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August 6, 2013

Sales Tax Gimmick is Still a Ticking Time Bomb

Hidden beneath the governor’s announcement of the state’s fourth consecutive revenue surplus is a ticking time bomb. 

It’s called the Accelerated Sales Tax (AST), one of the gimmicks legislators have used to manipulate budget timetables to pay this year’s bills with next year’s money, and thus balance the budget. Eliminating the gimmick as legislators have promised will eventually cost the state well over $100 million.

Enacted during the 2010 General Assembly session, the AST changed the way certain retailers remit sales taxes that customers pay at the register. Before the change, those retailers sent the taxes to the state once a month, after they were collected. AST required retailers with annual sales of over $1 million to estimate their future sales for one month and send it in a month early.

With this trick, the legislature shoved 13 months of tax receipts into a 12-month budget and booked an estimated $227.7 million. Yet that one-time cash infusion comes at the expense of subsequent budgets when the state unwinds the gimmick.

When they made the change, legislators said they intended to phase it out slowly over seven years, from 2013 through 2021. But then they started phasing it out earlier, and faster, leaving just  2 percent of businesses still subject to the scheme.

Sounds good, right? But the 200 businesses that are still subject to the gimmick are the big ones that bring in a big chunk of sales tax dollars – over $100 million.

To put that number in perspective, that’s about what we spend on K-3 class-size reduction, local health departments, or adoption and foster care each year.

While unraveling the AST early means fewer businesses will be affected, we should not lose sight of the fact that it isn’t gone yet. And the cost of unwinding it will impair our ability to invest in the things that make our economy resilient in the long term, things like schools, families, and communities.

So, yeah, Virginia booked a 2013 surplus … tick … tick … tick … tick … tick ….  

–Sara Okos, Policy Director

The Commonwealth Institute

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