Accelerated sales tax could be eliminated for half of Virginia businesses by FY 2014

Governor Bob McDonnell plans to propose to eliminate the accelerated sales tax for half of Virginia businesses now paying it by Fiscal Year 2014, in his proposed budget amendments on Monday, according to a news release.

The governor plans to include $20.8 million in the budget to facilitate removing the budget balancing gimmick, which will raise the threshold from $26 million of taxable sales to $48.5 million, the news release said. Only the top 200 dealers will still be required to make AST payments of 90 percent of their previous June 2012 sales tax liability. The governor’s action substantially speeds up the process of removing the Accelerated Sales Tax.

McDonnell was quoted as saying, “The accelerated sales tax is bad policy and needs to be eliminated as quickly as we can. That’s why I asked the General Assembly to begin eliminating it two years ahead of schedule in 2011 and why I am including another $20.8 million in my proposed budget amendments this year to eliminate the accelerated sales tax for half of Virginia retailers now paying it.  I have always opposed the policy of playing budget games with sales tax receipts. The accelerated sales tax penalizes Virginia retailers and merchants and skews states revenues. When the General Assembly acts on this proposal, we will have removed the AST from 98 percent of the retailers originally required to make AST payments by 2014. We need to get this anti-business policy off our books as soon as possible and I hope the General Assembly will support this budget proposal.”

In year 2010, which began on July 1, 2009, at the height of the Great Recession, the General Assembly required certain merchants to prepay a portion of their July 2010 sales tax remittance in June.  This policy change, commonly known as the accelerated sales tax payment, applied to all businesses with $1 million or more in taxable sales and/or purchases in the previous year and was equal to 90 percent of their retail sales and use tax liability paid in June of the previous year.

In the 2011 session, encouraged by the governor, the General Assembly reversed part of this policy change by raising the $1 million or more taxable sales and/or purchases threshold to a level of $5.4 million or greater in the previous year.  This change relieved 7,026 dealers from the accelerated sales tax requirement and decreased revenues by $45.7 million. In December 2011,  McDonnell asked the General Assembly to appropriate $50 million in the biennial budget to allow for the elimination of the accelerated sales tax requirement for 1,407 more retailers, and the change was incorporated into the biennial budget, according to the news release.