Taxes Imposed by Virginia
Corporate Income Tax
- Business Interest Deduction. House Bill 1006 (Chapter 648) amends §§ 58.1-322.03 and 58.1-402 to increase the Virginia individual and corporate income tax deduction for business interest to 30 percent of the business interest disallowed as a deduction under the business interest limitation. Under current law, such deduction is equal to 20 percent of disallowed business interest. This legislation is effective for taxable years beginning on and after January 1, 2022.
- Use of Market-Based Sourcing by Property Analytics Firms. House Bill 453 (Chapter 256) and Senate Bill 346 (Chapter 257) amend § 58.1-416 and add § 58.1-422.4 to allow certain property analytics firms to source sales using market-based sourcing but otherwise following the standard apportionment In general, this legislation is effective for taxable years beginning on and after January 1, 2022.
- Filing of Returns for Affiliated Corporations. House Bill 348 (Chapter 274) amends 58.1- 442 to provide that an affiliated group that has filed on the same basis for at least the preceding 12 years may change the basis of the type of return filed from consolidated to separate or from separate or combined to consolidated if certain conditions are met. Under current law, such group must have filed on the same basis for 20 years. This legislation is effective on July 1, 2022.
- Filing of Returns for Affiliated Corporations That Include a Bank. House Bill 224 (Chapter 416) and Senate Bill 386 (Chapter 417) amend 58.1-442 to provide that an affiliated group of corporations may elect to change the basis of the type of return filed from combined to consolidated, if (1) the affiliated group of which they are members, as it has existed from time to time, has filed on the same basis for at least the preceding 20 years; and (2) on or before January 1, 2022, at least one member of the affiliated group of which they are members is a related entity to a state or national bank that is exempt from filing a Virginia corporate income tax return because it is instead subject to the Virginia Bank Franchise Tax. This legislation is effective for taxable years beginning on and after January 1, 2023 but before January 1, 2025.
- Expansion of Communities of Opportunity Tax Credit. House Bill 402 (Chapter 252) amends 58.1-439.12:04 to expand the Communities of Opportunity Tax Credit to all census tracts located in Virginia in which less than 10 percent of the residents live below the poverty level. The existing credit is limited to census tracts in the Richmond Metropolitan, Virginia Beach-Norfolk-Newport News Metropolitan, and Washington-Arlington-Alexandria Metropolitan Statistical Areas. This legislation is effective on July 1, 2022.
- Major Business Facility Job Tax Credit Sunset Date Extension. House Bill 269 (Chapter 11) and Senate Bill 185 (Chapter 203) amend 58.1-439.2 to extend the sunset date of the Major Business Facility Job Tax Credit, so that it would be effective for taxable years beginning before July 1, 2025.
- Worker Training Credit Extension. House Bill 695 (Chapter 431) amends 58.1-439.6:1 to extend the sunset date of the Worker Training Tax Credit from July 1, 2022 to July 1, 2025 and extend the sunset date of the portion of the Worker Training Tax Credit that is for a business primarily engaged in manufacturing from January 1, 2022 to January 1, 2025.
Individual Income Tax
- Fixed Date Conformity. House Bill 971 (Chapter 3) and Senate Bill 94 (Chapter 19) amend § 58.1-301, 58.1-322.02, 58.1-322.03, and 58.1-402 to advance Virginia’s date of conformity to the Internal Revenue Code from December 31, 2020 to December 31, 2021. This advancement allows Virginia to generally conform to the American Rescue Plan Act. This legislation also changes Virginia’s existing policy with regards to certain COVID-19 business assistance programs. This legislation retroactively allows the up to $100,000 Virginia-specific deduction for Paycheck Protection Program (“PPP”) loan forgiveness recipients to certain fiscal year filers who were previously denied such deduction because it was limited to Taxable Year 2020 only. This legislation retroactively allows the up to $100,000 Virginia-specific subtraction for Rebuild Virginia grant recipients to certain fiscal year filers who were previously denied such subtraction because it was limited to Taxable Year 2020 only. This legislation allows for Taxable Years 2021 and after full deductibility of expenses paid or incurred with forgiven PPP loan proceeds. This legislation allows for Taxable Year 2021 and after full deductibility of expenses paid or incurred with Economic Injury Disaster Loan program funding and funding from certain other COVID-19 business assistance programs.
