In the spirit of bipartisanship that is so in vogue in Richmond today, Paul Goldman and I have an op-ed in the Washington Post that calls into question the constitutionality of some of the tax increases embedded within the new transportation bill.
Those praising the Virginia General Assembly’s transportation compromise may not realize that the bill runs afoul of the plain language in the state’s constitution.
Virginia’s constitution is clear that the General Assembly can impose only uniform taxes across the state for similar activities. But the bill that emerged from the House-Senate conference committee last weekend upsets the historic balance between localities and state government; it contains new provisions about taxation, some of which would effectively set up a two-tier system for residents in certain parts of the state. It’s difficult to see how some of these provisions could survive legal challenge.
There are four provisions at issue. The bill would raise Virginia’s sales tax on non-food items from 5.0 percent to 5.3 percent statewide.
But the bill also says that in areas of Northern Virginia and Hampton Roads, merchants would be required to charge more, bringing the total tax to 6 percent. The revenue from this additional tax is to be spent on transportation projects in those areas.
Then there is the “regional congestion-relief fee,” applicable only in Northern Virginia, that is expected to add $750 to $1,000 to the cost of buying and selling a home in the region.
The fourth provision involves a 3?percent tax on hotel and motel bills in Northern Virginia.
Article X, Section 1 of Virginia’s constitution requires that all taxes “levied and collected under general laws” be “uniform upon the same class of subjects within the territorial limits of the authority levying the tax.” Article X, Section 4 includes the additional requirement that real estate is subject to “local taxation only” — not a levy imposed by the General Assembly in Richmond.
Moreover, simply calling a measure a “regional congestion-relief fee” doesn’t change the reality that this is really a tax on real estate. Proponents of the deal will reject that, saying it is a transaction fee. But it is not a flat fee. Instead, the amount paid is tied to the price of the land — reflecting real estate conditions, the surrounding neighborhood and more. That’s a tax, and the state Supreme Court ruled as much in 2008, when it struck down the General Assembly’s previous attempt to impose a regional congestion fee.
The constitution’s language also explains why there is no statewide property tax in Virginia and why harsh, discriminatory local taxes have not been imposed by politicians in Richmond. Their territorial authority is statewide, and any direct tax they impose has to be uniform across the commonwealth on similar activities. Richmond can pass statutes giving a locality the right to impose any of these four levies — but state lawmakers cannot impose the levy themselves. This would violate the “home rule” principle that so many around the state, particularly in Northern Virginia, have long endorsed.
As regards representation in the General Assembly, every locality in Virginia could be considered a minority. Accordingly, everyone has been protected from discriminatory tax burdens imposed on them by politicians from other parts of the state.
This has long been the law in Virginia. So why are lawmakers seeking to open Pandora’s box now?
There are a number of issues with this legislation, including that the four discriminatory taxes were not part of the original House or Senate bills. This flies in the face of long-standing Virginia practice, dating to the Jefferson Manual on legislative order, that legislation emerging from conference committee must not have surprise elements. Conference committee bills must be voted on, up or down, without amendment; the rule is intended to protect taxpayers from last-minute backroom deals.
Presumably, these provisions were integral to gaining enough votes for passage. It seems likely that local officials wanted the revenue for transportation projects but didn’t want responsibility for imposing the tax. As a constitutional matter, these local tax provisions could probably be struck down without affecting the rest of the legislation.
But few should know better than Gov. Bob McDonnell (R) that state legislators don’t have the power to impose a discriminatory local tax. He was the state’s attorney general when his office defended before the state Supreme Court the General Assembly’s previous attempt at a transportation tax package. The court rejected the argument.
