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July 10, 2014

The Budget Gimmick That Would Not Die

A budget gimmick lawmakers introduced four years ago to help balance the budget – and that was on its way out – has come back to life.

Four years ago, lawmakers used some voodoo economics to close looming budget shortfalls, creating 13 months of revenue in a 12-month year. They did this by changing the schedule for some retailers to remit sales taxes that customers pay at the register. It’s called the Accelerated Sales Tax, or AST.

Before the change, all retailers sent the tax revenue to the state once a month, after it was collected. AST required retailers with annual sales of over $1 million to estimate their future sales for one month and send that payment in a month early. Under this scheme, lawmakers booked a one-time cash bump of about $227.7 million.

But the gimmick is not without cost when it gets unraveled, which is why lawmakers intended to phase it out slowly beginning in 2013, with complete elimination by 2021. And they started to. They even accelerated the timeline. Right before leaving office, Governor McDonnell’s proposed budget reduced the number of businesses subject to AST to only those with taxable sales of $138.3 million or more in 2016.

Virginia was on the right track.

But we’re back in budget shortfall territory, again, without sufficient resources to meet the state’s needs for education, health care, public safety and other necessities. And, once again, lawmakers are relying on tricks like AST to make ends meet.

In fact, the budget just passed for this fiscal year and the next not only halts progress toward unwinding this gimmick, it actually rewinds it. Lawmakers expanded the number of retailers subject to AST to those with taxable sales of at least $26 million in 2015; in 2016, it narrows slightly to those with sales of $48.5 million or higher.

Once again, instead of dealing with the underlying challenges in the economy and considering a more balanced approach to shoring up the budget – one that includes modest new revenues – Virginia lawmakers conjured up a quick fix. And while ramping up the AST again may book dollars now, Virginians will pay for it later.

—Sara Okos, Policy Director

The Commonwealth Institute

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