BOARD OF SUPERVISORS BUSINESS MEETING ACTION ITEM Date of Meeting: March 1, 2016 #4 SUBJECT: ELECTION DISTRICT: Resolution for Personal Property Tax Relief (PPTR) for Tax Year 2016 Countywide CRITICAL ACTION DATE: March 1, 2016 CONTACTS: Robert S. Wertz, Jr., Commissioner of the Revenue H. Roger Zurn, Treasurer Doug Kinney, Management and Budget Erin McLellan, Director, Management and Budget PURPOSE: The purpose of this item is to present the Board with the specific allocation of personal property tax relief for tax year 2016. RECOMMENDATION: Staff recommends that the Board of Supervisors adopt a Resolution (Attachment 1) that (a) describes, as a percentage of the tax levied, the specific allocation of personal property tax relief to be provided for tax year 2016 and (b) sets the percentage allocation of personal property tax relief at 100% for qualifying vehicles having assessed values of $1,000 or less. BACKGROUND: The Personal Property Tax Relief Act of 1998 (PPTRA) was enacted by the General Assembly to provide relief to taxpayers from local taxation on qualifying personal use vehicles. As originally proposed, PPTRA was intended to eliminate local taxation on qualifying vehicles over a five-year period. During those five years, the taxpayer would pay a percentage of the local personal property tax on the first $20,000 of assessed value of the qualifying vehicle, and the State would reimburse the locality for the remaining percentage of the tax. In 1998 the relief was 12.5%, in 1999 the relief was 27.5%, and in 2000 the relief was 47.5%. Due to the ballooning cost of the program and fiscal restrictions in the State budget, the reimbursement rate was frozen at 70% in 2001. During the 2004 legislative session, the General Assembly capped the Statewide reimbursement to localities at $950 million beginning in tax year 2006 and the Personal Property Tax Relief Act of 1998 was superseded (Attachment 3). Beginning in tax year 2006, each locality has received a fixed reimbursement that does not increase over time. Loudoun County s annual reimbursement from the Commonwealth has been $48,070,701 since that time. This amount was
Item #4, Resolution for PPTR for Tax Year 2016 Board of Supervisors Business Meeting March 1, 2016 Page 2 intended to approximate Loudoun s total State reimbursement for calendar year 2005 at the 70% reimbursement level. For localities experiencing population increases and corresponding increases in the number of vehicles, as in Loudoun County, the fixed State reimbursement is not sufficient to provide relief at the 70% level. In tax year 2015, the $48,070,701 amount was estimated to provide relief only at a 46% level. Legislation enacted in 2004 amended Va. Code 58.1-3524(C) (Attachment 3) to require localities to set two or more tax rates: one (or more) that would apply to the first $20,000 of assessed value of qualifying vehicles, and one (or more) for non-qualifying vehicles and the assessed value in excess of $20,000 of qualifying vehicles. Beginning in 2005, the General Assembly began providing tax relief to localities through an annual appropriation during its budget process. The appropriation language also authorized localities to provide personal property tax relief through a fixed percentage of tax levied on qualifying vehicles rather than having to allocate the State s reimbursement by setting multiple tax rates. The General Assembly has continued to affirm this method of allocation relief, most recently in Item 267, Chapter 3 (Appropriations Act, 2015 Acts of Assembly). (Attachment 5) On December 13, 2005, the Board of Supervisors adopted amendments to Chapter 860 of the Codified Ordinances of Loudoun County (Attachment 2) authorizing the provision of tax relief as a specific dollar amount credited against the total personal property taxes that would otherwise be due on a qualifying personal use vehicle, calculated through the use of a fixed percentage of tax levied on qualified vehicles. The amendments to Chapter 860 also require the Board to establish the percentage rate (or rates) of tax relief by resolution to be adopted each year prior to April 1 st, as part of a regular Board agenda. A legislative change was made to 58.1-3524(C) Tangible personal property tax relief; local tax rates on vehicles qualifying for tangible personal property tax relief (Attachment 3) in 2015 extending relief on the first $20,000 