Impact of Virginia's Gubernatorial Personal Property Tax Relief Plans Vary Widely by Locality

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1 Sinc e TAX FOUNDATION October 1997, No. 73 Impact of Virginia's Gubernatorial Personal Property Tax Relief Plans Vary Widely by Locality By Patrick Fleenor Economis t Tax Foundation As part of their respective campaigns for governor, both Republican James Gilmore and Democrat Donald Beyer have promised Virginian's relief from their personal property taxes. Often lost in all of the talk of exemptions, tax credits, and phase-ins, however, is the actual size of the tax savings under each plan. For the benefit of Virginia's voters the Ta x Foundation has conducted an analysis of eac h of the proposals for owners of four popular vehicles. The results of this analysis are illustrated in Figure 1. The two bars on the left-han d side of each graph represent tax savings under the Beyer plan for the typical owner of each of the vehicles. The first bar represents tax savings for single individuals with adjusted gros s income of less than $40,000. The second ba r represents the tax savings for married couples with adjusted gross incomes of less tha n $75,000. These are the income thresholds below which taxpayers are eligible for the ta x credit in the Beyer plan. Gilmore intends on gradually phasing in his plan during fiscal years The first four bars of the cluster on the right-hand side of each graph represent tax savings fo r Figure 1 Tax Savings Under Alternative Plans, Statewide Average s 1990 Honda Accord D X $5, Ford Taurus G $12, Toyota Camry CE V Ford Explorer XLT $18,300 $25,82 5 $800- $800 - $80 0 0D 1.0 $60 0 $40 0 CO 10 M N. \Jt 1~ -v -1i as 9, 6 -,a rkr ~\ $200 EA co co (fi -ct $0 \~ 0 a CO. Gilmore Beyer Gilmore Source : "Pax Foundation.

2 SPECIAL 2 REPORT Cities Table 1 Tax Savings Under the Alternate Plan s Example: 1990 Honda Accord DX, Valued at $5,950 Cities Table 2 Example: 1996 Ford Taurus G, Valued at $12,67 5 Beyer Plan Gilmore Plan Beyer Plan Gilmore Pla n Single Married 1st 2n d 3rd 4th Full Impl. Single Married 1s t 2nd 3r d 4t h Virginia Virginia Alexandria Alexandria Bedford Bedford Bristol Bristol Buena Vista Buena Vista Charlottesville Charlottesville Chesapeake Chesapeake Clifton Forge Clifton Forge Colonial Heights Colonial Heights Covington Covington Danville Danville Emporia Emporia Fairfax Fairfax Falls Church Falls Church Franklin Franklin Fredericksburg Fredericksburg Galax Galax Hampton Hampton Harrisonburg Harrisonburg Hopewell Hopewell Lexington Lexington Lynchburg Lynchburg Manassas Manassas Manassas Park Manassas Park Martinsville Martinsville Newport News Newport News Norfolk Norfolk Norton Norton Petersburg Petersburg Poquoson Poquoson Portsmouth Portsmouth Radford Radford Richmond Richmond Roanoke Roanoke Salem Salem Staunton Staunton Suffolk Suffolk Virginia Beach Virginia Beach Waynesboro Waynesboro Williamsburg Williamsburg Winchester Winchester Ful l Impl. the typical owner of each vehicle during each year of the phase-in period. The final bar represents tax savings whe n the plan is fully implemented. The analysis generally shows that while the Beyer plan offers more up-front tax relief, the Gilmore plan offers a t least as much savings, and in many cases considerably more, over the longer-term. State and Local Taxes in Virginia The revenue sources of state and local governments ar c segregated in Virginia. The state government exclusivel y taxes income, estates, corporate franchises, gasoline, cigarettes, sales and use, the gross earnings of utilities, insuranc e companies, and intangible personal property. Meanwhile, real estate, tangible personal property, machinery and tools used in a manufacturing or mining business and merchant' s capital are subject to taxation by local governments. Counties and independent cities are separate jurisdictions in Virginia, each levying their own personal property tax using different tax rates and methods of assessment. In addition, some smaller cities and towns levy a personal property tax on top of that levied by the county in which they are located. Figure 2 shows that taxes on personal property are a relatively large source of revenue for local governments in Virginia. During fiscal year 1996 these types of taxes accounted for 9.6 percent of local government revenue. Virginia law exempts from taxation many types of property, such as tha t owned by religious and charitable organizations. In addition, most localities exempt household goods and personal effects. As a result, these taxes are primarily levied on moto r

