State Should Not Raise Tax Expenses for Struggling Retailers

With this economy, the Assembly's focus must be on these fundamental issues: jobs and housing.

All around Richmond, businesses of all sizes are closing. In eastern Henrico, Qimonda recently announced 500 layoffs and more will follow.

Over the past week -- while investigating potential violations of federal law and facilitating the deployment of Virginia's work force rapid response initiative -- it was apparent that these unemployed workers, who are highly skilled and trained, care about their jobs because they need to put food on the table, pay their mortgages to stay in their houses, and maintain health care coverage for their families' well-being. These workers are not the ones who got in over their heads with bad loans or have mountains of credit debt. These workers are ordinary middle-class Virginians trying to do the right thing in life.

If health care and house payments were not enough reason for concern, one worker had surgery right before health insurance was cut without notice. Moreover, others losing their jobs are putting children through college and trying to save for retirement. This episode is not uncommon in this time.

More than 5,000 jobs have been lost in the past month. We've seen the start of the liquidation of Circuit City and the closing down of LandAmerica here in the Richmond area. More layoffs are coming at the Volvo truck plant in Southwest Virginia. As more workers lose jobs, less money will circulate through other sectors of the economy. The 143,500 retailers in Virginia may be especially hard hit. In this critical time, Virginia lawmakers must do all they can to avoid further burdening businesses -- many of which are nearing life support -- so that they can continue to provide thousands of jobs.

This past week, the General Assembly passed House adaptations to the governor's recommended amendments to the 2008-2010 budget. To use sports parlance, the governor's proposal essentially marked the "tip-off" and now we reach "half-time" in a process to make final amendments to our state's two-year spending plan prior to adjourning on Feb. 28.

The governor, having made three previous cuts, presented his final attempt to fulfill a constitutional responsibility: balancing Virginia's budget. In this proposal, Gov. Kaine sought to partially balance the nearly $4 billion budget shortfall on the backs of retailers at an extremely difficult time -- by changing the way Virginia businesses are taxed. Kaine proposed to eliminate the so-called dealer discount, which was established to compensate retail establishments for performing a state function: sales tax collection.

In his December remarks to the joint meeting of the Senate Finance Committee, my House Finance Committee, and the House Appropriations Committee, Kaine announced the latest revenue numbers, as well as his budget roadmap.

Referring to his plan to eliminate the dealer discount on businesses, Kaine said "Virginia is one of a shrinking number of states that still allows retailers to keep a portion of the sales taxes that they collect . . . .Modern cash registers and computerized accounting systems have made this 'dealer discount' an unnecessary diversion of tax dollars. Ending the practice will ensure that $64.3 million in taxes paid by consumers during sales transactions will actually be remitted to the state and used to support state services."

Unfortunately, businesses owners, especially retailers, are caught between layoffs and cutbacks in order to survive. Any cuts in revenue through changes in taxation may affect a business' ability to maintain employment.

Last week, the House of Delegates passed a version of that proposal to help mitigate the impact on those businesses in this precarious time. House members were faced with voting either for partially reinstating the dealer discount or for the governor's onerous tax increase. In terms of retailer compensation, the House proposal authorizes each retailer to be compensated up to $800 a month for sales tax collection.

The House cap proposes to reduce payments to nearly all the commonwealth's retailers. This compromise generates $26.1 million in the 2010 fiscal year, cutting the governor's proposal by $38.2 million. Yet all of these figures are based on the hope and uncertain supposition that during these trying economic times retail sales will remain consistent.

In addition, the House proposes a bimonthly sales tax remittance for the largest retailers to offset state revenue lost by eliminating the governor's dealer discount proposal. Retailers believe that adding additional filings would be cost-prohibitive, as businesses would have to install or license expensive new software, program cash registers, and increase costly credit card fee payments. In combination, these two House proposals generate a net of $47.6 million when compared to the governor's proposals.

Retail chains such as Lowe's and Home Depot, as well as small-business retailers represented by the Virginia Retail Merchants Association, argue instead that the best way to create revenue for the commonwealth -- and at the same time not strain Virginia businesses -- is to ensure that retailers, restaurants, and anyone paying sales taxes continue to make a single monthly tax payment and let the dealer discount remain unchanged.

In this scenario, retailers retain the current compensation for state tax collection and avoid major losses for small businesses. Next week, the Senate will pass its version of the budget, setting up our march to the final budget proposal. Between now and then the two chambers' negotiators will consider these options heavily and will hopefully opt for the one that presents the best hope for businesses and those workers they employ.

Christopher Peace is a Republican who represents Virginia's 97th House of Delegates District, which includes parts of Caroline, Hanover, Henrico, King and Queen, King William, New Kent, and Spotsylvania counties. He may be contacted at DelCPeace@house.virginia.gov or (804) 698-1097.