of vehicle value for vehicles leased by a nonresident active duty military servicemembers or their spouse. It is not anticipated that there are a significant number of leased vehicles previously ineligible for PPTR that will now qualify. However, the fiscal impact of this change cannot be accurately determined since we have no data on how many vehicles in the county are leased by active-duty military servicemembers or their spouses domiciled elsewhere but present in Loudoun based on military orders. A decrease in the County s total vehicle property tax revenues or a decrease in the state paid portion or PPTR is inevitable since it is likely that more active duty military servicemembers will qualify for personal property tax relief under this newly enacted legislation. The relief percentage is now adopted annually by Board resolution in time for its inclusion on the first half tax bills which are due May 5. In tax year 2015, the Board of Supervisors provided 100% relief on personal use vehicles valued at $1,000 or less, and 46% relief for the portion of vehicle value between $1,001 and $20,000. For tax year 2016, tax relief for the portion of vehicle value between $1,001 and $20,000 is now calculated to be 43%. See examples in the chart below:
Item #4, Resolution for PPTR for Tax Year 2016 Board of Supervisors Business Meeting March 1, 2016 Page 3 EXAMPLES AT RELIEF PERCENTAGE OF 43% Personal Use Business Use Vehicle 1 Vehicle Valued $1000 or less Assessed Value of Vehicle Apply the tax rate/$100 Calculate personal property relief Reduce the tax by the relief amount Annual Tax Amount to Owner Personal Use Vehicle Valued $1001 - $20,000 $25,000 $1000 $8000 $25,000 ($4.20/100) x $25,000 = $1050.00 Business use vehicles do not qualify for car tax relief ($4.20/100) x $1,000 = $42.00 100% x $42.00 = $42.00 $42.00 - $42.00 ($4.20 / 100) x $8,000 = $336.00 43% x $336.00 = $144.48 $336 $144.48 = $191.52 $1050.00 $0.00 $191.52 $688.80 Personal Use Vehicle Valued at more than $20,000 ($4.20/100) x $25,000 = $1050.00 ($4.20/100) x $20,000 x 43% = $361.20 $1050.00 - $361.20 = $688.80 1 Personal property tax relief is provided for any passenger car, motorcycle, or pickup or panel truck having a DMV registered gross weight of less than 7,501 pounds on January 1. A vehicle is considered to be used for business purposes and does not qualify for personal property tax relief if: 1) more than 50% of the depreciation associated with the vehicle is deducted as a business expense for Federal Income Tax purposes, or 2) more than 50% of the mileage for the year is used as a business expense for Federal Income Tax purposes OR reimbursed by an employer, or 3) the cost of the vehicle is expensed pursuant to Section 179 of the Internal Revenue Service Code, or 4) the vehicle is leased by an individual and the leasing company pays the tax without reimbursement from the individual. A concern about the fixed nature of the Personal Property Tax Relief reimbursement from the State in the face of an expanding vehicle pool led the Board to include the following in its 2016 Legislative Agenda: Taxation Study Support either a General Assembly sponsored, or a Virginia Department of Taxation study to review all local government allocations provided by the Personal Property Tax Relief Act of 2006. ISSUES:
Item #4, Resolution for PPTR for Tax Year 2016 Board of Supervisors Business Meeting March 1, 2016 Page 4 1. Implementation of Tax Relief: Loudoun County Ordinance, Chapter 860 requires the Board to adopt a resolution to set the percentage distribution for personal property tax relief prior to April 1 st as part of the regular Board agenda. For the individual taxpayer, the personal property tax bill will show the total tax amount, the personal property tax relief amount, and the net amount to be paid by the taxpayer. 