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Tax exemptions for many businesses would end
RICHMOND--The Virginia House of Delegates yesterday gave preliminary approval to a last-minute bill removing numerous sales and use tax exemptions.
By a vote of 59 to 36, delegates advanced Del. Phil Hamilton's bill to repeal tax exemptions for a number of industries, including airlines, utility companies, the shipping industry and other businesses.
Three delegates did not vote, and two--including Del. Mark Cole, R-Spotsylvania County--abstained. Cole later said he abstained because his employer, Dahlgren, would be affected.
Opponents say the bill amounts to a tax increase--one coming from a House Republican caucus previously adamantly opposed to any tax increases.
But House Speaker Bill Howell, R-Stafford, said the bill is "true tax reform" and that the revenue raised by removing corporate sales tax exemptions should eventually be neutralized by elimination of the estate tax.
He also criticized affected businesses for complaining that loss of the tax exemptions will hurt jobs; Howell asked where that concern for jobs was when many of the businesses in question were pushing lawmakers to approve Warner's and Chichester's larger tax packages.
Hamilton introduced the bill just last Friday, and it was rushed through committee and onto the House floor calendar for a final vote by tomorrow, the deadline for both houses to approve legislation.
Hamilton said the state tax department told him repealing the exemptions would give the state an additional $520 million per biennium.
By contrast, tax increase packages proposed by Gov. Mark Warner and Sen. John Chichester would increase revenues by, respectively, $1 billion and $2.5 billion per biennium.
House Republican leaders have said all session that the state's budget can be balanced through spending cuts. The House Finance committee defeated almost all revenue-increase bills earlier in the session.
But House Appropriations Committee chairman Del. Vincent Callahan, R-Fairfax, said yesterday that the spending cuts and fee increases needed to balance the budget would be Draconian, and that Hamilton's bill could soften them.
"We have a huge gap that we have to meet somehow," Callahan said. "And we can do it, but you're going to howl when you see itIt ain't going to be pretty."
Howell said later that some members were uncomfortable with the level of fee increases and spending cuts required to balance the budget with no new revenue.
"So it's a compromise," Howell said.
But, he added, it's not a concession to the Senate.
"I don't think this is an acknowledgement that they were right to begin with," Howell said.
Not all Republicans fell in line behind Hamilton's plan.
Del. Robert Marshall, R-Manassas, said the corporations affected would simply pass the taxes on to consumers.
He also accused Warner of not having provided the legislature with adequate information on possible areas where spending could be cut.
"This will increase revenues, this is not revenue neutral," Marshall said. "We do not need this additional revenue to balance the budget. We need to look at spending."
Del. Brian Moran, D-Alexandria, defended Warner, noting that Hamilton's bill did not come from the governor's office.
But he also critiqued the hasty manner in which the bill was introduced.
"We're legislating in the dark. We do not know the fiscal impact to the Commonwealth," Moran said. "We don't have a firm handle on this. It's irresponsible of us."
Del. Bobby Orrock, R-Caroline, voted for the bill on the floor and in committee.
He called it a "negotiating tool in the context that the House is not unwilling to consider certain measures that will result in increased revenues."
But, Orrock said, it's also a signal that the House remains opposed to increases in the sales tax, as proposed by both Warner and Chichester.
Del. Albert Pollard, D-Lancaster, voted against the bill.
He said both sides can make a case for the policy, but that the process by which the bill was introduced "gives me pause."
But he also sees it as somewhat of a concession from the anti-tax House Republicans.
"It's an admission that the revenue side of the equation needs to be examined," Pollard said.
Hamilton's bill is likely to win final approval today. From there it will go on to the Senate, where it may not find a friendly reception.
"It selects some industries that have a significant presence in Virginia, for whom we made conscious decisions to entice them to come and remain here," said Chichester, chairman of the Senate Finance Committee, to which Hamilton's bill is likely to go.
Chichester said taxing those industries could entice them to leave. He pointed out that Philadelphia is attempting to woo US Airways, currently headquartered in Alexandria.
Chichester also made the argument that the industries in question would simply pass the taxes on to the consumer.
But, like Pollard, he took the Hamilton bill as an admission from the House that revenues need to be increased.
"It is the first indication to me that my dear friends at the other end of the hall have acknowledged that we need to have some revenue" to pay for services and to preserve the state's endangered AAA bond rating, Chichester said.
Chichester and the Senate Finance committee will vote this morning on their own bills to increase taxes, and the committee is expected to approve an omnibus tax package that falls somewhere between Warner's and Chichester's original proposals.
To reach CHELYEN DAVIS: 804/782-9362 cdavis@freelancestar.com