3 SPECIAL 3 REPORT Cities Table 3 Example: 1997 'Toyota Camry CE V6, Valued at $18,300 Cities Table 4 Example: 1997 Ford Explorer XLT, Valued at $25,82.5 Beyer Plan Gilmore Plan Beyer Plan Gilmore Pla n Single Married 1st 2n d 3rd 4t h Ful l Impl. Single Married 1s t 2n d 3rd 4t h Virginia Virginia Alexandria Alexandria Bedford Bedford Bristol Bristol Buena Vista Buena Vista Charlottesville Charlottesville Chesapeake Chesapeake Clifton Forge Clifton Forge Colonial Heights Colonial Heights Covington Covington Danville Danville Emporia Emporia Fairfax Fairfax Falls Church (1 747 Falls Church Franklin Franklin Fredericksburg Fredericksburg Galax Galax Hampton ] Hampton Harrisonburg llarrisonburg Hopewell Iopewell Lexington Lexington Lynchburg Lynchburg Manassas Manassas Manassas Park Manassas Park Martinsville Martinsville Newport News Newport News l Norfolk Norfolk Norton Norton Petersburg Petersburg Poquoson Poquoson Portsmouth Portsmouth Radford Radford 15( Richmond ] Richmond Roanoke Roanoke Salem Salem Staunton Staunton Suffolk Suffolk Virginia Beach Virginia Beach Waynesboro Waynesboro Williamsburg Williamsburg Winchester Winchester Ful l ]mpl. vehicles, business furniture and fixtures, and farming equipment. Motor vehicles subject to tax include cars and trucks, boats and other watercraft, recreational vehicles, campers, and trailers. In 1996 approximately 75 percent of personal property taxes came from levies on motor vehicles. Both Candidates Gilmore and Beyer have targeted th e personal property tax, specifically that on personally owne d cars and trucks, as a source of tax relief. However, becaus e the personal property tax is a local, and not a state, tax both have been forced to come up with roundabout methods of reducing its burden. The Gilmore Plan Under the plan put forward by Republican Gilmore loca l governments would continue to assess personal property tax. However, when fully phased-in, the plan would exemp t the first $20,000 of assessed value on personally-owned cars, trucks, and motorcycles from local taxes. Assessed value in excess of $20,000 would still be subject to tax as would business vehicles and other types of personal property. The Gilmore plan would use State revenues to compensate local governments for monies lost as a result of implementing the plan. Gilmore argues that continued economic growth will create revenue surpluses at the state level whic h he will use to finance his plan. Gilmore claims that his plan will reduce taxes by approximately $1.0 billion during the four-year phase-in period and by approximately $620 millio n in every year thereafter. Article continued on page 1 2

4 Counties Table 1 Tax Savings Under the Alternate Plan s Example: 1990 Honda Accord DX, Valued at $5,950 Single Beyer Plan Married 1st 2nd Gilmore Plan 3rd 4t h Full Impl. Virginia Counties Table Ford Taurus G, Valued at $12,675 Single Beyer Plan Married 1st 2n d Gilmore Pla n 3rd 4th Ful Impl. Virginia Accomack Accomac k Chincoteague Chincoteague Lee/Pungoteague Lee/Pungoteague Atlantic Atlantic Metompkin Metompkin Albemarle Albemarle Alleghany Alleghany Amelia Amelia Amherst Amherst Appomattox Appomattox Arlington Arlington Augusta Augusta Bath Bath Bedford Bedford Bland Bland Botetourt Botetourt Brunswick Brunswick Buchanan Buchanan Buckingham Buckingham Campbell Campbell Caroline Caroline Carroll Carroll Charles City Charles City Charlotte Charlotte Chesterfield Chesterfield Clarke Clarke Craig Craig Culpeper Culpeper Cumberland Cumberland Dickenson Dickenson Dinwiddie Dinwiddie Essex Essex Fairfax Fairfax Fauquier Fauquier Floyd Floyd Fluvanna Fluvanna Franklin Franklin Frederick Frederick Giles Giles Gloucester Gloucester Goochland Goochland Grayson Grayson Greene Greene Greensville Greensville Halifax Halifax

