McDonnell uses budget bill to speed up phaseout of accelerated sales tax

Gov. Bob McDonnell will use the Caboose Budget Bill to rapidly speed up the phase out of the accelerated sales tax policy in the Commonwealth.

With the governor’s action, by the end of fiscal year 2012 95.6% of affected sales tax dealers will no longer have to make accelerated payments to the state. The governor will include $50 million to facilitate this policy change.

McDonnell had earlier sought to begin unwinding the accelerated sales tax beginning in FY 2013. With last week’s action, the governor has sped up the process substantially.

“I have always opposed the policy of playing budget games with sales tax receipts. The accelerated sales tax can feel to retailers like a ‘double tax.’ It penalizes Virginia retailers and merchants and skews states revenues. It is bad policy and it needs to be eliminated as quickly as we can,” McDonnell said.

To eliminate the accelerated sales tax further, McDonnell is asking the General Assembly to appropriate $50 million in the biennial budget to allow for the elimination of the accelerated sales tax requirement for 1,407 more retailers. In fiscal year 2010, which began on July 1, 2009, at the height of the recession, the General Assembly required certain merchants to pre-pay a portion of their July 2010 sales tax remittance in June. This policy change, commonly known as the accelerated sales tax payment, applied to all dealers with $1 million or more in taxable sales and/or purchases in the previous year and was equal to 90% of their retail sales and use tax liability paid in June of the previous year.

In the 2011 session, the General Assembly reversed part of this policy change by raising the $1 million or more taxable sales and/or purchases threshold to a level of $5.4 million or greater in the previous year. This change relieved 7,026 dealers from the accelerated sales tax requirement and decreased revenues by $45.7 million.

The governor’s proposal recommends that the threshold for dealers to be subject to the payment be raised in June 2012. The new threshold level will be $26 million in sales and/or purchases in the previous year. This proposal is built into the Caboose Budget Bill and will exempt another 1,407 dealers from making accelerated sales tax payments next June. Fiscal year 2012 general fund revenues have been reduced by $50 million to account for this provision.