Virginia Legislators Approve Increases in Sales Tax, Car Tax, Regional Taxes

February 25, 2013

In the closing days of the session, Virginia legislators passed a transportation funding bill. The total bill text is provided by Americans for Tax Reform here (PDF). The Competitive Enterprise Institute (CEI) also has a brief summary here. The Washington Post reports that the bill is supposed to raise an extra $880 million per year.

The main takeaway is that, if approved by the Governor, Virginia will raise its sales tax from Five.0 percent to Five.Trio percent statewide, and further to 6.0 percent in Northern Virginia and the Hampton Roads area. The state`s retail gasoline tax will be repealed, but substituted by an equivalent tax on wholesale gasoline. (This tax will be somewhat lower if the federal government authorizes the state to impose its sales tax on Internet purchases from out-of-state retailers.) Car taxes go up statewide, as does a license tax on electrified vehicles. Northern Virginia will see higher real estate transfer and hotel taxes. The bill also prohibits fresh tolling on I-95 south of Fredericksburg.

• Raises the state sales and use tax from Five.0 percent to Five.Three percent, effective July 1, 2013. Of this increase, 0.175 percent goes to highway maintenance and operations, 0.050 percent goes to intercity rail, and 0.075 percent goes to mass transit.
• An existing sales tax exemption for out-of-state mail order catalog items under $100 is liquidated.
• Imposes an extra 0.7 percent sales tax in the counties and cities of the Northern Virginia Transportation Authority and the Hampton Roads Region (the tax will thus total six percent in those areas). The extra sales tax will not apply to purchases of groceries but will otherwise have the same tax base as the state tax, and will be collected by the state on one consolidated comeback.
• Requires the tax commissioner to give sellers at least thirty days` notice of local sales tax switches, and that switches can only become effective on the very first day of a calendar quarter. Holds sellers harmless for sales tax collection errors caused by erroneous state information.
• Caps state use tax on equipment brought into the state for performing contracts at five percent. Sales of aircraft are also taxed at two percent and watercraft at two percent with a maximum tax of $1,000.

• Repeals the 17.Five cent gasoline tax effective July 1, 2013, substituting it with a Three.Five percent wholesale gasoline tax. The tax will be computed and modified twice each year based on the average wholesale price, on January one and July 1. The average wholesale price calculation cannot be less than the actual wholesale price of self-serve gasoline on February 20, two thousand thirteen (which news reports say equals $Trio.50 per gallon). At that $Three.50 per gallon rate, what was a 17.Five cent tax will now be at minimum a 12.25 cent tax ($Three.50 X Three.Five percent).
• A similar formula is used for taxing diesel, which presently pays a 17.Five cent tax and after July 1, 2013, will pay a six percent wholesale tax.
• If Congress does not enact legislation by January 1, two thousand fifteen providing Virginia the authority to collect sales tax from remote sellers with no physical presence in the state, the Three.Five percent tax will instead become a Five.1 percent tax, effective January 1, 2015. Again, the average wholesale price calculation cannot be less than the actual wholesale price of self-serve gasoline on February 20, 2013; at that $Trio.50 per gallon rate, what was a 17.Five cent tax will now be at minimum a 17.85 cent tax ($Trio.50 X Five.1 percent). The tax can now go up with any rise in gasoline prices, albeit in a manner now less semitransparent to consumers.
• Expands the existing Two.1 percent gasoline wholesaler tax in the Northern Virginia Transportation Authority region to the Hampton Roads region.

• Tax on the sale of a car, presently three percent, will rise to four percent (July 1, 2013), then to Four.1 percent (July 1, 2014), then to Four.Two percent (July 1, 2015), then to Four.Trio percent (July 1, 2016). The minimum tax is raised from $35 to $75.
• Raises the statewide $50 license tax for electrified vehicles to $100.
• Switches license tax due date for all vehicles from the last day of December to the date of registration and each subsequent renewal.

• Imposes a real estate transfer tax of 0.25 percent, termed a «regional congestion ease fee,» for land or property transfers in the Northern Virginia Transportation Authority area.
• Imposes a three percent hotel tax, on top of existing hotel taxes, in the Northern Virginia Transportation Authority area.

• Dedicates $300 million of the fresh revenue to the Metrorail silver line extension to Dulles International Airport.
• Prohibits tolls on Interstate ninety five south of Fredericksburg without further approval by the Legislature. Virginia had applied for a waiver from the federal government to do so in a limited style, so this kills that.
• Northern Virginia Transportation Authority consists of the Counties of Arlington, Fairfax, Loudoun, and Prince William, and the Cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park.
• Hampton Roads region consists of Counties of Gloucester, Isle of Wight, James City, and York, and the cities of Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg.

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