5 Hanover Hanover Henrico Henrico Henry Henry Highland Highland Isle of Wight Isle of Wight James City James City King George King George King and Queen King and Queen King William King William Lancaster Lancaster Lee Lee Loudoun Loudoun Louisa Louisa Lundenburg Lundenburg Madison Madison Mathews Mathews Mecklenburg Mecklenburg Middlesex Middlesex Montgomery Montgomery Nelson Nelson New Kent New Kent Northampton Northampton Northumberland Northumberland Nottoway Nottoway Orange Orange Page Page Patrick Patrick Pittsylvania Pittsylvania Powhatan Powhatan Prince Edward Prince Edward Prince George Prince George Prince William Prince William Pulaski Pulaski Rappahannock Rappahannock Richmond Richmond Roanoke Roanoke Rockbridge Rockbridge Rockingham Rockingham Russell Russell Scott Scott Shenandoah Shenandoah Smyth Smyth Southampton Southampton Spotsylvania Spotsylvania Stafford Stafford Surry Surry Sussex Sussex Tazewell Tazewell Warren Warren Washington Washington Westmoreland Westmoreland Wise Wise Wythe Wythe York York

6 Counties Table 3 Example: 1997 Toyota Camry CE V6, Valued at $18,300 Counties Table 4 Tax Savings Under the Alternate Plan s Example: 1997 Ford Explorer XLT, Valued at $25,825 Beyer Plan Gilmore Plan Beyer Plan Gilmore Pla n Single Married 1st 2n d 3r d 4t h Full Impl. Single Married 1st 2n d 3rd 4th Virginia Virginia Accomac k Chincoteague Full Impl. Accomac k Chincoteague Lee/Pungoteague Lee/Pungoteague Atlantic Atlantic Metompkin Metompkin Albemarle Albemarle Alleghany Alleghany Amelia Amelia Amherst Amherst Appomattox Appomattox Arlington Arlington Augusta Augusta Bath Bath Bedford Bedford Bland Bland Botetourt Botetourt Brunswick Brunswick Buchanan Buchanan Buckingham Buckingham Campbell Campbell Caroline Caroline Carroll Carroll Charles City Charles City Charlotte Charlotte Chesterfield Chesterfield Clarke Clarke Craig Craig Culpeper Culpeper Cumberland Cumberland Dickenson Dickenson Dinwiddie Dinwiddie Essex Essex Fairfax Fairfax Fauquier Fauquier Floyd Floyd Fluvanna Fluvanna Franklin Franklin Frederick Frederick Giles Giles Gloucester Gloucester Goochland Goochland Grayson Grayson Greene Greene Greensville Greensville Halifax Halifax

7 i Hanover Hanover Henrico Henrico Henry Henry Highland Highland Isle of Wight Isle of Wight James City James City King George King George King and Queen King and Queen King William King William Lancaster Lancaster Lee Lee Loudoun Loudoun Louisa Louisa Lundenburg Lundenburg Madison Madison Mathews Mathews Mecklenburg Mecklenburg Middlesex Middlesex Montgomery Montgomery Nelson Nelson New Kent New Kent Northampton Northampton Northumberland Northumberland Nottoway Nottoway Orange Orange Page Page Patrick Patrick Pittsylvania Pittsylvania Powhatan Powhatan Prince Edward Prince Edward Prince George Prince George Prince William Prince William Pulaski Pulaski Rappahannock Rappahannock Richmond Richmond Roanoke I Roanoke Rockbridge Rockbridge Rockingham Rockingham Russell Russell Scott Scott Shenandoah Shenandoah Smyth Smyth Southampton Southampton Spotsvlvania Spotsylvania Stafford Stafford Surry Surry Sussex Sussex Tazewell Tazewell Warren Warren Washington Washington Westmoreland Westmoreland Wise Wise Wythe York Wythe York