- SALT Cap Workaround. House Bill 1121 (Chapter 690) and Senate Bill 692 (Chapter 689) amend §§ 58.1-332, 58.1-390.1, and 58.1-390.2 and add § 58.1-390.3 to permit a qualifying pass-through entity (“PTE”) to make an annual election for Taxable Years 2021 through 2025 to pay an elective income tax at a rate of 5.75 percent at the entity level. A corresponding refundable income tax credit for Taxable Years 2021 through 2025 is also allowed for any amount of income tax paid by a PTE having Virginia taxable income if such PTE makes the election and pays the elective income tax imposed at the entity level. The effect of such elective income tax and corresponding refundable credit would be to allow the PTE to pay income tax rather than its owners and, thereby, enact a Virginia PTE workaround to the $10,000 cap on the federal deduction for state and local taxes Because the filing season for Taxable Year 2021 is already under way, no interest would accrue on underpayments or overpayments solely attributable to the delayed election. This legislation allows an individual to claim a credit for similar taxes paid to other states for Taxable Years 2021 through 2025. This legislation is effective for taxable years beginning on and after January 1, 2021, but before January 1, 2026.
- One-time Tax Refunds. House Bill 30, Item 3-5.22 allows one-time tax refunds of $250 for individuals and $500 for married persons filing a joint These refunds will be issued in general by October 17, 2022. Each refund is limited to the amount of such taxpayer’s tax liability after the application of any deductions, subtractions, or credits to which the taxpayer is entitled.
- Standard Deduction Increase. House Bill 30, Item 4-14(6) amends 58.1-322.03 to provide for an increase in the standard deduction for individual income tax (assuming the certain revenue growth levels are met) from $4,500 to $8,000 for individuals and from $9,000 to $16,000 for married persons filing a joint return. The increases are effective for taxable years 2022 through 2025.
- Military Benefits Subtraction Increase. House Bill 30, Item 4-14(17) amends 58.1-322.03 to create a $40,000 tax exemption for pensions of veterans who are 55 and older that will be phased in over a four-year period. The phase-in will begin in taxable year 2022.
- Virginia Housing Opportunity Tax Credit House Bill 30, Item 4-14(9) amends 58.1-439.30 to make numerous changes to the Virginia housing opportunity tax credit. Those changes are as follows:
- The credit will be allowed ratably for each qualified project, with one-tenth of the credit amount allowed annually for 10 years over the credit period with other adjustments.
- The total amount of credits issued in a calendar year may not exceed $60 million, unless the amount of credits authorized in the previous calendar year for qualified projects is less than the total amount of credits available and the balance of such credits is an amount not greater than 15 percent of the amount of credits available. If the amount of credits authorized in the previous calendar year meet these requirements then they may be allocated in the current calendar year.
- The aggregate amount of credits authorized will not exceed $255 million across all calendar years.
- Refundable Income Tax Credit for Low-Income Taxpayers. House Bill 30, Item 4-14(3) amends § 58.1-339.8 to allow taxpayers claiming the federal earned income tax credit to claim a refundable Virginia income tax credit for up to 15% of the federal earned income tax credit. This refundable credit is in lieu of the current nonrefundable credits currently authorized. This new refundable credit is permitted to be claimed beginning in taxable year 2022 through taxable year 2025.
- Study of Virginia’s Individual Income Tax. House Bill 30, Item 1Q establishes a Joint Subcommittee to study state tax Specifically, the Joint Subcommittee is directed to
- Evaluate the fiscal impact of amendments to tax brackets, tax rates, credits, deductions, and exemptions, as well as any other factors it deems relevant to making Virginia’s individual income tax system more fair and equitable;
- Give consideration to the fairness, certainty, convenience of payment, economy in collection, simplicity, neutrality, and economic efficiency of the Commonwealth’s tax policies and any changes thereto; and
- Recommend whether the General Assembly should amend the Code of Virginia.
Retail Sales and Use Tax
- Retail Sales and Use Tax on Food House Bill 30, Item 4-14(5) amends § 58.1-611.1 to eliminate the state portion of the sales tax on food. Currently, the total retail sales tax on food is 2.5% with 1.5% being the state portion and 1% being the local portion. This elimination is effective on January 1, 2023.
