Legislative Newsletter No. 10 — April 14, 2004

House Approve Sales Tax Hike; Senate Committee Hears Plan

A closely divided House of Delegates on Tuesday approved a three-quarters of a billion dollar tax package on the 28th day of a special session to resolve disagreements over a state budget for the next biennium.

The 52-46 margin to advance HB 5018 was made possible when 17 Republicans joined nearly all Democrats in approving the plan crafted last week by a loose-knit group of GOP moderates. The package originally totaled nearly $1 billion, but was amended on the floor Tuesday to delete a proposed increase in the recordation tax, thus removing from the plan about $225 million in expected revenue.

Key provisions of the nearly $750 million dollar plan include the following:

• Increasing the state sales tax on non-food items by one-half cent effective October 1;
• Increasing the state tax on cigarettes in two steps, from the current 2.5 cents/per pack to 20 cents on August 1, and to 30 cents next July 1;
• Removing the sales tax exemptions on public service corporations;
• Closing two corporate income tax loopholes; and
• Revising the income tax deduction for senior citizens by retaining it for those currently 65 and over and phasing it out for those turning 65 after January 1, 2004.

The bill also decreases the sales tax on food by a penny over the two-year period (beginning September 1), phases out the estate tax (beginning November 1) and reduces income taxes, largely by increasing personal exemptions by $200. Local sales tax revenues (from the one percent local option tax) also are expected to increase by roughly $20 million each year because of the cigarette price hike and the repeal of the sales tax exemptions. Finally, the bill contains a provision that the measure expires if a two-year state budget is not in place by April 24.

The Senate Finance Committee met on Wednesday to consider the House plan. The Committee heard the bill and received an analysis from its staff, but took no action. Members applauded the efforts of the bill's sponsor, Delegate Harry Parrish, and the other 16 Republicans who voted for it, but also criticized the measure as falling short of meeting the state's needs. Staff estimated that the compromise plan would generate just under $700 million in additional revenue, about $55 million less than the House estimate.

Reconvened Session Set For Next Wednesday

The General Assembly will meet next Wednesday, April 21, for its annual reconvened session to consider vetoes and amendments suggested by Governor Warner. The governor has until midnight Thursday to act on legislation approved by the legislature prior to its March 16 adjournment. He already has signed nearly 400 bills. Most of the amendments should be available for review by the end of the day Friday. Please look for information on significant amendments over the weekend.