by Margaret Eisler, Esq.
Virginia Governor Glenn Youngkin signed legislation enacting the state budget for the 2022-2024 biennium. The bill eliminates the state tax on groceries beginning in 2023, provides an individual income tax rebate, increases standard deduction amounts for tax years 2022 through 2025 contingent on certified annual revenue growth, enacts a subtraction for certain military retirement income, enacts an optional refundable earned income tax credit, modifies housing opportunity tax credit provisions and sets maximum caps, and extends several sales and use tax exemptions. The bill advances Virginia conformity to the federal Internal Revenue Code as in effect on December 31, 2021, with limited exceptions. The bill re-enacts provisions relating to intangible company addback, ABLE savings trust account contributions, discounts and allowances, sales tax exemption for internet service providers, Stafford County admissions tax, recordation fees, the provider coverage assessment, the annual vehicle registration fee, and the cigarette tax, tobacco products tax and liquid nicotine tax. Sunset dates for credits and exemptions are addressed, as well as limitations on the land preservation tax credit, neighborhood assistance tax credit, historic rehabilitation tax credit, and food crop donation tax credit. (L. 2022, H30 (1st S.S.) (c. 2), effective 07/01/2022.)
State tax on groceries eliminated.
On and after January 1, 2023, no state sales tax on food purchased for human consumption or essential personal hygiene products can be imposed. Local taxes are not eliminated.
Individual income tax rebate.
In addition to any refund due pursuant to Va. Code Ann. § 58.1-309, for taxable years beginning on and after January 1, 2021, but before January 1, 2022, an individual filing a return on or before November 1, 2022, or married persons filing a joint return on or before November 1, 2022, will be issued a refund in an amount up to $250 for an individual, or $500 for married persons filing a joint return. The refund will only be up to the amount of tax liability after the application of any deductions, subtractions, or credits. A refund will be subject to collection under the provisions of the Setoff Debt Collection Act.
Refunds for taxpayers who file a return before July 1, 2022, will be issued on or after July 1, 2022, but before October 17, 2022. Refunds for taxpayers who file a return on or after July 1, 2022, will be issued on or after July 1, 2022, but no later than four months after the return is filed. No interest will be paid on any of these refunds.
Standard deduction amounts increased.
For taxable years beginning on and after January 1, 2022, but before January 1, 2026, the standard deduction is $8,000 for single individuals and $16,000 for married persons (one-half of such amounts in the case of a married individual filing a separate return).
The increase will take effect for the 2022 tax year contingent on the Tax Department certifying annual revenue growth, adjusted for the impact tax policy changes, of at least 5% for the 6-month period of July 2022 through December 2022; if the 5% growth rate is not met, the standard deduction for taxable year 2022 will be $7,500 for single individuals and $15,000 for married persons.
The increase will take effect for the 2023 tax year contingent on the Tax Department certifying annual revenue growth, adjusted for the impact tax policy changes, of at least 5% for the 12-month period of July 2022 through June 2023; if the 5% growth rate is not met, the standard deduction for taxable year 2023 will be $7,500 for single individuals and $15,000 for married persons.
Subtraction for military retirement income.
The bill enacts a subtraction for certain military benefits received by an individual age 55 or older for specified periods in the following amounts: for taxable years beginning on and after January 1, 2022, but before January 1, 2023, up to $10,000 of military benefits; for taxable years beginning on and after January 1, 2023, but before January 1, 2024, up to $20,000 of military benefits; for taxable years beginning on and after January 1, 2024, but before January 1, 2025, up to $30,000 of military benefits; and for taxable years beginning on and after January 1, 2025, up to $40,000 of military benefits.
“Military benefits” means any military retirement income received for service in the Armed Forces of the United States, qualified military benefits received pursuant to IRC § 134, benefits paid to the surviving spouse of a veteran of the U.S. Armed Forces under the Survivor Benefit Plan program established by the U.S. Department of Defense, and military benefits paid to the surviving spouse of a veteran of the U.S. Armed Forces.
No subtraction will be allowed if a credit, exemption, subtraction, or deduction is claimed for the same income pursuant to any other provision of Virginia or federal law.
Low income tax credits.
Applicable to taxable years beginning on and after January 1, 2022, the bill provides that the low income tax credit under Va. Code Ann. § 58.1-339.8(B)(1) and the earned income tax credit under Va. Code Ann. § 58.1-339.8(B)(2) are nonrefundable credits, and enacts a refundable earned income tax credit under Va. Code Ann. § 58.1-339.8(B)(3) that can be claimed in lieu of those credits by any individual or married persons eligible for a tax credit pursuant to IRC § 32 in an amount equal to 15% of the credit claimed by the individual or married persons for federal individual income taxes pursuant to IRC § 32 for the taxable year, for tax years beginning on and after January 1, 2022, but before January 1, 2026.
