Va. Court Strikes Down $300M Tax Hike

Published June 1, 2008

In a big victory for taxpayers, the Virginia Supreme Court has unanimously ruled $300 million in new taxes levied by the Northern Virginia Transportation Authority (NVTA) are unconstitutional.

The legal challenge was led by Virginia Del. Bob Marshall (R-Manassas) and joined by more than a dozen taxpayers affected by the hikes.

A 2007 transportation funding package crafted by the Republican-controlled General Assembly and signed by Gov. Tim Kaine (D) created the unelected “transportation authorities” in the Northern Virginia and Hampton Roads areas. The two authorities subsequently voted to impose burdens of $300 million and $168 million, respectively, on taxpayers.

“We never should have done this,” said Marshall of the creation of unelected transportation authorities. “Nobody else paid attention to bans in the constitution on things like the NVTA. I take my oath seriously. These people were trying to take lots of money and not be responsible for it.”

Warning to Other States

In its February 29 ruling against the NVTA taxes, the court stated, “the General Assembly may not delegate its taxing power to a non-elected body such as NVTA.” Therefore, “such taxes and fees that NVTA has already imposed are null and void.”

Taxpayer activists hailed the outcome as a strong message to the General Assembly that it may not disregard the rights of taxpayers in attempts to find politically expedient revenue sources. Equally important, the decision provides a clear warning to over-reaching legislatures in other states.

Refund Process Begins

On March 25 Kaine signed a bill authorizing refunds of the illegal taxes. NVTA started tax collections in January, while the Hampton Roads Transportation Authority had put tax collections on hold pending the court’s ruling.

“We would rather have to deal with refunds than give up the revenue we would not collect during that waiting period,” an NVTA spokesperson said in late 2007.

NVTA has since announced it will take up to three years and cost hundreds of thousands of dollars to return the taxes it collected in the first two months of 2008. The nature of the taxes, which included levies on home sales, hotels, and rental car fees, makes the refunds difficult to process.

The state’s Department of Motor Vehicles, Unclaimed Property Division, and circuit court clerks have been charged with refunding the seven taxes collected by NVTA.

Outlook Uncertain

In response to the ruling, Kaine and legislative leaders have announced plans to examine alternate ways to generate more transportation funding. The exact strategy is still in the formative stage.

“It’s tough to say where things are headed,” said Del. Jeff Frederick (R-Prince William), an NVTA member who voted against all seven taxes. “One side is digging in their heels for a statewide tax increase. The other side is united against a statewide tax hike, but otherwise divided on what to do. It’s a tough nut to crack.”

Patrick McSweeney, counsel for the individuals who challenged the taxes and former chairman of the Virginia Republican Party, said the decision “abruptly reshaped the debate over transportation policy in Virginia.”

McSweeney noted some “Republican House leaders have focused on new regional funding solutions, including the same regional sales tax increase that voters in Hampton Roads and Northern Virginia overwhelmingly rejected in 2002 referendums.”

Severe Traffic Congestion

Marshall said he is not surprised by talk of new taxes to replace those struck down by the Virginia Supreme Court.

“The entire political establishment supported the transportation authorities,” Marshall said. “You can read a Russian novel sitting in our traffic, but nothing is worth abandoning the fundamental principle of representative government. They tried to abandon it.”

Instead of focusing on taxes that have already been rejected by the electorate, Krystal Slivinski, vice president for government affairs for Tertium Quids, a leading Virginia free-market advocacy group, said the legislative focus should be on congestion relief.

“Only when this priority is acknowledged can we create a feasible plan with measurable goals and timetables for improvement,” Slivinski said. “Until then, neither the General Assembly nor local governing bodies should be taking any more of our money.”

Kristina Rasmussen ([email protected]) is director of government affairs for the 362,000-member National Taxpayers Union. Rasmussen was a plaintiff in the case mentioned in this story.