Diary

Taxes Always Come First (even before sales)

A couple of years ago, TQ helped lead an effort to end the pre-payment of state sales taxes. Here’s how we framed the argument:

To balance the budget for fiscal year 2002 (which ended in June), the state government required businesses to make two payments of their sales and use taxes (the monthly payment due in June, plus an advanced payment for July). It was supposed to be a one-time event, but the following year, the legislature made this prepayment an annual event.

This is like your mortgage company telling you it wants two payments this month because it is having trouble balancing its books. Your mortgage company is not allowed to pull this trick, and the state government should not be allowed to do it either.

Well here we are, just two years later, and what does the Senate want to do? Bring back sales tax pre-payments. Sen. Mark Obenshain writes:

. It seems that retailers met with the Governor and Finance Committee leaders and they agreed to this as a “compromise” that will affect about 200 large retailers – for now.

The accelerated sales tax became an alternative to a proposal by the Governor to cut the dealer discount. The discount is the portion of money retailers keep in exchange for collecting, tracking and passing on sale tax. It is about one-half cent per dollar in sales tax collected. Doing away with the dealer discount would cost Virginia businesses about $64 million a year. Retailers argued that taking away the discount is nothing more than a tax increase in a period of serious economic stress.

Given the potentially devastating consequences of the elimination of the dealer discount, it should come as no surprise that retailers agreed to a compromise – albeit with a gun to their head. Look for proposals to expand the accelerated sales tax next year.

The idea passed the Senate 28-10.

And Obenshain is right: the tax hikers will be back next year to expand the collections, be it for “the children,” “our crumbling infrastructure,” or some other nostrum.

Will it pass the House? Keep an eye on SB 987. It could be the tax hike some have feared Republicans will embrace.