By Michael Sluss

Archives Reprint

    RICHMOND - A Republican-sponsored bill that would repeal a dozen commercial and industrial sales tax exemptions moved toward final passage in the House of Delegates on Monday, while Democrats and aides to Gov. Mark Warner continued to question the measure's economic impacts and revenue projections.

    Just three days after the bill's introduction, the full House granted preliminary approval of legislation (HB 1488) to repeal sales tax exemptions for utility and telecommunications companies, airlines, railroads, research and development firms and certain other businesses. Republican leaders said the repeal could generate $229 million in general fund revenue over the next two years and another $62 million for the state's transportation trust fund.

    The House will cast a final vote on the measure today.

    House GOP leaders touted the bill as an alternative to tax increases proposed by Warner and the Senate's top budget-writer, Republican John Chichester of Stafford County. Warner and Chichester have insisted the state needs more revenue to balance its budget and meet its obligations in education, transportation, health care and other essential services.

    "I think it says that, in the House, we want to make sure we have tools available," said House Majority Leader Morgan Griffith, R-Salem. "If the governor and the Senate are determined that we need more revenue, then we're going to put something in play that's more like reform than just raising tax rates."

    The House Finance Committee already has rejected Warner's tax reform package, which includes a 1-cent-per-dollar increase in the sales tax on goods, a higher income tax rate for the wealthy and a significant increase in the excise tax on cigarettes. The governor's plan, which also includes tax cuts, would produce more than $1 billion in new revenue over the next two years.

    The Senate Finance Committee is expected to vote today on Warner's plan and Chichester's proposal, which would net about $2.8 billion over two years by increasing the sales tax on goods and by raising taxes on cigarettes, gasoline and large incomes.

    The House and Senate money committees will release their competing budget proposals this weekend. Senior budget-writers from the two houses will reconcile differences between the two plans late in the session, which is scheduled to conclude March 13.

    Griffith said the House proposal "ought to be part of a solution to whatever we end up doing."

    But Democrats and Warner aides complained that lawmakers and affected businesses have not had a chance to assess the legislation's financial impacts. They also question the accuracy of the bill's revenue projections, noting it relies on 5-year-old tax department data that was gathered through self-reporting by businesses.

    "It's one thing to talk about eliminating these exemptions as a policy issue; it's another to base a budget on numbers that are uncertain," said Warner spokeswoman Ellen Qualls.

    The bill's sponsor, Del. Phil Hamilton, R-Newport News, said he relied on the best information available from state officials, who estimated the two-year value of the exemptions at $520.9 million. Of that amount, 44 percent would go to the state's general fund, 44 percent would go to localities and 12 percent would go to the transportation trust fund.

    Exemptions for utility and telecommunications companies account for two-thirds of the total dollar amount in Hamilton's proposal. Representatives from those businesses told the House Finance Committee on Friday that losing those exemptions could slow infrastructure improvements and drive up service costs, which ultimately would be passed on to consumers. Officials at Arlington-based US Airways have also raised concerns about the possible loss of its sales tax exemption.

    The House advanced Hamilton's bill by a vote of 59-36. Six Republicans, including Del. Ben Cline of Rockbridge County, voted against the bill.

    Del. Vince Callahan, R-Fairfax County, said budget-writers need the additional revenue to avoid deep program cuts and fee increases.

    "We have a huge gap that we have to meet somehow," said Callahan, the chairman of the House Appropriations Committee. "We can do it without this measure, but you're going to howl when you see it."

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