Capitol Briefs 2021 | Issue 5

Session 2021, Issue 5
February 15, 2021

Last week, the General Assembly technically ended its 2021 Session and immediately began a special session called by Gov. Ralph Northam to provide the extra time normally allotted for a “short” session. Legislative business moved forward as remaining bills were simply moved on to the special session.

We have written a lot about House Bill 1965, which would impose zero emission vehicle (ZEV) mandates in Virginia and require manufacturers to provide increasing percentages of ZEVs to Virginia dealers.

There were major developments for this bill late last week. It was heard in a Senate Commerce and Labor subcommittee late on Friday afternoon. The subcommittee was composed of just five Senators — three Democrats and two Republicans. As you can imagine, those five heard from every interested group in the leadup to the meeting. We are pleased the subcommittee voted to recommend that the full committee approve the bill.

All the while, discussions continued with auto manufacturers to try to reach a consensus on how to adopt the ZEV standards. Early Saturday morning, the two sides agreed to language to adopt the ZEV standards with certain technical compliance details about timing and the credits a manufacturer can receive and use. The full Senate Commerce and Labor Committee will consider this compromise at its meeting on Monday afternoon, February 15.

Our position in support of the ZEV mandates was not the traditional posture of dealer associations. We believe, now more than ever, that the VADA Legislative Committee charted the right course for Virginia dealers. We would not have been in the position to affect the EV issue more broadly had we taken a different position on this bill. HB1965, along with our push for electric-vehicle rebates and support for electrification infrastructure, drove home the point that much more investment is needed on many fronts to make the adoption of EVs in Virginia a success.

The Budget

Also this week, the House and Senate each passed their version of the budget.

• For background, Virginia works on a two-year budget cycle. The budget considered by the General Assembly this year was proposed in December by Gov. Northam. The House Appropriations and Senate Finance and Appropriations Committees consider the proposed budget, and amendments offered by members of the House and Senate, and craft separate spending plans.
• Like all other legislation, the House budget will go to the Senate, and the Senate budget goes to the House. Each chamber will “conform” the others’ budget to theirs – meaning they simply amend it to look like the one they already passed. The House and Senate will each reject the amendments to their budgets and put the bills “in conference” where a small group of legislators will work out a compromise. The “conference report” – the compromise – will them be voted on by both the House and Senate.

This process matters more to us this year than usual for two important reasons:

• Electric Vehicle Incentive Program: As we have been reporting to you, HB1979 would create an electric vehicle rebate program to provide rebates towards the purchase of EVs. This is one in a package of EV bills (more below) that VADA is supporting to spur EV adoption. The House included $5 million in its budget; the Senate provided no funds. It is our hope that a negotiated final budget includes the amount designated by the House.

VADA has been very clear that dealers are supportive of the adoption of electric vehicles, making investments in their businesses and employees to serve public demand for EVs. However, EV demand is not yet strong.

We recognize the transition to EVs will involve the efforts of all the stakeholders, public and private. While we appreciate that the House has included a small sum for this program, we must see a greater commitment to future investments for vehicle purchase rebates. We remain hopeful that we can find additional funding sources for this important piece of the comprehensive plan to increase EV adoption that we know is necessary to ensure we succeed.

• Taxes and PPP: The budget bill includes important federal tax conformity, meaning Virginia’s income tax code is revised to take into account changes in the federal tax code. In this case, the changes relate to the PPP loans received by many Virginia businesses, including dealers.

Normally loan forgiveness, like the kind under the PPP loan program, would result in taxable income to the borrower. The PPP loan program included a provision that any loan amounts that were forgiven for being used for allowable expenses would not be taxable. The program was further clarified the allow borrowers to deduct those expenses paid for with loan proceeds.

The approach taken by the General Assembly at this point is to exclude the loan forgiveness amounts from income, like the PPP program, and only allow a deduction for expenses paid with loan funds up to a certain limit. The debate is between $25,000 and $100,000 of expenses, included in the House and Senate budgets, respectively.

The issue is that the PPP program essentially provided a double tax benefit — a forgiven loan that was 1.) not income and 2.) a deduction for expenses paid by that loan. Any other business would not get both benefits — the company would be taxed on the income and then get to deduct expenses paid for with that income.

The administration did not think it was fair for businesses who got loans that did not count as income to get deductions for spending loan money that was not taxable income. And given the bad press the PPP loan program got about loans to bigger companies, the Democrats are not interested in giving them what is viewed as a double tax benefit. The compromise to allow a limited amount of deductions is what will result. The final amount will be worked out in the budget negotiations.