- Accommodations Intermediaries Remittance. House Bill 518 (Chapter 7) and Senate Bill 651 (Chapter 640) amend §§ 58.1-602, 58.1-612.2, and 58.1-3826 to change the process by which the Retail Sales and Use Tax (“RSUT”) and transient occupancy taxes are collected from accommodations sales involving accommodations intermediaries. The legislation requires accommodations intermediaries to collect sales and occupancy taxes and remit them to the Department of Taxation or a locality, as applicable, eliminating the requirement to remit any portion to the hotel. The bill also provides that in a transaction involving multiple parties that may be considered accommodations intermediaries, such parties may agree that one party shall be responsible for collecting and remitting the taxes. In such event, the party agreeing to collect and remit such taxes would be the sole party liable for the tax. The legislation also requires intermediaries to submit to a locality each month the property addresses and gross receipts for all accommodations facilitated by the intermediary in such locality. This legislation broadens the definition of “accommodations intermediary” for purposes of the RSUT and transient occupancy taxes to include any accommodations facilitator that collects a room charge from the customer or charges a fee, other than an accommodations fee, to the customer, which fee it retains as compensation for facilitating the sale. The legislation also amends the definition of “room charge” for purposes of the RSUT to no longer require that an accommodations intermediary be the entity charging the customer full retail price for use of the accommodations, and would clarify that a room charge includes any fee, other than an accommodations fee, charged to the customer and retained as compensation for facilitating the sale. This legislation is effective on October 1,
- Accommodations Intermediaries Definition. Senate Bill 432 (Chapter 154) amends § 58.1- 602 to provide that for purposes of the Retail Sales and Use Tax on accommodations, the term “accommodations” does not include rooms or space offered by a person in the business of providing conference rooms, meeting space, or event space if the person does not also offer rooms available for overnight The legislation also provides that nothing in the definitions of “retail sale” and “sale at retail” require or have required, in any year prior to the effective date of the bill, the collection of any tax for the offering of rooms or space by a person in the business of providing conference rooms, meeting space, or event space if the person does not also offer rooms available for overnight sleeping. While the terms of this legislation is retroactively effective to September 1, 2021, taxpayers are not entitled to a refund of taxes remitted prior to July 1, 2022.
- Pollution Control Exemption. House Bill 148 (Chapter 14) amends § 58.1-609.3 and 58.1- 3660 to provide that, for purposes of the Retail Sales and Use Tax exemption and property tax exemption, pollution control equipment used as part of a political subdivision’s water, wastewater, stormwater, or solid waste management facilities or systems, such equipment may be certified by the political subdivision itself instead of by a state certifying authority. This legislation is effective on July 1, 2022.
- Exemption for Veterinarian Medicine. House Bill 551 (Chapter 551) and Senate Bill 517 (Chapter 552) amend § 58.1-609.10 to exempt veterinarians from Retail Sales and Use Tax on their purchases of prescription medicines and drugs that are administered or dispensed to patients within a veterinarian-client-patient relationship beginning July 1, 2022, and ending July 1, 2025.
- Exemption for Internet-related Equipment. House Bill 1155 (Chapter 434) and Senate Bill 683 (Chapter 435) amend § 58.1-602 and 58.1-609.6 to expand the sales tax exemption for amplification, transmission, and distribution equipment used to provide Internet services to include network equipment used to provide Internet service, regardless of whether the provider of such service is also a telephone common carrier or whether such network is also used to provide services other than Internet services. This legislation is effective on July 1, 2022.
- Exemption for Gold, Silver, and Platinum Coins. House Bill 936 (Chapter 643) amends § 58.1-609.1 to extend the sunset date for the exemption from the Retail Sales and Use Tax for sales of gold, silver, and platinum bullion and legal tender coins until June 30, 2025 and to remove the limitation that only purchases in excess of $1,000 are eligible for the This legislation is effective on July 1, 2022.
- Exemption for Gold, Silver, and Platinum Coins. House Bill 3 (Chapter 12) and Senate Bill 26 (Chapter 634) amend § 58.1-609.1 to extend the sunset date for the exemption for purchases of gold, silver, and platinum coins from June 30, 2022 to June 30, 2025.
- Exemption for Aircraft Components. House Bill 462 (Chapter 8) and Senate Bill 701 (Chapter 228) amend § 58.1-609.10 to extend from July 1, 2022 to July 1, 2025 the sunset date for the Retail Sales and Use Tax exemption for parts, engines, and supplies used for maintaining, repairing, or reconditioning aircraft or any aircraft’s avionics system, engine, or component parts.
- Exemption for Purchase of Printing Materials by Advertising Businesses. Senate Bill 101 (Chapter 481) amends 58.1-609.6 to extend the sunset date for the Retail Sales and Use Tax exemption allowed for the purchase of printing materials by advertising businesses when the printed material is distributed outside the Commonwealth to July 1, 2025 from July 1, 2022.
- Tax Assessments. House Bill 1083 (Chapter 202) amends § 58.1-1812 to require the Department of Taxation to identify on assessments for omitted tax the date the initial tax return or payment was received by the Department, any payment amounts received from the taxpayer, and an explanation of the taxes, penalties, and interest related to such assessment. This legislation is effective on January 1, 2023.
