Virginia transportation funding legislation was approved by the General Assembly and the Governor last week, and will become effective July 1, 2013.
The tax law changes to fund the bill will impact all taxpayers in Virginia, with specific impacts for auto dealers, industries that purchase and use diesel fuel, motor carriers, vending machine operators and hotel operators. Some tax increases (additional sales tax increase, transient occupancy tax and an additional real estate transfer tax) are based on whether the county or city is within a "Planning District." Currently, Hampton Roads and Northern Virginia are the only jurisdictions that meet the definition of a "Planning District."
GENERAL SALES AND USE TAX CHANGES
Starting July 1, 2013, the Virginia state sales and use tax rate goes from 4% to 4.3% (there is a 1% local sales and use tax rate in most localities, hence, the rate will generally overall increase to 5.3% from 5%). Specific counties, will be levied an additional sales and use tax rate of 0.7%.
The legislation also establishes procedures for the collection of the state and local sales and use taxes from remote sellers for sales made in Virginia, contingent upon the federal government passing legislation requiring such collection.
SALES TAX ON SALE OF MOTOR VEHICLES
Currently, the tax rate on motor vehicles is 3%. A rate of 4.15% will be phased in over four years as follows:
• 3% through June 30, 2013;
• 4% beginning July 1, 2013, through June 30, 2014;
• 4.05% beginning July 1, 2014, through June 30, 2015;
• 4.1% beginning July 1, 2015, through June 30, 2016; and
• 4.15% beginning on and after July 1, 2016.
The minimum tax on the sale of a motor vehicle will change from $35 to $75.
ANNUAL MOTOR VEHICLE REGISTRATION TAX
An annual license tax of $64 per vehicle will also be imposed on an electric motor vehicle, a hybrid electric motor vehicle, or an alternative fuel vehicle that is registered in Virginia. However, no license tax may be levied on any vehicle that is (1) subject to the tax on liquid alternative fuel or the tax on all other alternative fuel, (2) subject to the federal excise tax levied under IRC §4041, (3) a moped, or (4) registered under the International Registration Plan. The annual license tax will be due when the highway vehicle is first registered in Virginia and upon each subsequent renewal of registration.
An "alternative fuel vehicle" is a vehicle that is equipped to be powered by a combustible gas, liquid, or other source of energy that can be used to generate power to operate a highway vehicle and that is neither a motor fuel nor electricity used to recharge an electric motor vehicle or a hybrid electric motor vehicle. A "hybrid electric motor vehicle" is a motor vehicle that uses electricity and another source of motive power.
MOTOR FUEL TAX CHANGES
The current 17.5-cent-per-gallon tax on gasoline, gasohol, and diesel fuel will be replaced. Beginning July 1, 2013, the tax rate will be 3.5% of the statewide average wholesale price of a gallon of unleaded regular gasoline for the applicable base period, excluding federal and state excise taxes, and 6% of the statewide average wholesale price of a gallon of diesel fuel for the applicable base period, excluding federal and state excise taxes. "Wholesale price" means the price at the rack.
If the federal government does not pass legislation authorizing Virginia and other states to collect sales and use taxes from retail dealers located outside the state by January 1, 2015, then the motor fuels tax rate imposed on gasoline will be raised from 3.5% to 5.1%. The motor fuels tax rate on diesel fuel will remain at 6%.