GOVERNOR'S VETO

Pursuant to Article V, Section 6 of the Constitution of Virginia, I veto Senate Bill 517, eliminating tax exemptions for specific organizations. 

The Commonwealth should pass necessary reforms regarding exemptions from local property and recordation taxes.

Historically, the Constitution of Virginia permitted the General Assembly to grant exemptions from local taxation to specific nonprofit organizations through classification or designation, with a three-fourths vote in each house. In 2003, a constitutional amendment altered the process to ordinance-based exemptions, but those established before January 1, 2003, remained in force. 

The property tax exemption by designation is ripe for reform, delineated by inconsistencies and discrepancies. Specific civic associations and for-profit businesses are exempted, while others are not. Among these groups, some organizations have titles offensive in contemporary discourse, such as outdated references to the intellectually or developmentally disabled; some organizations reference political affiliations and engage in political contributions like the Ocean View Democratic and Social Club, and others are historical societies whose lineage is connected to contentious periods such as the Civil War, illustrated by the United Daughters of the Confederacy. 

A more effective approach to reform would involve broad-based measures, allowing local governments autonomy in determining tax exemptions and considering the locality's tax base and deed transfers. These considerations would be permitted when a county or city sets its real estate tax levy, helping to reduce effective tax increases through assessments. 

Narrowly targeting specific organizations to gain or lose such tax exemptions sets an inappropriate precedent. Initially, the General Assembly granted exemptions through a three-quarter vote of both houses, but now, a simple majority can revoke them. Choosing winners and losers is imprudent and undermines the tax system's fairness. 

Unfortunately, the General Assembly rejected my recommendations, which would have accomplished broad-based reform to address the issue of tax exemptions effectively. 

Accordingly, I veto this bill.

GOVERNOR'S RECOMMENDATION

1. After line 255, enrolled

insert

3. That the Department of Taxation (the Department) shall study (i) exemptions to the state recordation tax and the effect of such exemptions on state government revenues and (ii) exemptions to real and personal property tax by classification or designation prior to and on July 1, 1971, and the effect of such exemptions on local government revenues. The Department shall submit a report to the Chairs of House Committee on Finance and the Senate Committee on Finance and Appropriations by November 1, 2024.

4. That the provisions of the first and second enactments of this act shall not become effective unless reenacted by the 2025 Session of the General Assembly.