Saturday, February 14, 2004

RICHMOND — A Republican-backed bill that would end sales tax exemptions for airlines, utilities, railroads, overseas shippers and other major industries was muscled through a key House committee yesterday in what one lawmaker called a “legislative ambush.”

Along mostly party lines, the Finance Committee voted 13-8 to endorse legislation just six hours after it was introduced, even though state tax officials warned that they had little confidence in the revenue estimates on which the bill is based.

Industry groups surprised by the move hastily dispatched lobbyists to the committee to warn that it would result in job losses, lost corporate investment in Virginia and higher costs for consumers.

Delegate Phillip A. Hamilton, Newport News Republican, submitted the bill about 1 p.m. during yesterday’s floor session, making it the first alternative the GOP-dominated House has offered to the tax reforms proposed by Gov. Mark Warner, a Democrat.

Based on extrapolations from a 1999 Department of Taxation study, Mr. Hamilton estimated that ending the exemptions for a dozen commercial and industrial sectors would boost overall revenues by about $520 million over a two-year state budget cycle.

The state general fund and city and county governments would each get 44 percent, or about $229 million, and the Transportation Trust Fund would take the other 12 percent, or about $62 million.

Janie Bowen of the Tax Department, however, told the committee that no one at her agency can vouch for the accuracy of the revenue estimates.

On a scale of 1 to 10, she said her confidence in the numbers would be “probably about a 2.”

Tax Commissioner Kenneth Thorson said the figures first emerged in 1995 and were updated in 1999. “It’s really shaky, like standing on quicksand,” Mr. Thorson said.

Mr. Hamilton updated the Tax Department figures by factoring in an additional 14 percent to reflect inflation the past five years.

He rejected suggestions that his bill is a tax increase.

“There’s nothing that’s being increased in this bill. The [sales] tax rate is 41/2 percent before and it will be 41/2 percent afterward,” Mr. Hamilton said. “This is about fairness and equity and I don’t feel it’s a tax increase at all. If I go out and buy something, I have to pay 41/2 percent on it.”

The bill closes exemptions on taxes paid on materials, equipment and parts used by airlines, laundries, utilities, overseas and interstate shippers, gas and oil producers, contractors, even taxicab companies and the state spaceflight authority at Wallops Island.

It surfaced after business groups joined in support of Mr. Warner’s tax reform plan, which includes a 1 cent increase in the state sales tax, higher income tax rates for the wealthy and a cigarette tax increase while the grocery tax and the car tax are cut.

Mr. Warner said he was heartened to see that House Republicans finally came to agree with him on the need for additional state revenues, but he said the proposal needs to be studied.

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