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 Virginia Gov. Bob McDonnell gestures as he talks at a news conference in Richmond on Tuesday about his proposal to eliminate the state gasoline tax in return for an increase in the state sales tax to fund transportation needs.
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Date published: 1/9/2013


McDonnell's proposal would gradually increase the percentage of the existing sales tax that goes to transportation, from the current 0.5 percent to 0.75 percent during the next five years.

McDonnell also would raise the annual vehicle registration fee by $15, from its current $40.75 for passenger vehicles, and add a $100-per-year fee for alternative fuel vehicles (although not hybrids) on top of the regular registration fee. The alternative-fuel fee, said McDonnell staffers, is included because there is still a federal gas tax, which is not paid by those who drive alternative-fuel vehicles. There are about 91,000 alternative fuel vehicles registered in Virginia, and McDonnell is shifting the state's own fleet of vehicles to alternative fuel vehicles.

The governor's proposal also anticipates passage of a federal bill that would allow states to collect sales taxes from online retailers. Current rules, based on a years-old court ruling, bar states from collecting sales tax from retailers without a "physical presence" in their states. Most states--including Virginia--require state residents to send to the state the sales tax they should owe on purchases made on the Internet. But most people don't do that. Virginia and other states say they're losing out on millions of dollars in tax revenue that should be collected; McDonnell's proposal anticipates that the state could collect more than $1 billion during the next five years if it could collect sales tax on Internet sales.

All told, McDonnell proposal would generate more than $3 billion in new money for roads over the next five years if the federal bill passes, and about $600 million per year if it doesn't. It would be revenue-neutral at first, but McDonnell anticipates that over the years, the sales tax revenue would grow, and grow at a larger pace than the gas tax would have.

He said the sales tax is a more appealing tax than gas, because it's more likely to grow.

"It grows with economic activity, unlike the gasoline tax," McDonnell said.

House Speaker Bill Howell, R-Stafford, is a co-sponsor of McDonnell's transportation bill. Howell had said last month that he didn't think there was time in a short session to enact a major overhaul of state transportation funding.

Howell told reporters that while he was indeed dubious that all the legwork to craft a viable plan could be done by the start of the legislative session tomorrow, he is satisfied with the result.

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Eliminate the current 17.5-cents-per-gallon motor fuels tax on gasoline; retain it on diesel fuel. State motorists will still pay the 18.4-cent-per-gallon federal gasoline tax.

Replace the current gas tax with a 0.8 cent increase to the sales and use tax dedicated to transportation: Under the governor's plan, 85 percent of the increased sales tax will go to the Highway Maintenance and Operations Fund and 15 percent will go to the Transportation Trust Fund.

Combined with cutting the gas tax, that's projected to generate $24.6 million in 2014, $607 million over five years.

Dedicate an additional 0.25 cent of the state's portion of the existing sales tax to transportation maintenance.

Transportation currently receives 0.5 cent of the sales tax, and the governor proposes to phase in this share to 0.75 cent over five years. During the first three years up to $300 million will be committed to the Dulles Metrorail Extension Project.

That's projected to generate $49 million in 2014, $811.5 million over five years.

Increase vehicle registration fees by $15 (currently $40.75 per year on the average passenger vehicle) and dedicate the revenue to intercity passenger rail and transit. That's a 37 percent increase in the registration fee.

Projected to generate $109.4 million in 2014, $547 million over five years.

Impose a $100 annual fee on alternative fuel vehicles, dedicate the revenues to transit.

Projected to generate $10.2 million in 2014, $66.6 million over five years.

Expected revenue from passage of federal law on collecting sales tax on Internet sales:

Projected at $175.7 million in 2014, more than $1 billion for the state over five years, to be devoted to transportation and public education.