8 Towns Table 1 Towns Table 2 Tax Savings Under the Alternate Plan s Example: 1990 Honda Accord DX, Valued at $5, Ford Taurus G, Valued at $12,675 Bever Plan Gilmore Plan Bever Plan Gilmore Pla n 1s t 2nd 3rd 4th Ful l 1s t 2nd 3rd 4t h Single Married Impl. Single Marrie d Virginia Virginia Abington Abington Accomac Accomac Altavista Altavista Amherst Amherst Appomattox Appomattox Ashland Ashland Berryville Berryville Big Stone Gap Big Stone Gap Blackstone Blackstone Bloxom Bloxom Bluefield Bluefield Boones Mill Boones Mill Bowling Green Bowling Green Boyce Boyce Boydton Boydton Boykins Boykins Branchville Branchville Bridgewater Bridgewater Broadway Broadway Brodnax Brodnax Brookneal Brookneal Burkeville Burkeville Capron Capron Cedar Bluff Cedar Bluff Chase City Chase City Chatham Chatham Chilhowie Chilhowie Chincoteague Chincoteague Christiansburg Christiansburg Claremont Claremont Clarksville Clarksville Cleveland Cleveland Clintwood Clintwood Coeburn Coebum Colonial Beach Colonial Beach Crewe Crewe Culpeper Culpeper Damascus Damascus Dillwyn Dillwyn Drakes Branch Drakes Branch Dublin Dublin Eastville Eastville Edinburg Edinburg Elkton Elkton Floyd Floyd Fries Fries Front Royal Front Royal Glade Spring Glade Spring Glasgow Glasgow Glen Lyn Glen Lyn Gordonsville Gordonsville Gretna Gretna Grottoes Grottoes Grundy Grundy Halifax Halifax Hallwood Hallwood Hamilton Hamilton Haymarket Haymarket Haysi Haysi Hillsville Hillsville Ful l Impl. 00

9 Hurt Hurt Iron Gate Iron Gate Ivor Ivor Jonesville Jonesville Kenbridge Kenbridge Keysville Keysville Kilmarnock Kilmarnock LaCrosse LaCrosse Lawrenceville Lawrenceville Lebanon Lebanon Leesburg Leesburg Louisa Louisa Luray Luray Marion Marion McKenny I7 217 McKenny Melfa Melfa Middleburg Middleburg Middletown Middletown Mineral Mineral Mount Crawford Mount Crawford Mount Jackson Mount Jackson Narrows Narrows New Market New Market Onancock Onancock Onley Onley Orange Orange Painter Painter Pamplin Pamplin Parksley Parksley Pearisburg Pearisburg Pembroke Pembroke Pennington Gap Pennington Gap Pocahontas Pocahontas Pound Pound Pulaski Pulaski Purcellville Purcellville Remington Remington Rich Creek Rich Creek Rocky Mount Rocky Mount Round Hill Round Hill Rural Retreat Rural Retreat Saint Paul Saint Paul Saltville Saltville Saxis Saxis Shenandoah Shenandoah Smithfield Smithfield South Boston South Boston South Hill South Hill Stanley Stanley Stephens City Stephens City Stony Creek Stony Creek Strasburg Strasburg Stuart Stuart Surry Surly Tangier Tangier ,02 3 Tappahannock Tappahannock Tazewell Tazewell The Plains The Plains Timberville Timberville I Urbanna Urbanna Victoria Victoria Vinton Vinton Virgilina Virgilina Wakefield Wakefield Warrenton Warrenton Warsaw Warsaw Waverly Waverly West Point West Point Windsor Windsor Wise Wise Woodstock Woodstock Wytheville Wytheville

