Title of Regulation: 23VAC10-390. Virginia Soft Drink Excise Tax Regulations (amending 23VAC10-390-40).

Statutory Authority: §§ 58.1-203 and 58.1-1703 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: January 25, 2019.

Effective Date: February 11, 2019.

Agency Contact: Joe Mayer, Lead Policy Analyst, Department of Taxation, P.O. Box 27185, Richmond, VA 23261-7185, telephone (804) 371-2299, FAX (804) 371-2355, or email joseph.mayer@tax.virginia.gov.

Basis: Section 58.1-203 of the Code of Virginia authorizes the Tax Commissioner to issue regulations relating to the interpretation and enforcement of the laws governing taxes administered by the Department of Taxation. The authority for the current regulatory action is discretionary.

Purpose: As a result of a periodic review of the Virginia Soft Drink Excise Tax Regulations initiated by the department on June 27, 2016, and completed July 18, 2016, the department has determined that 23VAC10-390-40, relating to collection of the soft drink excise tax, should be amended. This regulatory action is necessary to reflect legislative changes and administrative procedures affecting the collection of the soft drink excise tax. In addition, some existing regulatory language is unnecessary because it provides no additional guidance regarding clear and unambiguous statutes. Therefore, this regulatory action will update the regulation to conform to legislative changes and administrative procedures. It will also repeal language that is duplicative or outdated. The amendment of this regulation does not reflect a change in existing tax policy and will have no impact on the administration of the tax.

As this regulatory action does not reflect a change in existing departmental policy, it will have no effect on the health, safety, and welfare of citizens.

Rationale for Using Fast-Track Rulemaking Process: The fast-track rulemaking process is intended for regulations that are expected to be noncontroversial. As the regulation is being amended to reflect current law and will not make any changes to the department's current policy regarding the soft drink excise tax, this action is not expected to be controversial.

Substance: The amendments relate to collection of the soft drink excise tax. Virginia imposes an annual excise tax on wholesalers and distributors of carbonated soft drinks. The tax is based on the gross receipts of each wholesaler and distributor from the sale of such soft drinks during the year. The Code of Virginia requires that this tax be collected by the department in the same manner as the income tax is collected.

This regulatory action will amend 23VAC10-390-40 of the Virginia Soft Drink Excise Tax Regulations to conform to current law and existing administrative procedures regarding the collection of the tax and to strike provisions that are no longer accurate due to changes in the law. The affected provisions deal with the collection of the soft drink excise tax; return due dates; and extensions, penalties, and interest that may apply for failure to timely file or pay the amount of tax due.

During the 2005, 1999, 1991, and 1989 Sessions of the General Assembly, several modifications were made to the way the Virginia income tax is collected:

• Chapter 100 of the 2005 Acts of Assembly eliminated the requirement for income taxpayers to file an extension form with the department before they could elect to file their income tax return on extension.

• Chapters 146 and 180 of the 1999 Acts of Assembly modified § 58.1-15 of the Code of Virginia by equalizing the rate of interest charged on assessments and the rate of interest paid on refunds.

• Chapter 316 of the 1991 Acts of Assembly modified § 58.1-15 of the Code of Virginia relating to the rate of interest charged on assessments or paid on refunds. This legislation also increased the penalty for late-filed income tax returns and the penalty for late payment of the income tax from 5.0% to 6.0%.

• Chapter 629 of the 1989 Acts of Assembly modified the penalty for late-filed income tax returns from 10% to 5.0% per month for up to five months for individuals and from $100 to the greater of $100 or 5.0% per month for up to five months for corporations. This legislation also modified the penalty for late paying an income tax liability from 5.0% to 5.0% per month for up to five months.

Because this regulation was promulgated prior to the enactment of this legislation, it is inconsistent with these legislative changes. Other amendments in this action include removing language that is unnecessary because it provides no additional guidance to clear and unambiguous statutes. Therefore, this regulatory action will update language to conform to statute and current administrative procedures, and it will repeal other language that is duplicative or outdated. Amending this section does not reflect any change in existing tax policy and will have no impact on the administration of tax. Because of this, the amendment of this section is not expected to be controversial.

Issues: This regulatory action will ease voluntary taxpayer compliance and the department's administration of the state tax laws by amending a regulation section that currently does not conform to statute and current administrative procedures and by striking obsolete language. Therefore, the amendments will result in no disadvantage to the public or the Commonwealth.

Small Business Impact Review Report of Findings: This fast-track regulatory action serves as the report of the findings of the regulatory review pursuant to § 2.2-4007.1 of the Code of Virginia.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. As a result of a periodic review,¹ the Department of Taxation proposes to repeal provisions that are no longer accurate due to statutory changes or are duplicative of the statutory language.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. This regulation contains general provisions applicable to the Soft Drink Excise Tax. Numerous statutory changes in the 1989, 1991, 1999, and 2005 Virginia General Assembly Sessions amended the Soft Drink Excise Tax and rendered the current regulatory language inaccurate.² In addition, some of the current regulatory provisions are unnecessary because they are duplicative of information provided in the statute. The proposed changes will update the regulation so that it is consistent with the statute. Since this regulatory action does not reflect any change in current tax policy or on the administration of the soft drink excise tax, no economic effect is expected other than potentially reducing confusion by eliminating conflicting information between the Code of Virginia and the regulation.

