Thursday, July 10, 2003

RICHMOND — Gov. Mark Warner and a group of lawmakers yesterday began updating Virginia’s antiquated tax code with a new system that could extend taxes on Internet retail sales, revise income-tax brackets and examine local taxes.

At the first meeting of the state’s new Tax Reform Commission, Mr. Warner, a Democrat, told lawmakers he envisions a process that would simplify the 88-year-old tax code and make it more equitable, including placing a greater burden on wealthy individuals and corporations.

Imposing a tax on Internet retail sales also is a consideration, Mr. Warner said.

“The system is not fair when citizens pay tax[es] on purchases in stores, but not on purchases through catalogues or over the Internet,” Mr. Warner wrote in a position paper distributed to Tax Reform Commission members before the 90-minute meeting.

“We have a lot of opinions around this table [and] I don’t believe we can set preconditions,” he added during his opening remarks.

Delegate Kenneth R. Melvin, Portsmouth Democrat, who is a member of the commission, went further. “Revenue neutrality is not going to work,” he said.

But Delegate Leo C. Wardrup Jr., Virginia Beach Republican and the most outspoken member of the commission, said he doubted any plan that contained a tax increase would be supported by the General Assembly. The General Assembly convenes in January.

“Quite frankly, I don’t know if [any tax increases would pass]. A number of my colleagues are opposed to raising taxes,” said Mr. Wardrup, who also serves as chairman of the House Republican Caucus.

Mr. Wardrup said he was particularly bothered by Mr. Warner’s suggestion that the commission look into taxing purchases made over the Internet.

“Are we now talking about taxing of Internet sales, and of EBay sites?” Mr. Wardrup asked Mr. Warner. “Should we have taxes on those?”

The commission is made up of 10 lawmakers, Secretary of Finance John M. Bennett and Tax Commissioner Kenneth W. Thorson. It is to produce a tax-reform package for lawmakers to address when they return next winter.

The commission is scheduled to meet again on Tuesday.

Several recent attempts have been made at restructuring the code, which has not been modified since the 1910s. Those panels, including one created by Gov. James S. Gilmore III in 2001, and another headed by lawmakers in 2002, did not produce any significant changes.

The last panel recommended the repeal of Virginia’s estate tax, which was approved by the General Assembly last winter. But Mr. Warner vetoed the repeal, promising to support it as part of the tax-code overhaul.

Mr. Warner campaigned in 2001 that he would have help to reformulate the code. He had pledged to introduce it as part of his 2003 legislative package, but it never materialized. He is not a member of the commission, but wanted to meet with commission members yesterday to set the framework for what he wants to accomplish next year.

“It’s going to have to be one that a Democratic governor and a Republican General Assembly can agree on,” Mr. Warner told panel members, referring to the tax-code reform. “That’s the reality of it.”

Mr. Warner outlined broad ideas of what he would like the commission to establish, including restructuring the tax system so that it would be more fair, more simple and up-to-date with the modern economy, as well as meet the government’s core responsibilities.

A new tax code also should redefine the relationship localities have with the state, Mr. Warner said. Communities must be given more ability to pay for an increasing load of services the state has forced them to assume, he said. Local governments have few options other than real-estate tax increases to cover the costs, angering local taxpayers and straining the relationships cities and counties have with the state government.

The governor has indicated he would announce his firm objectives after the November elections, when all 140 General Assembly seats are on the ballot, a move that some Republican leaders have criticized.

“If we are going to accomplish anything, we to have these answers,” Mr. Wardrup told the panel members at the meeting, which took place at the Executive Mansion.

But not all commission members agreed with Mr. Wardrup.

State Sen. Emmett W. Hanger Jr., Augusta County Republican, said he didn’t expect Mr. Warner to “go way out in front” of the issue now. Instead, Mr. Hanger, who served on the 2002 commission, said he wanted to be assured that Mr. Warner was working with the panel.

“Amen,” Mr. Warner replied.

State Sen. John H. Chichester, Fredericksburg Republican, said the biggest obstacle facing commission members was educating their colleagues on the specific details of the tax code so they could understand the need for, and the ramifications of, any proposals.

The meeting, which was originally scheduled to be held in private, produced no firm suggestions as to how to reformulate the code. The members, however, reiterated their commitment to work at changing it, while recognizing the challenges ahead.

“If I am criticized in the aftermath of this a few years from now, it’s going to be for what I did, and not for what I didn’t do,” Mr. Hanger said.

“The devil is in the details,” said Delegate Johnny S. Joannou, Portsmouth Democrat. “I don’t think there are going to be partisan problems, [but] it will be a philosophical problem.”

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