Housing opportunity tax credit.
A housing opportunity tax credit will be allowed for each qualified project for each year of the credit period, in an amount up to the amount of federal low-income housing tax credit allocated or allowed to the qualified project. 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, except that there will be a reduction in the tax credit allowable in the first year of the credit period due to the calculation in IRC § 42(f)(2) and any reduction by reason of IRC § 42(f)(2) in the credit allowable for the first taxable year of the credit period will be allowable for the first taxable year following the credit period.
Any housing opportunity tax credit amounts authorized in a calendar year that are subsequently canceled and returned to the Virginia Housing Development Authority, or recaptured or disallowed, may be awarded in the following calendar year, but no later than December 31, 2025. If the amount of credits authorized in a calendar year for qualified projects is less than the total amount of credits available for qualified projects, the balance of such credits, in an amount not greater than 15% of the amount of credits available for qualified projects will be allocated by the Authority for any qualified project in the following calendar year, will not be allocated at any time after such following calendar year, and will be allocated no later than December 31, 2025. If a housing opportunity tax credit has been awarded according to this provision prior to January 1, 2026, such credit may continue to be claimed on a return for taxable years on and after January 1, 2026, but only pursuant to the applicable credit specified in the law. 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, except that there will be a reduction in the tax credit allowable in the first year of the credit period due to the calculation in IRC § 42(f)(2) and any reduction by reason of IRC § 42(f)(2) in the credit allowable for the first taxable year of the credit period will be allowable for the first taxable year following the credit period.
The total amount of housing opportunity tax credits authorized for qualified projects cannot exceed $15 million for calendar year 2021. For calendar years 2022 through 2025, the total amount of housing opportunity tax credits authorized for qualified projects cannot exceed $60 million per calendar year. The aggregate amount of housing opportunity tax credits authorized for all qualified projects cannot exceed $255 million across all calendar years.
Food crop donation tax credit.
The credit for food crop donations will remain in effect through the tax year beginning on January 1, 2022.
Neighborhood assistance tax credit.
In order to be eligible to receive an allocation of neighborhood assistance tax credits, at least 50% of the persons served by the neighborhood organization, either directly by the neighborhood organization or through the provision of revenues to other organizations or groups serving such persons, must be low-income persons or eligible students with disabilities and at least 50% of the neighborhood organization’s revenues must be used to provide services to low-income persons or to eligible students with disabilities, either directly by the neighborhood organization or through the provision of revenues to other organizations or groups providing such services. A tax credit will be issued by the Superintendent of Public Instruction or the Commissioner of Social Services to an individual only upon receipt of a certification made by a neighborhood organization to whom tax credits were allocated for an approved program.
For fiscal year 2023 and fiscal year 2024, the amount of the Neighborhood Assistance Act tax credit available will be limited to $20 million allocated as follows: $12.0 million for education proposals for approval by the Superintendent of Public Instruction and $8.0 million for all other proposals for approval by the Commissioner of the State Department of Social Services.
Limitation—historic rehabilitation tax credit.
Effective for taxable years beginning on and after January 1, 2017, the amount of the historical rehabilitation tax credit that may be claimed by each taxpayer, including amounts carried over from prior taxable years, must not exceed $5 million for any taxable year.
Limitation—land preservation tax credit.
Effective for taxable years beginning on and after January 1, 2017, but before January 1, 2023, the amount of the land preservation tax credit that may be claimed by each taxpayer, including amounts carried over from prior taxable years, must not exceed $20,000.
Intangible holding company addback.
With regard to the intangible holding company addback, the exception for income that is subject to a tax based on or measured by net income or capital imposed by Virginia, another state, or a foreign government will be limited to and apply only to the portion of income received by the related member that owns the intangible property that is attributed to a state or foreign government where the related member has sufficient nexus to be subject to such taxes; and the exception for a related member deriving at least one-third of its gross revenues from licensing to unrelated parties will be limited and apply to the portion of income received by the related member that owns the intangible property and derived from licensing agreements which the rates and terms are comparable to the rates and terms of agreements that the related member has entered into with unrelated entities.
Deduction for ABLE account contributions.
An individual is allowed a deduction from Virginia adjusted gross income for an amount contributed to an ABLE savings trust account entered into with the Virginia College Savings Plan. The deductible amount is limited to $2,000 per ABLE savings trust account and no deduction is allowed if contributions are deducted on the contributor’s federal income tax return. If the contribution to an ABLE account exceeds $2,000 the remainder can be carried forward and subtracted in future years until the ABLE savings trust contribution is fully deducted. An ABLE contributor who is at least 70 years old is not subject to the $2,000 limitation and can deduct the full amount contributed to an ABLE savings trust account, less any amounts previously deducted. Any deduction taken is subject to recapture in the taxable year or years in which distributions or refunds are made for any reason other than to pay qualified disability expenses or the beneficiary’s death.
