AGENDA DATE: 7/1/2015
TITLE:
Title
Ordinance to Establish Separate Classification of Personal Property for (1) Business Personal Property with Original Cost of Less Than $250; and (2) Clean Special Fuel Vehicles
BODY
SUBJECT/PROPOSAL/REQUEST: Ordinance to create separate classes of personal property for taxation purposes
ITEM TYPE: Regular Action Item
STAFF CONTACT(S): Foley, Letteri, Burrell, Davis, Herrick
PRESENTER (S): Betty Burrell
LEGAL REVIEW: Yes
REVIEWED BY: Thomas C. Foley
BACKGROUND: Virginia Code § 58.1-3506 defines different classes of personal property that are subject to local taxation. Though Albemarle County has consistently taxed all personal property at the same rate, the Virginia Code allows localities to tax specifically-enabled classes of property at different rates. Recently, separate requests have been made regarding the taxation of (1) business personal property with original cost of less than $250; and (2) clean special fuel vehicles.
1. Business Personal Property -- Although 2013 County tax forms instructed users to exclude BPP items with an original cost of less than $250, no provision of the Virginia Code specifically authorized that practice at the time. This exclusion was corrected on the 2014 BPP tax returns, and business owners were advised of the change.
As part of the Board’s legislative agenda, the 2015 General Assembly adopted House Bill 2098, which amended Virginia Code § 58.1-3506 to create a separate class of BPP for items with an original cost of less than $250, effective July 1, 2015. This newly-enacted legislation also enables localities to allow these items to be reported as an aggregated estimate, rather than an itemized list. Therefore, a locality creating a special classification for this type of property could do so to reduce either (a) the tax reporting requirements and/or (b) the tax rate for these items.
2. Clean Special Fuel Vehicles - Since 1994, Virginia Code § 58.1-3506 has also allowed for motor vehicles which use clean special fuels (as defined in Virginia Code § 46.2-749.3) to be treated as a separate class of property for taxation purposes. Virginia Code § 46.2-749.3 defines "clean special fuel" as “any product or energy source used to propel a highway vehicle, the use of which, compared to conventional gasoline or reformulated gasoline, results in lower emissions of oxides of nitrogen, volatile organic compounds, carbon monoxide or particulates or any combination thereof. The term includes compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, hythane (a combination of compressed natural gas and hydrogen), and electricity.” The Virginia Department of Motor Vehicles has determined that this definition includes gas-electric hybrids. The sole reason for creating a special classification for clean special fuel vehicles would be to tax these vehicles at a different rate.
STRATEGIC PLAN: Economic Prosperity: Foster an environment that stimulates diversified job creation, capital investments, and tax revenues that support community goals.
DISCUSSION: Though these separate items may be addressed in the same section of the County Code, staff recommends that they be considered separately.
1. Business Personal Property -- Staff recommends adopting a separate classification for business personal property with original cost of less than $250, for the purpose of allowing that property to be reported as an aggregated estimate. Establishment of this separate classification also allows the board the option to consider a lower tax rate for this classification, if deemed appropriate, during the upcoming budget review process.
If the Board were to create this separate class of business personal property for tax purposes, the Finance Department has already prepared a communication plan to engage the business community to communicate the change in the reporting requirement for business personal property with an original purchase price of less than $250:
• The Business Personal Property Tax brochure (displayed in the Revenue Administration lobby) would be updated to include information regarding the new BPP classification. (Attachment C)
• Instructions would be included in the 2016 BPP return regarding the new classification of BPP.
• A Finance Department sponsored public information session would be held for businesses in January or February 2016 to inform business owners. Revenue Administration Division staff would lead a session on the BPP filing requirements, and Purchasing Division staff would lead a session on “How to do Business with Albemarle County.”
2. Clean Special Fuel Vehicles - Staff could find only one other Virginia locality currently taxing clean special fuel vehicles at a lower rate than personal property generally. Chesterfield County sets a tax rate that is 10 percent lower for natural gas/propane vehicles than for personal property generally. Other localities that previously provided lower tax rates for wider range of clean special fuel vehicles have discontinued them. For example, Loudoun County originally desired to incentivize purchase of clean special fuel vehicles due to energy use, pollution prevention and the higher costs of such vehicles when they first came out. As time went on, as the purchase price of the vehicles came down, Loudoun decided that further incentive was no longer needed and discontinued the lower rate. Based on the prevalence and lower cost of these vehicles staff is not recommending a special classification for this category of vehicles.
In preparation for the public hearing, staff has prepared a draft ordinance (Attachment A) to amend County Code Chapter 15, Taxation, by adding § 15-1101.2, Separate Classification of Certain Items of Personal Property, for the Board’s consideration. As drafted, the proposed ordinance would classify both clean special fuel vehicles and BPP with an original cost of less than $250 separately for taxation purposes and would enable the Board to tax either or both of these two classifications differently. The proposed ordinance would not reduce taxes on either type of property. The tax rates for these and other items of personal property would still be set each year in the annual tax rate resolution. If the Board elects not to consider establishing a separate classification for special fuel vehicles, then paragraph B of the draft ordinance could simply be removed from the final version.
BUDGET IMPACT:
Business Personal Property -- The proposed ordinance is expected to have minimal impact on business personal property tax collections. There should not be a significant difference from the previously provided revenue projections in the five year plan. Further, the new revenue administration system could accommodate multiple classifications and tax rates on a single BPP tax return without incurring customization expenses.
Clean Special Fuel Vehicles -- The fiscal impact of creating a separate class for clean special fuel vehicles would depend on the rate at which that new class was taxed. The lower the rate, the greater the fiscal impact. Staff estimates tax revenues derived from this class of vehicles is currently as much as $900,000 per year.
RECOMMENDATION:
Recommendation
Staff recommends scheduling a public hearing on August 5, 2015 to consider the proposed ordinance.
ATTACHMENTS:
Attachment A - Proposed Ordinance
Attachment B - House Bill 2098
Attachment C - Draft BPP Brochure