(Graphic by Tom White)
In a letter mailed to select businesses this week, the Virginia Department of Taxation is notifying them that the budget passed by the 2010 Virginia General Assembly has New Tax Payment Requirements for these businesses. In order to close the nearly $4 billion Virginia deficit, former governor Tim Kaine's budget will require businesses to pay up early. The state's fiscal year ends on June 30 each year. Ordinarily, taxes on sales completed in June are not due until July 20th. This year, June taxes are due June 30th, and will be included in the state's books for fiscal year ending June 30, 2010. The rate is calculated at 90% of sales for June, 2009.
Essentially, Kaine's budget took a month's worth of sales tax income from the next fiscal year, leaving Virginian's with one 13 month year and one 11 month year, income wise.
The penalty for failing to pay on time is 6%.
While the 20 day acceleration may not seem like much, it is a burden on many businesses. Businesses that operate on a cash or credit card basis may feel limited pain, but those that invoice their customers for sales will feel the pinch far worse.
One local business said they will have to borrow the money at a cost of around $750 in interest. Their average sale to payment lag is 49 days, which means they are already paying a portion of the sales taxes before actually collecting them. For June, 2010, none of the invoices are likely to be paid until July at the earliest.
So, this practice amounts to an interest free loan at the expense of businesses, many of which will have to borrow money and pay interest to comply with the law and avoid a penalty.
Sort of a reverse payday loan where the borrower passes all of the interest to the lender.
This is not a new tactic by Virginia's government. In 1977, Norfolk tombstone manufacturer, James J. McBride, showed his displeasure by sending in his payment in the form of a check carved into a 50 pound piece of Georgia granite, which the state accepted, although not happily.
The Virginia Retail Federation has lobbied Governor McDonnell on behalf of businesses to phase this regressive acceleration out of Virginia's tax code. As a result of the VRF’s efforts, Governor McDonnell has amended the budget language to begin phase out of the Accelerated Sales Tax in 2013 rather than 2015.
The pain from the budget shortfall has been great across the board. And while much is expected of Virginia's new governor, it is hardly fair to lay blame for this horrendous shell game on his shoulders. But it is clear that Governor "Bob's for Jobs" McDonnell understands the negative impact this sort of trick bookkeeping has on businesses.
It would be good to end this practice sooner, rather than a gradual phase out beginning after McDonnal's term expires, leaving the mess for his successor.
A good beginning would be to exempt sales that are invoiced from the accelerated sales tax payments giving businesses a way to pay the tax without borrowing money. Perhaps the Governor will take that up in the 2011 General Assembly.
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