2. Establishing the Percentage of Tax Relief: Staff has estimated the percentage that will allow for full recovery of personal property tax revenue at the $4.20 tax rate. State funds were capped beginning in 2006 and the number of vehicles forming the tax base continues to grow. This means that the amount of relief available for each vehicle likely will decline most years. Thus the percentage of relief and the dollar amount of relief per vehicle are expected to decline over time. 3. Timing of Board Action: Action by the Board is required now because the 2016 personal property tax assessment book (see Va. Code 58.1-3115, et seq.) will be produced mid- March and bills for the first installment of 2016 personal property taxes will be printed. Tax payments are due May 5, 2016. FISCAL IMPACT: Using the 2016 personal property tax rates advertised by the County Administrator, staff has estimated a percentage (43%) that will come as close as possible to having no fiscal impact on projected County personal property tax revenues. This percentage is presented for adoption as part of the resolution (Attachment 1). While no forecast or estimate can be exact, staff has used the most recent data possible, including the latest vehicle valuation data from the National Automobile Dealers Association, as a basis for setting the percentage. Attachment 4 provides a breakdown of the personal property tax relief trends beginning in 2005. ALTERNATIVES: Failure to comply with the legislative enactments will forfeit Loudoun s eligibility to receive state reimbursement funds. DRAFT MOTIONS: 1. I move that the Board of Supervisors adopt the resolution (Attachment 1 to the Action Item) allocating Personal Property Tax Relief for the 2016 tax year. OR 2. I move an alternate motion. ATTACHMENTS:
1. Resolution 2. Section 860.12, Codified Ordinances of Loudoun County 3. Va. Code 58.1-3524(C) 4. History of Personal Property Tax Relief Percentages 5. Item 267, Chapter 3 (2015 ACTS OF ASSEMBLY) Item #4, Resolution for PPTR for Tax Year 2016 Board of Supervisors Business Meeting March 1, 2016 Page 5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 RESOLUTION WHEREAS, the Personal Property Tax Relief Act of 1998, Va. Code 58.1-3523 et seq. ( PPTRA ), has been substantially modified by the enactment of Chapter 1 of the Acts of Assembly, 2004 Special Session I (Senate Bill 5005) and the provisions of Item 503 of Chapter 951 of the 2005 Acts of Assembly, being the 2005 revisions to the 2004-2006 Appropriations Act ( the 2005 Appropriations Act ), along with the provisions of Item 267 of Chapter 3 of the 2014 Acts of Assembly, being the 2014 revisions to the 2014-2016 Appropriations Act ("the 2014 Appropriations Act"); and WHEREAS, these legislative enactments require the County to take affirmative steps to provide for the computation and allocation of personal property tax relief; and WHEREAS, these legislative enactments provide for the appropriation to the County of a fixed sum to be used exclusively for the provision of personal property tax relief to owners of qualifying personal use vehicles that are subject to local personal property tax on such vehicles; NOW, THEREFORE, BE IT RESOLVED by the Board of Supervisors of Loudoun County, Virginia, in accordance with the requirements set forth in VA. CODE 58.1-3524(C)(2) and 58.1-3912(E), as amended by Chapter 1 of the Acts of Assembly (2004 Special Session 1) and as set forth in Item 503 of the 2005 Appropriations Act and Item 267 of the 2014 Appropriations Act, that any qualifying vehicle having situs within the County during the tax year which begins on January 1, 2016, shall receive personal property tax relief in the following manner: 1. Personal use vehicles valued at $1,000 or less will be eligible for 100% tax relief. 2. Personal use vehicles valued at $1,001 to $20,000 will be eligible for 43% tax relief. 3. Personal use vehicles valued at $20,001 or more shall receive 43% tax relief only on the first $20,000 of value. 4. All other vehicles which do not meet the definition of qualifying (business use vehicles, farm use vehicles, motor homes, etc.) will not be eligible for personal property tax relief. ATTACHMENT 1 PAGE 1 of 1
Loudoun County, VA Code of Ordinances 860.12 PERSONAL PROPERTY TAX RELIEF. (a) Purpose; Definitions. The purpose of this section in to provide for the implementation of changes to the Personal Property Tax Relief Act of 1998 (VA. CODE Sec. 58.1-3523. et seq.; PPTRA or the Act ) made by legislation adopted during the 2004 Special Session I and the 2005 Regular Session of the Virginia General Assembly. The terms used in this section that have defined meanings in the Act shall have the same meanings as set forth in VA. CODE Sec. 58.1-3523 as amended by Chapter 1 of the 2004 Acts of Assembly (Special Session I). To the extent that the provisions of this section conflict with any other portion of the Codified Ordinances of Loudoun County, this section