Businesses and Entities Affected. This regulation applies to approximately 70 taxpayers who file a Soft Drink Excise Tax return.

Localities Particularly Affected. The proposed changes do not disproportionately affect particular localities.

Projected Impact on Employment. No impact on employment is expected.

Effects on the Use and Value of Private Property. No impact on the use and value of private property is expected.

Real Estate Development Costs. No impact on real estate development costs is expected.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

Costs and Other Effects. Of the 70 taxpayers that file Soft Drink Excise Tax returns, approximately 22 are estimated to be small businesses. The proposed regulation does not impose costs on small businesses, but is expected to benefit them by eliminating potentially confusing language between the regulation and the statute.

Alternative Method that Minimizes Adverse Impact. No adverse impact on small businesses is expected.

Adverse Impacts:

Businesses. No adverse effects are expected on small businesses.

Localities. The proposed amendments will not adversely affect localities.

Other Entities. The proposed amendments will not adversely affect other entities.

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¹See http://townhall.virginia.gov/l/ViewPReview.cfm?PRid=1510.

²See 1989 Acts of Assembly, Chapter 629,

1991 Acts of Assembly, Chapter 316,

http://lis.virginia.gov/cgi-bin/legp604.exe?991+ful+CHAP0180,

http://lis.virginia.gov/cgi-bin/legp604.exe?051+ful+CHAP0100.

Agency's Response to Economic Impact Analysis: The Department of Taxation agrees with the Department of Planning and Budget's economic impact analysis.

Summary:

The amendments conform the Virginia Soft Drink Excise Tax Regulations to current law and existing administrative procedures regarding the collection of the tax and strike provisions that are no longer accurate due to changes in law and procedures, including affecting provisions for (i) collection of the soft drink excise tax; (ii) return due dates; and (iii) extensions, penalties, and interest charged for failure to timely file or pay the amount of tax due. This regulatory action does not reflect any change in current tax policy.

23VAC10-390-40. Collection.

A. The soft drink excise tax is collected annually by the Department of Taxation. A check payment for the amount of tax, and if applicable, penalty and interest, should shall be made payable to the Department of Taxation and submitted with the properly filed return no later than the due date prescribed in subsection B of this section.

B. Returns are required to shall be filed with the Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282-1880, on or before the statutory original due date (without extension) for filing Virginia individual income tax returns under § 58.1-341 of the Code of Virginia, or if the taxpayer is a corporation, for filing Virginia corporate income tax returns under § 58.1-441 of the Code of Virginia.

1. If taxpayer has an extension of time for filing his income tax return from the Internal Revenue Service, the filing date for the soft drink excise tax may be extended to the same as the federal date plus 30 days. In order to receive an extension of time for filing the return, a request for extension must be made to the Department of Taxation prior to the original due date of the return.

2. If an extension of filing time is granted, interest at the rate established pursuant to Section 6621 of the Internal Revenue Code of 1954, as amended, accrues from the date the return was originally due to be filed to the date of payment.

C. A taxpayer may elect an extension of time within which to file the soft drink excise tax return to the extended due date set forth and in the manner prescribed for filing Virginia individual income tax returns on extension under § 58.1-344 of the Code of Virginia, or if the taxpayer is a corporation, for filing Virginia corporate income tax returns on extension under § 58.1-453 of the Code of Virginia.

1. If the full amount is not paid on or before the original due date, the penalty imposed by subsection D of this section for failure to pay when due the full amount shall apply regardless of whether the taxpayer properly elected to utilize an extension. Interest at the rate established pursuant to § 58.1-15 of the Code of Virginia accrues from the date the return was originally due to be filed to the date of payment.

2. If the return is not filed or the full amount of the tax due is not paid on or before the extended due date elected pursuant to this subsection, the penalty imposed by subsection D of this section for failure to file a return and for late filing shall apply as if no extension had been elected.

D. Subject to the provisions of subdivisions B 1 and 2 subsection C of this section, penalties and interest are imposed for failure to file a return, for late filing, for filing a false or fraudulent return, and for failure to pay when due the full amount of tax as shown on the face of the return and are assessed in the same manner as the income tax penalties imposed under Chapter 3 of Title 58.1 of the Code of Virginia make full payment of the taxpayer's actual tax liability on or before the original return due date.

1. Penalty for failure to pay when due shall be 5.0% of the amount of unpaid tax and assessed in accordance with §§ 58.1-351 and 58.1-455.

2. Penalty for failure to file the return when due is $100 for corporations and 10% of the amount of tax assessable on the return for all others. The penalties shall be assessed in accordance with Sections 58.1-347 and 58.1-450.

3. Penalty for fraud is assessed in accordance with §§ 58.1-348, 58.1-451 and 58.1-452.

4. 1. If the taxpayer is not a corporation, the nature and amount of the penalties imposed by this subsection shall be determined as if the comparable individual income tax penalties under §§ 58.1-347, 58.1-348, and 58.1-351 of the Code of Virginia apply to the soft drink excise tax rather than the individual income tax.

2. If the taxpayer is a corporation, the nature and amount of the penalties imposed by this subsection shall be determined as if the comparable corporate income tax penalties under §§ 58.1-450, 58.1-451, 58.1-452, and 58.1-455 of the Code of Virginia apply to the soft drink excise tax rather than the corporate income tax.

3. Interest is assessed on tax and applicable penalties in accordance with § 58.1-15 of the Code of Virginia.