Taxes Imposed by Local Governments
Real Property Taxes
- Data Center Fixtures. House Bill 791 (Chapter 671) and Senate Bill 513 (Chapter 672) amend 58.1-3500 and add § 58.1-3295.3 to provide that if a locality taxes certain fixtures located in a data center as real property, the fixtures will be valued based on depreciated reproduction or replacement cost. This legislation is effective on July 1, 2022.
- Sale for Delinquent Taxes. House Bill 298 (Chapter 15) and Senate Bill 142 (Chapter 713) amend § 58.1-3970.1 to authorize localities to have a special commissioner appointed to convey certain real estate having delinquent taxes or liens to the locality’s land bank entity or to an existing nonprofit entity designated by the locality to carry out the functions of a land bank entity. This legislation is effective on July 1, 2022.
- Assessment Cycles. House Bill 951 (Chapter 361) and Senate Bill 77 (Chapter 362) amend 58.1-3252 to authorize counties to reassess real estate every three years if determined by a majority vote of the county’s board of supervisors. This legislation is effective on July 1, 2022.
- Fair Market Value of Affordable Housing. House Bill 400 (Chapter 624) amends § 58.1- 3295 to include the federal Rental Assistance Program in the consideration when determining fair market value of affordable housing. This legislation is effective on July 1, 2022.
- Delinquent Taxes and Land Use. House Bill 199 (Chapter 663) amends 58.1-3235 to allow a locality, by ordinance, to provide that a parcel of real property that is specially assessed for land use shall not be removed from the land use taxation program for delinquent taxes owed on the property if such taxes are paid by December 31 of the year in which the taxes became delinquent. The legislation also provides that no parcel of real property will be removed from the land use taxation program for delinquent taxes if (i) such taxes become delinquent during a state of emergency declared by the Governor, (ii) the treasurer determines that the emergency has caused hardship for the taxpayer, and (iii) the taxes are paid no later than 90 days after the original deadline for removal from the land use program for delinquent taxes. This legislation is effective on July 1, 2022.
- Land Use Assessment: Multiple Owners. House Bill 996 (Chapter 314) amends 58.1-3234 to allow the owner of a majority interest in an undivided parcel of real estate that is eligible for land use assessment to file an application on behalf of himself and for owners of any minority interest. This legislation is effective on July 1, 2022.
- Land Use Assessment Forms. House Bill 238 (Chapter 111) amends § 58.1-3234 to provide that the forms used for revalidation of applications for land use assessment where the acreage or use of the land has changed will be prepared by the Department of Taxation. This legislation is effective on July 1, 2022.
- Notice Requirements. House Bill 1010 (Chapter 29) amends § 58.1-3321 to amend the notice provisions applicable to public hearings required when a county, city, or town seeks to impose a real property tax rate that would produce more than 101 percent of the amount of real property taxes collected for the previous In a locality that conducts its reassessment more than once every four years, the notice for the public hearing would be required to be published on a different day and in a different notice from any notice published for the annual budget hearing. This legislation is effective on July 1, 2022.
Tangible Personal Property Tax and Machinery and Tools Tax
- Separate Class of Property for Solar Facilities. Senate Bill 686 (Chapter 496) amends 58.1- 3661 to create a separate class of property for local taxation for any solar facility with a nameplate rated electrical generating capacity measured in direct current kilowatts of not more than 25 kilowatts installed on the roof of a residential, commercial, industrial, institutional, or mixed-use building or buildings to serve the electricity or thermal needs of such building or property, provided the installation follows all applicable local zoning rules. This legislation is effective on January 1, 2023.
- Exemption for Solar Projects. House Bill 1087 (Chapter 492) and Senate Bill 502 (Chapter 493) add § 58.1-2606.1 to expand the current local property tax exemption for pollution control equipment and facilities applicable to solar photovoltaic projects with a generating capacity of five megawatts or less that have filed an initial interconnection request form with an electric utility or a regional transmission organization on or after January 1, 2019 to all solar photovoltaic projects with a generating capacity of five megawatts or less. This legislation is effective on July 1, 2022.
- Pollution Control Exemption. House Bill 148 (Chapter 14) and Senate Bill 684 (Chapter 501) amend §§ 58.1-609.3 and 58.1-3660 to provide that, for purposes of the retail sales and use tax exemption and property tax exemption, pollution control equipment used as part of a political subdivision’s water, wastewater, stormwater, or solid waste management facilities or systems, such equipment may be certified by the political subdivision itself instead of by a state certifying authority. This legislation is effective on July 1, 2022.
