Campaign Update

Lessons from a Hidden Tax Increase

10/28/2014 | News |

Virginians are about to experience a gasoline tax increase — one that has, until now, avoided public notice.

Last year, the Virginia General Assembly passed the first transportation overhaul since 1987. While I strongly support transportation improvements for the commonwealth, I did not vote for the transportation bill in part because of how it is funded.

Part of the plan is paid for by assuming that Congress would pass the Marketplace Fairness Act (MFA), proposed legislation requiring out-of-state e-commerce sellers to collect sales tax from Virginia customers — an Internet sales tax. The plan assumed that the MFA would pass and serve as a moneymaker for the commonwealth that would cover a significant portion of the $5.9 billion needed to fund the transportation bill. The bill also included a fail-safe: If the MFA doesn’t pass by the end of this year, our gas tax goes up automatically.

This part of the plan was both unrealistic and bad policy. Banking on action in Washington is always a dangerous proposition. Furthermore, Democratic and Republican lawmakers recognize that the MFA is a flawed piece of legislation and contend that a more thoughtful approach is necessary.

The MFA is controversial because it would subject Internet retailers to the rules and regulations of more than 9,600 taxing jurisdictions, and it allows states to impose regulations beyond their borders and directly on small businesses in Virginia. The burden from these regulations would make it more challenging for online startups — and all businesses that engage in online transactions — to keep up with rising costs.

The question of how to handle e-commerce for tax purposes is an important one — and, necessarily, a complex one. We do need to pay attention to the fairness issues raised by Main Street businesses across the country. Congressman Bob Goodlatte, a fellow Virginian who chairs the House Judiciary Committee, has been working on positive alternatives to the MFA, and I look forward to seeing what he and his committee come up with.

But the bottom line is that the MFA has been pending in Congress for a decade without action. The measure is far from a done deal in Congress. There was no dramatic development to suggest that this year would be the year.

Yet despite this ongoing controversy in the halls of Congress, the General Assembly relied heavily on this highly hypothetical income stream in developing the 2013 transportation plan. Now we’re just two months away from the end of the year, and the MFA has not been signed into law. Virginia is in a tough bind.

As a fallback if the MFA is not enacted, the transportation bill requires Virginians to pay more at the pump via an increase in the state gasoline tax. Virginia’s state gas tax is set to automatically increase from 3.5 percent to 5.1 percent, an increase of 4.5 cents a gallon. Congress won’t be saving Virginia by rushing headlong into a proposal that isn’t ready for prime time. By doing so, it risks Virginia businesses and consumers alike.

A transportation overhaul was desperately needed and many years overdue, and while I continue to believe that the General Assembly took the wrong approach on this funding mechanism, there is no going back. The coming hike at the pump, however, is a reminder of the consequences of opaque lawmaking.

The above article appeared in the Richmond Times-Dispatch as an op-ed on October 28th.

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