EV Legislation Package

We are actively working on several measures to advance the adoption of electric vehicles in Virginia:

ZEV Mandates – HB 1965 – Bagby

Requires adoption of California Air Resources Board (CARB) LEV and ZEV mandates.

As noted above, Virginia dealers support the adoption of EVs. They have adapted to changes in their industry for generations, and electric vehicles represent just the latest in a long line of advancements. The adoption of electric vehicles will be achieved, but only with the investment of all parties: manufacturers, dealers, electric utilities, environmental groups, government, and consumers. Virginia dealers are doing their part. Adoption of California Air Resources Board (CARB) ZEV mandates is but a small step that requires significant investments by both the public and private sectors. Because ZEV mandates have the potential to affect dealers most significantly, we must ensure legislators understand the potential adverse impacts. Virginia should only consider ZEV mandates in conjunction with the necessary commitment of resources to assure successful implementation of the regulations without unfair impact on any party, including dealers.

Status: The full Senate Commerce and Labor Committee will consider a bill at its meeting on Monday, February 15.

Electric Vehicle Rebate Program – HB 1979 (Reid)

Establishes a point-of-sale rebate program for EVs.

This bill would provide rebates to reduce the cost of EVs. Currently the bill calls for a $2,000 rebate for the purchase of a new or used EV, along with an additional $2,500 for lower income purchasers. This is a critical part of efforts to spur the adoption of EVs. However, sufficient funding for this program would run into the tens of millions of dollars, and only several million are on the table right now.

Status: To be considered by the Senate Finance and Appropriations Committee. See recent media coverage of the rebate issue in the Virginia Mercury.

EV Infrastructure and Incentives Study – HB 2282 (Sullivan)

Requires the SCC, in cooperation with the Department of Mines, Minerals and Energy and the Department of Environmental Quality, to recommend policy proposals to advance transportation electrification in consultation with a wide list of interested parties, including dealers. 

Status: The full Senate Commerce and Labor Committee will consider a bill at its meeting on Monday, February 15.

Inclusion of Transportation Electrification in VA Energy Plan – SB 1223 (Boyko)

Amends the VA Energy Plan to ensure that the promotion of transportation electrification is considered as a critical component of the plan.

Status: To be considered in the House Labor & Commerce Subcommittee one February 15.

Test Drives – HB 2318 (Roem)

Allows localities to regulate test drives in residential areas.

As originally drafted, the bill would allow a locality to pass an ordinance prohibiting test drives in residential areas. Any driver operating a vehicle on a dealer tag in a residential area would be subject to a traffic infraction. However, the bill could result in police stops on any person driving on a dealer tag in a residential area in a locality that adopts an ordinance, whether or not the person is on a test drive.

We worked with Del. Roem and the City of Manassas Park (which requested the bill), and the proposed measure is now much more limited in its impact on dealers and their customers. Dealers in any locality that adopt an ordinance regarding test drives in an enhanced speed area under §46.2-878.2 (Virginia’s code section on maximum speed limits in residential areas) must give notice of the ordinance and areas to avoid on a test drive. If a customer violates the speed limit or runs a stop sign in that enhanced speed area, the locality may contact the Dealer Board so the Board can determine if the notice was given by the dealer. If so, end of inquiry. If not, the dealer may be subject to a civil penalty by the Board.

The language solves the problem of the potential for anyone driving on a dealer tag to be stopped in a residential area, while also providing for enforcement against a dealer who does not provide the required notice. It also clarifies what a test drive is, making clear it does not include a prospective purchaser who is driving a vehicle to their residence when the dealer allows them to take a vehicle for several days.

We appreciate Delegate Roem’s willingness to address our concerns.

Status: Approved by the Senate Committee on Transportation (8-Y 6-N). Final passage vote this week.

Other Measures We Are Watching:

• Class-action lawsuits: Senate Bill 1180 would allow for state class-action lawsuits, which are currently prohibited under Virginia law. If enacted by the Supreme Court of Virginia, the rules (which would become effective July 1, 2022) would include some provisions of the federal Class Action Fairness Act (CAFA) requested by the business community. This bill appears to be moving forward on a party-line vote. We will update you as we learn more.
• Tax conformity measures to address the tax implications of the proceeds of PPP loans. The administration is proposing that expenses paid for with PPP funds NOT be deductible for state tax purposes. This is different from the federal tax treatment of those expenses.
• COVID-related issues, including sales tax exemptions for PPE and liability protections.
• Employer-related issues, including paid sick leave, equal pay and right to work.
• Consumer data bills. We are working to ensure no new restrictions are placed on dealers in handling their customer information.

As always, it is our pleasure to work for the interests of Virginia dealers at the General Assembly.