By Steve Haner
More than 400,000 Virginians failed to receive their $110 “Windfall Income Tax Rebate” in 2019 because, for perfectly valid and acceptable reasons, they didn’t file their returns by July 1. That allowed the Commonwealth of Virginia to hold onto $46 million more of the un-legislated state tax increase created by conforming to new federal tax rules.
Some undetermined number of those were military families with a Virginia “tax home” who routinely get extra time to file. It could include servicemen and women deployed in combat zones.
Del. Jason Miyares, R-Virginia Beach, had his House Bill 607 all teed up to fix that today in the House Finance Committee. It would have allowed those late filers to get the rebate this year, instead. But the bill was not up for quick action today in order to pass, but in order to die. The Northam Administration was prepared to oppose the bill and seek its defeat, given it blows a hole in the revenue estimates for the new budget.
The Thomas Jefferson Institute for Public Policy was present and prepared to speak for this modest piece of unfinished tax reform business, but it was not to be. Committee Chair Vivian Watts, D-Annandale, announced it would be heard instead in a subcommittee, probably next week. Subcommittees meet in small rooms, with no recorded video. Subcommittees are where only a handful of legislators can kill a bill. Oh yeah, this place has really changed now that party control has shifted.
But then, maybe it has changed a bit. A few minutes later in the same meeting, rebellious Democrats joined with Republicans to kill one of the Northam Administration’s tax bills. It was a stunning, if probably short-term, setback that also blew a hole in the Governor’s budget. More on that bill, dealing with who has to have income reported to the government on a 1099 form, later in this post.
When the General Assembly decided last year to respond to the income tax windfall with small, one-size-fits-all and one-time-only tax rebates, it was highly questionable policy. But good or bad, it ought to be uniformly applied. It made sense that people who missed the deadline to file for valid reasons might not qualify for a check immediately, in the first round, but all understood the opportunity was there for a second round of reform or rebates.
In fact, the legislation that passed in 2019 set up a segregated fund to hold the additional income tax “windfall” for future action, and during the fall it was projected it would soon come to contain hundreds of millions of dollars. But something happened. Governor Ralph Northam simply swept the dollars into his budget and put in language to kill the Taxpayer Relief Fund. It barely lived past the election before dying, unless this General Assembly rebuffs him.
So, the fiscal impact statement on Miyares’ bill warns that its passage would require cuts to the general fund! That statement is usually more than sufficient to kill any proposed tax cut or tax credit. The other result of that statement might be that the Finance Committee simply sends the bill over to the spending committee, House Appropriations, to let it do the dirty work and kill the bill.
More permanent tax reform would be a better use for that Taxpayer Relief Fund, should it somehow be revived. People are starting to wake up to what a Roanoke Times columnist recently called a stealth tax increase. But if this is what we get, those rebates, then all should get them, one way or another. My parents once upon a time were one of those Virginia taxpaying families sending in tax returns from a military APO address.
It wasn’t the fiscal impact statement that defeated the Governor’s bill on 1099 tax reporting, but Delegate Lee Carter (D-Manassas) asking a couple of pointed questions. Carter is a Lyft driver in the off season and understood exactly what House Bill 730 sought to do. Many of these “gig economy” companies use an exception to file a 1099 report on contractor’s income with the government only if it exceeds $20,000. Employers with contract employees who don’t use the exception report income above $1,000.
The wonky details are in this fiscal impact statement. Again, the Governor’s budget assumed the bill would pass and went ahead and allocated the revenue in advance, about $20 million a year. The same bill passed 16-0 in the Senate Finance Committee this morning without a peep. But once discussion got going, House committee members wondered if it might not be more than $20 million on the line.
“Who is expected to pay, the companies or the workers?” Carter asked. The workers, he was told. He then gave an impromptu and impassioned speech about the struggling drivers he meets in the line at Dulles Airport, “and increasing payments from them by $20 million is not something I can support.” He called the effort disturbing and reprehensible.
Whether or not the contracting company files a Form 1099, the contract worker is required by law to report the income and pay the tax. But it seems many do not, and without that 1099, neither the Internal Revenue Services nor Virginia tax collectors can catch that easily. This is not just Uber and Lyft drivers, but the whole host of Internet-driven services, including grocery delivery and operations such as Airbnb.com.
The lobbyist for the traditional lodging firms that compete with Airbnb was there in both House and Senate to praise the bill. Guess why. I know you can figure it out.
The 1099 bill is not dead in the House Committee. The vote was initially a tie, and then somebody who had voted aye moved to the nay column. Under the rules, any motion to revive a bill must come from somebody who voted on the prevailing side. As has been noted on other issues, this will be a taxing session and the Governor has a massive budget to pay for. Let the games begin.
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