shall control. (b) Method of Computing and Reflecting the Allocation of Tax Relief. For the tax year beginning January 1, 2006, and all subsequent tax years, tax relief shall be a specific dollar amount offset against the total personal property taxes that would otherwise be due on a Qualifying Vehicle but for PPTRA, calculated as a percentage of such total personal property tax due, pursuant to Item 503, Chapter 951 of the 2005 Acts of Assembly ( the 2005 Appropriations Act ). The amount of relief credited, both as a specific dollar amount and as a percentage, shall be shown on the tax bill for each Qualifying Vehicle, together with an explanation of the general manner in which relief is allocated. (c) Implementation of Tax Relief. Pursuant to Item 503(E) of the 2005 Appropriations Act, the Board of Supervisors shall, by resolution adopted prior to April 1st, annually as part of a regular Board agenda, set the percentage rate (or rates) of tax relief for the first twenty thousand dollars ($20,000) of value of Qualifying Vehicles at such a level that it is anticipated to fully exhaust the PPTRA relief funds provided to the County by the Commonwealth of Virginia and comply with the requirements of VA. CODE Sec. 58.1-3524(C)(2). (d) Transitional Provisions. Pursuant to Item 503(D)(1) of the 2005 Appropriations Act, the Treasurer shall issue a supplemental personal property tax bill, in the amount of 100% of the personal property tax due without regard to any former entitlement to relief under the Act, plus applicable penalties and interest, to any taxpayer whose taxes with respect to a Qualifying Vehicle for tax year 2005, or any prior tax year, remains unpaid on September 1, 2006 or on such date as State funds for reimbursement of the Commonwealth's share of such tax bill under the Act have become unavailable, whichever occurs first. Penalty and interest with respect to bills issued under this section shall be computed on the entire amount of tax owed. Interest shall be computed at the rate provided in Section 860.03, above, from the original due date of the tax. (Ord. 05-09. Passed 12-13-05.) ATTACHMENT 2 PAGE 1 of 1
Code of Virginia Title 58.1. Taxation Chapter 35.1. Personal Property Tax Relief 58.1-3524. Tangible personal property tax relief; local tax rates on vehicles qualifying for tangible personal property tax relief A. For tax year 2006 and all tax years thereafter, counties, cities, and towns shall be reimbursed by the Commonwealth for providing the required tangible personal property tax relief as set forth herein. B. For tax year 2006 and all tax years thereafter, the Commonwealth shall pay a total of $950 million for each such tax year in reimbursements to localities for providing the required tangible personal property tax relief on qualifying vehicles in subsection C. No other amount shall be paid to counties, cities, and towns for providing tangible personal property tax relief on qualifying vehicles. Each county's, city's, or town's share of the $950 million for each such tax year shall be determined pro rata based upon the actual payments to such county, city, or town pursuant to this chapter for tax year 2005 as compared to the actual payments to all counties, cities, and towns pursuant to this chapter for tax year 2005, as certified in writing by the Auditor of Public Accounts no later than March 1, 2006, to the Governor and to the chairmen of the Senate Committee on Finance and the House Committee on Appropriations. The amount reimbursed to a particular county, city, or town for tax year 2006 for providing tangible personal property tax relief shall be the same amount reimbursed to such county, city, or town for each subsequent tax year. The reimbursement to each county, city, or town for tax year 2006 shall be paid by the Commonwealth over the 12-month period beginning with the month of July 2006 and ending with the month of June 2007, as provided in the general appropriation act. For all tax years subsequent to tax year 2006, reimbursements shall be paid over the same 12-month period. All reimbursement payments shall be made by check issued by the State Treasurer to the respective treasurer of the county, city, or town on warrant of the Comptroller. C. For tax year 2006 and all tax years thereafter, each county, city, or town that will receive a reimbursement from the Commonwealth pursuant to subsection B shall provide tangible personal property tax relief on qualifying vehicles by reducing its local tax rate on qualifying vehicles as follows: 1. The local governing body of each county, city, or town shall fix or establish its tangible personal property tax rate for its general class of tangible personal property, which rate shall also be applied to that portion of the value of each qualifying vehicle that is in excess of $20,000. 