10 Towns Table 3 Towns Table 4 Example: 1997 Toyota Camry CE V6, Valued at $18,300 Example: 1997 Ford Explorer XLT, Valued at $25,82 5 Beyer Plan Gilmore Plan Beyer Plan Gilmore Plan 1st 2nd 3rd 4th Ful l 1st 2nd 3rd 4th Ful l Single Married Impl. Single Married Yea r Impl. Virginia Virginia Abington Abington Accomac Accomac Altavista Altavista Amherst Amherst Appomattox Appomattox Ashland Ashland Berryville Berryville Big Stone Gap Big Stone Gap Blackstone Blackstone Bloxom Bloxom Bluefield Bluefield Boones Mill Boones Mill Bowling Green Bowling Green Boyce Boyce Boydton Boydton Boykins Boykins Branchville Branchville Bridgewater Bridgewater Broadway Broadway Brodnax Brodnax Brookneal Brookneal Burkeville Burkeville I Capron Capron Cedar Bluff Cedar Bluff Chase City Chase City Chatham Chatham Chilhowie Chilhowie Chincoteague Chincoteague Christiansburg Christiansburg Claremont Claremont Clarksville Clarksville Cleveland Cleveland Clintwood I Clintwood Coebum Coebum Colonial Beach Colonial Beach Crewe Crewe ' 66 2 Culpeper Culpeper Damascus Damascus Dlllwyn Dillwyn Drakes Branch Drakes Branch Dublin Dublin Eastville Eastville Edinburg Edinburg Elkton Elkton Floyd Floyd Fries Fries Front Royal Front Royal Glade Spring Glade Spring Glasgow Glasgow Glen Lyn Glen Lyn Gordonsville Gordonsville Gretna Gretna Grottoes Grottoes Grundy Grundy Halifax Halifax Hallwood Hallwood Hamilton Hamilton Haymarket Haymarket Haysi Haysi ilillsville Hillsville

11 Hurt ' Hurt Iron Gate Iron Gate Ivor Ivor Jonesville Jonesville Kenbridge Kenbridge Keysville Keysville Kilmarnock Kilmarnock LaCrosse LaCrosse Lawrenceville Lawrenceville Lebanon Lebanon Leesburg Leesburg Louisa Louisa Luray Luray Marion Marion McKenny McKenny Me1fa Melfa Middleburg Middleburg Middletown Middletown Mineral Mineral Mount Crawford Mount Crawford Mount Jackson Mount Jackson Narrows Narrows New Market Nev., Market Onancock Onancock Onley Onley Orange Orange Painter Painter Pamplin Pamplin Parkslev Parksley Pearisburg Pearisburg Pembroke Pembroke Pennington Gap t Pennington Gap Pocahontas Pocahontas ,46 3 Pound Pound Pulaski Pulaski Purcellville Purcellville Remington Remington Rich Creek Rich Creek Rocky Mount Rocky Mount Round Hill Round Hill Rural Retreat Rural Retreat Saint Paul Saint Paul Saltville Saltville Saxis Saxis Shenandoah Shenandoah Smithfield Smithfield ' 86 1 South Boston South Boston South Hill South Hill ,42 7 Stanley Stanley Stephens City Stephens City Stony Creek Stony Creek Strasburg Strasburg Stuart Stuart Surry Surry Tangier Tangier ,71 3 Tappahannock Tappahannock Tazewell Tazewell The Plains The Plains Timberville Timberville I:rbanna banoa Victoria Victoria Vinton Vinton Virgilina Virgilina ' Wakefield Wakefield ' 89 5 Warrenton Warrenton ,13 3 Warsaw Warsaw , Waverly Waverly ,05 3 West Point West Point ,197 Windsor Windsor Wise Wise Woodstock Woodstock Wytheville Wytheville

