Hamstrung Local Tax Authority?

Hamstrung Local Tax Authority?

Alexandria government says state restrictions on city tax authority outdated.

The city government would like the state General Assembly to modernize and expand local governments’ taxing authority, but doubts sufficient political will exists to support such an expansion.

During the annual budget process, city staff publicly answer questions posed by City Council, in order to help the council make informed budget decisions. Recently, Councilman Canek Aguirre asked: “What are the possibilities of advocating for more local authority in regards to city revenue generation? What are our options in terms of a potential progressive tax, income tax or other revenue generation?”

City staff responded: “Increased local taxing authority is highly desirable to bolster the long-term fiscal viability of the City and other Virginia municipalities. Virginia local tax authority is based on a 19th and early 20th century property based farming and industrial economy and not a 21st century service economy. For example, Virginia localities should have access to the State income tax as do Maryland localities. Also, the State sales tax does not tax the service economy which now represents a far larger segment of consumer purchases ….

“… The Dillon Rule, which the Virginia Supreme Court adopted in 1896, is a legal principle that local governments have limited authority and can pass ordinances only in areas where the General Assembly has granted clear authority. …

“Any proposals that advocate for local taxing authority that is specific to Alexandria would be considered ‘special legislation’ and requires a supermajority two-thirds vote of each house of the General Assembly to pass. As a result, even if the General Assembly majority parties change in 2019 and a less anti-tax political atmosphere occurs, any expansion of local taxing authority would likely need to be applicable to all Virginia cities and/or counties …. In order for that to occur, there would need to be a statewide coalition/interest ….

“Any additional local taxing, such as a progressive or income tax, authority might come with the requirement of a local referendum, as was the case in the 1980s when a local income tax for transportation and education was authorized, but by local referendum only. No locality initiated the regional referendum as it was assumed that such referendum would result in a ‘no’ vote. …”

Individual income taxes comprise the largest single major revenue sources for both the Commonwealth of Virginia and the federal government. Virginia has four income tax brackets, ranging from 2 percent for taxable income less than $3,000 to 5.75 percent for taxable income over $17,000. The federal government has 7 tax brackets, ranging from 10 percent for income less than $9,500 to 37 percent for income over $500,000 (filing single). Alexandria, for which residential real property comprises largest single major revenue source, taxes that property at a flat (regressive) rate on assessed value, as required by state law.

But rather than taxing more valuable property at progressively higher rates, Alexandria provides progressive tax exemptions to lower-income seniors and persons with disabilities, also as allowed by state law. There are three brackets of exemption, ranging from 25 percent when the annual gross income from all sources is between $55,000 and $72,000 to 100 percent when gross income does not exceed $40,000.

For all budget questions and answers, visit www.alexandriava.gov/budget/info/FY20Memos.