Sales tax holiday.
The retail sales and use tax exemption holidays applicable to Energy Star or Watersense qualified products, school supplies, clothing and footwear, and certain hurricane preparedness equipment will remain in effect through July 1, 2023.
Sales and use tax exemption for internet service providers.
Any exemption from sales and use tax applicable to production, distribution and other equipment used to provide internet access services by providers of internet service must be made as a refund request to the Tax Commissioner.
Sales tax and use tax exemption for federally funded research and development.
Tangible personal property purchased by a federally funded research and development center sponsored by the U.S. Department of Energy will be exempt from the retail sales and use tax.
Sales and use tax exemption for certain drilling equipment.
The retail sales and use tax exemption applicable to raw materials, fuel, power, energy, supplies, machinery or tools or repair parts or replacements, used directly in the drilling, extraction, or processing of natural gas or oil and the reclamation of the well area will remain in effect through July 1, 2023.
Sales and use tax exemption for donated education materials.
The sales and use tax exemption applicable to textbooks and other educational materials that are donated will remain in effect through July 1, 2023.
Discounts and allowances.
The compensation allowed under Va. Code Ann. § 58.1-622 will be suspended for any dealer required to remit sales and use tax by electronic funds transfer (EFT) pursuant to Va. Code Ann. § 58.1-202.1. For dealers not required to remit by EFT, the compensation will be limited to the following percentages of the first 3% of the sales and use tax levied: monthly taxable sales $0 to $62,500 – 1.6%; monthly taxable sales $62,501 to $208,000 – 1.2%; and monthly taxable sales $208,001 and above – 0.8%.
Admissions tax.
The County of Stafford is authorized to impose a tax on entertainment venue admissions for an entertainment venue that is: licensed to do business in the county for the first time on or after July 1, 2015; requires at least 75 acres of land for its operations; and the land is purchased or leased by the entertainment venue owner on or after June 1, 2015. The tax cannot exceed 10% of the amount of charge for venue admission.
Sunset dates for income tax credits and sales and use tax exemptions.
The Virginia General Assembly may not advance the sunset date of any existing sales tax exemption or credit beyond June 30, 2025. Any new sales tax exemption or tax credit enacted by the General Assembly after the 2019 regular legislative session, but prior to the 2024 regular legislative session, will not have a sunset date later than June 30, 2025. However, this requirement will not apply to tax exemptions administered by the Department of Taxation under Va. Code Ann. § 58.1-609.11, relating to exemptions for nonprofit entities, exemptions or tax credits with sunset dates after June 30, 2022, enacted or advanced during the 2016 Session of the General Assembly, or to the Motion Picture Production Tax Credit.
Cigarette tax, tobacco products tax and tax on liquid nicotine.
On or after July 1, 2020, the cigarette tax is 3¢ on each cigarette sold, stored or received, and the tobacco products tax in effect on June 30, 2020 is doubled. Virginia imposes a tax on liquid nicotine at the rate of $0.066 per milliliter. Beginning January 1, 2021, Virginia imposes tax on any heated tobacco product at the rate of 2.25¢ per stick. For purposes of the tobacco products tax, a distributor will be deemed to have sufficient activity within Virginia to require registration if a distributor: receives more than $100,000 in gross revenue, or other minimum amount as may be required by federal law from sales of tobacco products in Virginia in the previous or current calendar year, provided that in determining the amount of a dealer’s gross revenue, the sales made by all commonly controlled persons will be aggregated; or engages in 200 or more separate tobacco products sales transactions, or other minimum amount as may be required by federal law, in Virginia in the previous or current calendar year, provided that in determining the total number of a dealer’s retail sales transactions, the sales made by all commonly controlled persons will be aggregated.
Recordation tax fee.
A $20 fee is assessed on: (1) every deed for which the state recordation tax is collected pursuant to Va. Code Ann. § 58.1-801(A) and Va. Code Ann. § 58.1-803; and (2) every certificate of satisfaction admitted under Va. Code Ann. § 55.1-345.
Provider coverage assessment.
The coverage assessment amount on private acute care hospitals is the non-federal share of the full cost of expanded Medicaid coverage times 1.02.
Annual vehicle registration fee.
The additional fee that will be charged and collected at the time of registration of each pickup or panel truck and motor vehicle will be $6.25.
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