12 SPECIAL 12 REPORT Figure 2 Virginia Local Government Revenue by Source, FY Federa l Intergovernmenta l Revenu e 4.9% Source : Tax Foundation. SPECIAL REPORT (ISSN ) is published at least 10 times yearly by the Tax Foundation, an independent 501(c)(3) organizatio n chartered in the District of Columbia pp. Annual subscription : $25.00 Individual issues $5. The Tax Foundation, a nonprofit, nonpartisa n research and public education organization, has monitored lax and fisca l activities at all levels of' government since Tax Foundatio n Editor and Communications Directo r Stephen Gold Tax Foundatio n 1250 II Street, N W Suite 75 0 Washington, DC (202) M/P.7/ taxfnd@inlr. net Other Source s 10.2 % Gilmore plans to phase in the plan by grad - ually raising the exemption level over approximately five years. The rate at which thi s would be done depends on the growth of state revenues resulting from economic growth i n the state. Gilmore claims that a realistic tim e line for raising the exemption levels would b e the following : $1,500 in fiscal year 1999, $3,000 in FY 2000, $5,000 in FY 2001, $12,00 0 in FY 2002, and finally to $20,000 in FY The Beyer Plan Under the plan proposed by Democra t Beyer local governments would continue t o tax personal property. The Beyer plan woul d wholly or partially offset this tax using a state income tax credit. Married couples with adjusted gross incomes of up to $75,000 would receive a credit of up to $250 to offset the personal property tax paid on up to two motor vehicles. Single individuals with adjusted gros s income of up to $40,000 would be eligible for a credit of up to $150 to offset the personal property tax paid on one motor vehicle. Beyer estimates that his plan will reduce state revenues by approximately $202 millio n each fiscal year during FY Like Gilmore, Beyer claims that revenues to finance this tax cut will come from continued economic growth in the state. A Comparison of the Two Plans The tables contained within this repor t present the results of an analysis comparin g tax savings by city, county, and town unde r the two plans for owners of four popular auto - mobiles : 1) a 1990 Honda Accord DX valued a t $5,950 ; 2) a 1996 Ford Taurus G valued at $12,675 ; 3) a 1997 Toyota Camry CE valued a t $18,300; and 4) a 1997 Ford Explorer XI.T valued at $25,825.' Generally the analysis show s that while the Beyer plan offers such taxpayers more savings in the short-run, over the longe r term taxpayers will always save at least a s much under the Gilmore plan, and in man y cases considerably more. In the case of the Honda Accord, for example, single individuals with an AGI of less than $40,000 will typically save $131 each year under the Beyer plan while married couples with an AGI of less than $75,000 will typically save $150. Under the Gilmore plan owners of this vehicle, regardless of marital status and income, would save $38 during the first year of the phasein and $150 when the plan is fully implemented. In the case of the Toyota Camry, typica l per year tax savings under the Beyer plan are $148 for a single individual with an AGI of les s than $40,000 and $247 for a married couple with an AGI of less than $70,000. Under the Gilmore plan tax savings are $43 during th e first year of the phase in and $528 when th e plan is fully implemented. The short-run effect favoring the Beye r plan is due solely to the fact that it assumes more revenue will be available to the state du e to economic growth than does the Gilmore plan. If this revenue assumption is equalize d between the two plans, they will yield the sam e tax results in the short run, and the Gilmor e plan will yield more relief in the long run. Neither Beyer nor Gilmore has attempted to justify his incoming revenue assumptions. ' Values given are retail values from the Nationa l Automobile Dealers Association's Official Used Ca r Guide, Eastern Edition, October The analysis was conducted by calculating a standardized effective tax rate for each of the aforementioned makes of auto - mobiles for each city, county, and town in Virginia. This was necessary because jurisdictions use differen t assessment guides, concepts of value, and assessmen t ratios when calculating personal property taxes. Because of the need to keep all of the factors affecting these standardized effective tax rates constant and du e to the inherent difficulties associated with forecastin g the value of these variables overtime, the analysis holds all variables, except those affected by the candidate's proposals, constant at 1997 levels. Figures for towns include applicable county tax. The analysis assumes that these were the only taxable vehicle s owned by the individuals.