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    Document Summary
    - Report Published -

    House Document No. 58

    Document Title
    The Issue of Double Taxation in Virginia

    Advisory Commission on Intergovernmental Relations (ACIR)

    Enabling Authority
    HJR 646 (Regular Session, 1993)

    Executive Summary
    This report is the result of a study of that aspect of town-county fiscal relations in Virginia often referred to as "double taxation." Since Virginia's towns are constituent elements of the counties in which they are located, town residents support both jurisdictions with their taxes. As a result of this situation, some of Virginia's towns have expressed the view that their residents are subject to inappropriate double taxation. The issue of double taxation arises in those instances in which a particular public service (e.g., crime prevention) is provided by a town to its residents through municipal taxation, while the same service is provided by the county and funded by county taxes collected, in part, from within the town.

    For its research, the ACIR conducted an extensive review of relevant professional journals and instituted discussions with officials in other states to determine the extent to which double taxation has been identified as an issue or studied in other areas of the nation. To determine the Virginia perspective on the double taxation issue, the ACIR distributed a survey instrument to all towns and their counties for the purpose of soliciting data and evaluative comment specific to each jurisdiction. The combined town and county response rate to the survey was 89.4%, with 170 of 190 towns and 66 of 74 counties returning completed surveys to the ACIR. Those surveys asked town and county respondents to identify the providers within their jurisdictions of 48 specified services and to evaluate subjectively whether town residents receive a reasonable share of the services provided by the county government and whether the combination of town and county taxes places an excessive burden on town residents.

    According to town officials, 15 of the 48 services specified in the survey were provided by 50% or more of the respondent towns. Among those services provided by the largest number of towns were street lighting, planning/zoning, water distribution, residential solid waste collection, sewage collection, water treatment, and crime prevention/investigation/control. Those services most frequently provided by counties to town residents included, among others, court operations, recordation of documents, elementary/secondary schools, animal control/shelter operations, and criminal prosecutions. As those examples reveal, town services are urban, additive-type services, while the county services are predominately those traditionally considered as county responsibilities.

    As noted previously, the survey examined the perceptions of town and county officials on the issues of service equity and tax burden. Virtually all county officials (98.4%) reported that they think towns receive a reasonable share of county services, while over half (54.9%) of the town respondents agreed with that evaluation. Among county officials, 64.5% disagreed that the combination of county and town taxes did place an excessive burden on town residents, while 67.2% of the town respondents thought that the combined taxes did place an excessive burden on town residents; however, 34% of the town respondents disagreed that the aggregate taxes constituted an excessive burden.

    The report also provided analyses of the double taxation issue by regional, demographic, and income classification of the respondent jurisdictions. Those analyses also revealed that there was not a pronounced or pervasive concern by Virginia's towns regarding their service and fiscal relations with their counties. However, the larger towns were somewhat more inclined to consider double taxation to be an issue of concern than the smaller municipalities.

    To supplement the data obtained from the statewide survey, the ACIR determined that it was desirable to augment its original research with narrative descriptions of town-county relations from a selected set of jurisdictions. To that end, the Towns of Blacksburg, Halifax, Herndon, and Vienna, and the counties encompassing those towns - the Counties of Fairfax, Halifax, and Montgomery were asked to respond to such a set of questions. In general, those survey results confirmed the results from the first survey; however, the town respondents contended that they were providing higher levels of services and that they are unwilling to forego the delivery of any service in exchange for the counties' assumption of responsibility for those services. The Towns of Blacksburg, Halifax, and Herndon suggested that the State might enact some type of remedial legislation that would authorize towns to address specifically the double taxation issue with their counties, while officials from the Counties of Fairfax and Montgomery asserted that the issue of double taxation did not require any remedial action. The Town of Vienna suggested that a cost benefit analysis of every service that a county provides to a town is needed in order to determine if town residents are paying for services they do not receive.

    The ACIR also studied Maryland's experience with double taxation since it has enacted legislation to address the issue. That legislation requires eight of the 21 counties in Maryland which contain municipalities to "meet and confer" annually with their municipalities and to sign an agreement to provide municipal residents with property tax adjustments or to provide the municipal governments with a tax rebate. The remaining 13 counties are only required to "meet and confer" annually with their municipalities; they are not directed by statute to conclude an agreement for fiscal adjustment.

    In Virginia, Article 10, 1 of the Constitution prohibits a local taxing authority from establishing differential tax rates within the boundaries of the taxing authority: thus, a constitutional amendment, approved by the electorate, would be necessary for counties to grant differential tax rates to town residents. Section 15.1-544 of the State Code, however, provides general authority for counties to appropriate funds on a yearly basis to their towns. Thus, it appears that there currently exists in Virginia a legal basis for a county's compensation to a town for the provision of certain municipal services where such is mutually deemed appropriate.


    The responses submitted by the 170 towns and 66 counties which responded to the ACIR's survey do not provide sufficient evidence to support the contention that the issue of double taxation is a compelling concern affecting town-county relations in Virginia. Town and county officials expressed the view that any effort to address double taxation should not result in any action that would disrupt what are generally good relations between town and county officials. The ACIR concluded that it would not recommend legislation to address the double taxation issue; however, it does encourage Virginia's towns and counties to consider utilizing existing statutory authority to address service or fiscal inequities which they perceive to exist in their particular jurisdictions.