exempt from personal property taxes to include motor vehicles used primarily for agricultural purposes, privately owned trailers primarily used by farmers in their farming operations, and season-extending vegetable hoop houses used for in-field production of produce. An enactment clause stipulates that a locality that exempts motor vehicles or privately owned trailers may not collect any unpaid tangible personal property taxes, including interest or penalties, that are owed to the locality as of July 1, 2023.  This bill has been reported from House Finance.

HB 1942 (Durant) adds to the required components of the notice of changes in assessments that is mandated to be provided to property owners.  Under the bill as amended in House Finance, in any locality that conducts an annual or biennial reassessment of real estate or in which reassessment of real estate is conducted primarily by employees of the county, city, or town under direction of the commissioner of the revenue, the notice would have to include the effective tax rate increase if the proposed rate exceeds the lowered tax rate (the tax rate which would levy the same amount of real estate tax as the previous year).  This information is already required to be included in the notice advertising the public hearing that is required if a locality is not proposing to reduce the tax rate to generate no more than 101 percent of the previous year’s real property tax levies.  This bill has been reported from House Finance.

HB 2110 (Bourne) extends the maximum duration of an installment agreement for the payment of delinquent real estate taxes from 60 to 72 months.  This bill has been reported from House Finance.

VACo Contact:  Katie Boyle

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