The new Federal Tax Cut and Job Act passed by Congress in 2017 meant tax cuts for the majority of Virginians and is credited with fueling economic growth across the country. However, state taxes in Virginia will increase unless the Governor and General Assembly act to conform the Virginia tax code to the Federal tax code.
For administrative simplicity, most states conform to the federal code in some way for defining taxable income. These states tie their state tax code into the federal code so that changes enacted by Congress are "leveled out" automatically in the states.
In our case, the General Assembly normally votes to conform our tax code to the Federal Tax Code (part of the Chamber’s legislative agenda). But, the General Assembly did not act during the 2018 session to conform to the changes in the Trump tax cut.
If lawmakers do nothing, the state will collect more than $500 million in additional revenue. Without action by the General Assembly the definition of taxable income in Virginia (the tax base) will be larger, while rates are unchanged. Without legislative action we will be paying more to the Commonwealth and by some estimates it could be as much as 20% of the new federal tax cuts depending on tax brackets and deductions.
The 2017 Federal tax cuts are credited with the increase in economy activity seen across the country. The same economic benefit would be seen in Virginia if this money stays in the hands of individuals and businesses but Governor Northam is already talking about what to do with this new money and not about returning it to the people of Virginia.
The Chamber has written the Governor urging him to call a special session and deal with tax conformity before the year ends and people begin filing their 2018 tax returns. If there is no special session and the General Assembly passes tax reform in 2019 that legislation would not take effect until July 1, 2019. Read the Chamber’s letter here. You can contact the Governor and ask for tax conformity by clicking here.