- Vehicle Classification. House Bill 1239 (Chapter 30) and Senate Bill 771 (Chapter 578) amend 58.1-3506 to create a new class of tangible personal property for rate purposes. This class includes most automobiles, passenger trucks, motor vehicles with specially designed equipment for use by the handicapped, motorcycles, mopeds, all-terrain vehicles, and off- road motorcycles, campers, and other recreational vehicles. Localities have the option to assign a rate of tax or rate of assessment to this class different from the rate applicable to the general class of tangible personal property. This legislation is effective for taxable years beginning on or after January 1, 2022, but before January 1, 2025.
- Vehicle Registration for Personal Property Tax Relief. House Bill 693 (Chapter 237) amends 46.2-623 to require the application for vehicle registration to include any additional information necessary to determine if a vehicle is a qualifying vehicle for the purpose of personal property tax relief. This legislation is effective on July 1, 2022.
- Motorcycle Valuation. House Bill 1231 (Chapter 655) amends 58.1-3503 to provide that in any locality in which the Commissioner of Revenue or other assessing official adjusts the valuation of automobiles to account for the amount of mileage accrued on a vehicle, such adjustment shall also be provided for motorcycles. This legislation is effective on July 1, 2022.
Business License Taxes
- Bank Directors. House Bill 1084 (Chapter 659) and Senate Bill 385 (Chapter 660) amend 58.1-3703 to prohibit a locality from imposing a license tax on a director of a bank or trust company that is subject to the bank franchise tax. This legislation is effective on July 1, 2022.
- Tax Credit for Volunteer Activities. House Bill 911 (Chapter 773) adds § 58.1-3019 to permit any county, city, or town to provide a credit against taxes and fees imposed by the locality to an individual who provides approved volunteer services in the However, the credit may not be applied against any property taxes or payments in lieu of property taxes. The legislation gives localities discretion to determine which taxes or fees are permissible uses of the credit and which services qualify for the credit. This legislation is effective on July 1, 2022.
- Cigarette Tax: Unsold Inventory. House Bill 1076 (Chapter 224) and Senate Bill 25 (Chapter 223) amend §§ 58.1-3830 and 58.1-3832.1 to require any locality that increases its cigarette tax rate to allow, for one calendar year after the increase, a person with unsold inventory to pay the tax increase on the unsold inventory by filing a return, rather than requiring the use of a stamp or meter impression. The return must identify the amount of unsold inventory, the amount of tax paid on such unsold inventory, and the amount of tax due as a result of the tax rate increase. The return will be due six calendar months after the effective date of the tax rate increase. The same requirement is also imposed on regional cigarette tax boards. This legislation is effective on July 1, 2022.
- Tobacco Products Tax: Remote Sales. House Bill 1199 (Chapter 779) and Senate Bill 748 (Chapter 738) amend §§ 58.1-1021.01, 58.1-1021.02, 58.1-1021.04, 58.1-1021.04:01, and 58.1-1021.04:02, and add 58.1-1021.02:2 to require remote retail sellers to be licensed and to collect and remit the Tobacco Products Tax based on the actual price paid by the remote retail seller for each individual stock keeping unit. This legislation also clarifies the provisions of the Tobacco Products Tax on cigars and pipe tobacco sold by “remote retail sellers” to consumers in the Commonwealth. This legislation is effective on July 1, 2022. Both pieces of legislation have not been adopted as the Governor has proposed technical amendments.
- Challenging Local Tax Assessments in Court. House Bill 226 (Chapter 358) amends 58.1- 3984 to change the procedures for taxpayer appeals of local tax assessments to the circuit court by clarifying (i) that the necessary parties in such a proceeding are the taxpayer and the locality; (ii) the proper form of naming the locality in the pleadings; and (iii) that when rebutting the presumption of correctness accorded the locality’s assessment, the taxpayer may show by a preponderance of the evidence that the property in question was assessed at more or less than its fair market value. This legislation is effective on July 1, 2022.
- Refunds of Local Taxes. House Bill 368 (Chapter 286) amends 58.1-3981 to increase from $5,000 to $10,000 the maximum amount the governing body of a locality may authorize its treasurer to approve and issue for a refund of taxes paid as a result of an erroneous tax assessment. This legislation is effective on July 1, 2022.
This document is only intended to be a summary of enacted legislation from the 2022 sessions of the Virginia General Assembly. Please do not rely solely on this document. If you have any questions regarding this legislation or any other tax matter, please contact:
J. Christian Tennant
Commonwealth Tax Law
P.O. Box 29980
Richmond, Virginia 23242