2. After fixing or establishing its tangible personal property tax rate for its general class of tangible personal property, the local governing body of the county, city, or town shall fix or establish one or more reduced tax rates (lower than the rate applied to the general class of tangible personal property) that shall be applied solely to that portion of the value of each qualifying vehicle that is not in excess of $20,000. No other tangible personal property tax rate shall be applied to that portion of the value of each qualifying vehicle that is not in excess of $20,000. Such reduced tax rate or rates shall be set at an effective tax rate or rates such that (i) the revenue to be received from such reduced tax rate or rates on that portion of the value of qualifying vehicles not in excess of $20,000 plus (ii) the revenue to be received on that portion of 1 2/18/2016 ATTACHMENT 3 PAGE 1 of 2
the value of qualifying vehicles in excess of $20,000 plus (iii) the Commonwealth's reimbursement is approximately equal to the total revenue that would have been received by the county, city, or town from its tangible personal property tax had the tax rate for its general class of tangible personal property been applied to 100 percent of the value of all qualifying vehicles. 3. Notwithstanding the provisions of subdivisions 1 and 2, beginning with tax year 2016, each county, city, and town that receives reimbursement shall ensure that the reimbursement pays for all of the tax attributable to the first $20,000 of value on each qualifying vehicle leased by an active duty member of the United States military, his spouse, or both, pursuant to a contract requiring him, his spouse, or both to pay the tangible personal property tax on such vehicle. The provisions of this subdivision apply only to a vehicle that would not be taxed in Virginia if the vehicle were owned by such military member, his spouse, or both. D. On or before the date the certified personal property tax book is required by 58.1-3118 to be provided to the treasurer, the commissioner of the revenue shall identify each qualifying vehicle and its value to the treasurer of the locality. E. The provisions of this section are mandatory for any county, city, or town that will receive a reimbursement pursuant to subsection B. 1998, Sp. Sess. I, c. 2;2004, Sp. Sess. I, c. 1;2015, c. 266. ATTACHMENT 3 PAGE 2 of 2 2 2/18/2016
Personal Property Tax Relief Trends Estimated Growth in Qualifying Qualifying State State Taxpayer TY Levy Levy Reimbursement Percentage Percentage PREVIOUS STATE REIMB. 70% 2005 $70,702,000 $49,592,107 70.00% 30.00% Notes: 2006 $76,622,000 8.4% $48,070,701 59.00% 41.00% 2007 $77,521,000 1.2% $48,070,701 63.00% 37.00% 2008 $80,445,000 3.8% $48,070,701 58.00% 42.00% 2009 $74,291,000-7.6% $48,070,701 66.00% 34.00% 2010 $81,313,000 9.5% $48,070,701 58.00% 42.00% 2011 $86,105,000 5.9% $48,070,701 55.00% 45.00% 2012 $93,324,000 8.4% $48,070,701 51.00% 49.00% 2013 $98,125,000 5.1% $48,070,701 49.00% 51.00% 2014 $102,315,000 4.3% $48,070,701 47.00% 53.00% 2015 $104,981,000 2.6% $48,070,701 46.00% 54.00% 2016 $112,223,950 4.9% $48,070,701 43.00% 57.00% * Tax year (calendar year) 2005 was the last year in which the State reimbursed 70% of the car tax. * 2006 is the first year that Loudoun received a fixed amount, $48,070,701, from the State. Loudoun now must determine the share that the State's fixed payment will cover, based on forecasted growth in the levy for the year. * The qualifying levy is the portion of the tax base (the first $20K in value on non-business vehicles) that qualifies for personal property tax relief. * The State reimbursement is applied to 100% of the levy for vehicles valued $1,000 or less. ATTACHMENT 4 PAGE 1 of 1
CH. 2 ACTS OF ASSEMBLY 1 ITEM 1. Item Details($) Appropriations($) First Year Second Year First Year Second Year FY2015 FY2016 FY2015 FY2016 Department of Accounts Transfer Payments (162) 267. Personal Property Tax Relief Program (74600)... $950,000,000 $950,000,000 Reimbursements to Localities for Personal Property Tax Relief (74601)... $950,000,000 $950,000,000 Fund Sources: General... $950,000,000 $950,000,000 Authority: Discretionary Inclusion. A.1. Out of this appropriation, $950,000,000 the first year and $950,000,000 the second year from the general fund is provided to be used to implement a program which provides equitable tax relief from the personal property tax on vehicles. 2. The amounts appropriated in this Item provide for a local reimbursement level of 70 percent in tax years 2004 and 2005. The local reimbursement level for tax year 2006 is set at $950,000,000 pursuant Chapter 1, 2004 Acts of Assembly, Special Session I. Payments to localities with calendar year 2006 car tax payment due dates prior to July 1, 2006, shall not be reimbursed until after July 1, 2006, except as otherwise provided in paragraph D of this Item. B. Notwithstanding the provisions of subsection B of 58.1-3524, Code of Virginia, as amended by Chapter 1, 2004 Acts of Assembly, Special Session I, the determination of each county's, city's and town's share of the total funds available for reimbursement for personal property tax relief pursuant to that subsection shall be pro rata based upon the actual payments to such county, city or town pursuant to Title 58.1, Chapter 35.1, Code of Virginia, for tax year 2004 as compared to the actual payments to all counties, cities and towns pursuant to that chapter for tax year 2004, made with respect to reimbursement requests submitted on or before December 31, 2005, as certified in writing by the Auditor of Public Accounts not later than March 1, 2006. Notwithstanding the provisions of the second enactment of Chapter 1, 2004 Acts of Assembly, Special Session I, this paragraph shall become effective upon the effective date of this act. C. The requirements of subsection C 2 of 58.1-3524 and subsection E of 58.1-3912, Code of Virginia, as amended by Chapter 1, 2004 Acts of Assembly, Special Session I, with respect to the establishment of tax rates for qualifying vehicles and the format of tax bills shall be deemed to have been satisfied if the locality provides by ordinance or resolution, or as part of its annual budget adopted pursuant to Title 15.2, Chapter 25, Code of Virginia, or the provisions of a local government charter or Title 15.2, Chapter 4, 5, 6, 7 or 8, Code of Virginia, if applicable, specific criteria for the allocation of the Commonwealth's payments to such locality for tangible personal property tax relief among the owners of qualifying vehicles, and such locality's tax bills provide a general description of the criteria upon which relief has been allocated and set out, for each qualifying vehicle that is the subject of such bill, the specific dollar amount of relief so allocated. D. The Secretary of Finance may authorize advance payment, from funds appropriated in this Item, of sums otherwise due a town on and after July 1, 2006, for personal property tax relief under the provisions of Chapter 1, 2004 Acts of Assembly, Special Session I, if the Secretary finds that such town (1) had a due date for tangible personal property taxes on qualified vehicles for tax year 2006 falling between January 1 and June 30, 2006, (2) had a due date for tangible personal property taxes on qualified vehicles for tax year 2004 falling between January 1 and June 30, 2004, (3) received reimbursements pursuant to the provisions of Title 58.1, Chapter 35.1, Code of Virginia, between January 1 and June 30, 2004, (4) utilizes the cash method of accounting, and (5) would suffer fiscal hardship in the absence of such advance payment. E. It is the intention of the General Assembly that reimbursements to counties, cities and towns that had a billing date for tax year 2004 tangible personal property taxes with respect to qualifying vehicles falling between January 1 and June 30, 2004, and received personal property tax relief reimbursement with respect to tax year 2004 from the Commonwealth between January 1 and June 30, 2004, pursuant to the provisions of Title 58.1, Chapter 35.1, Code of Virginia, as it existed prior to the amendments effected by Chapter 1, 2004 Acts of Assembly, Special Session I, be made by the Commonwealth with respect to sums attributable to such spring billing dates not later than August 15 of each fiscal year. ATTACHMENT 5 PAGE 1 of 1