Virginia’s General Assembly Enacts New Tax Legislation in 2023 (Chart Included)

CORPORATE INCOME TAXES

1.

Fixed Date Conformity. House Bill 1595 and Senate Bill 882 amend Va. Code § 58.1-301 by advancing Virginia's date of conformity with the Internal Revenue Code from December 31, 2021, to December 31, 2022. The legislation will allow Virginia to conform to the Inflation Reduction Act of 2022, as well as the tax-related provisions contained in the Consolidated Appropriations Act of 2023.

2.

Filing Method for Affiliated Corporations. House Bill 1405 and Senate Bill 796 amend the requirements under Va. Code § 58.1-442 for an affiliated group to elect to change its corporate income tax filing status by removing the requirement that its tax liability for the previous tax year not be decreased by its change in filing status. The legislation retains all other current requirements regarding changing an affiliated group’s filing status, including the requirement that the affiliated group agree to file returns under both the new filing method and the former method and pay the greater of the two amounts for the taxable year in which the new election is effective and for the immediately succeeding taxable year. This legislation is effective for all applications filed on or after July 1, 2023.

Apportionment for Internet Root Infrastructure Providers. House Bill 1481 amends Va. Code § 58.1-416 and adds Va. Code § 58.1-422.5 by requiring that an internet root infrastructure provider that meets certain criteria and chooses to enter into a memorandum of understanding with the Virginia Economic Development Partnership Authority to use a hybrid sales factor in its income apportionment calculations when filing Virginia corporate income tax returns. For sales other than sales of tangible personal property, the hybrid sales factor would use a market-based sourcing rule for sales of services and the standard cost of performance rule for all other non-service sales. This legislation is effective for taxable years beginning on and after January 1, 2023, provided that the Provider and the Authority enter into an MOU no later than December 1, 2023.

4.

Apportionment for Retail Companies. House Bill 1978 and Senate Bill 1346 amend Va. Code § 58.1-422.1 by allowing an affiliated group of corporations with 80% or more of their sales derived from retail company activities to apportion all their income using the single sales factor on a Virginia consolidated return. Under current law, such affiliated groups must use a combination of single sales factor apportionment and three factor apportionment to determine their income subject to Virginia corporate income tax if they contain at least one member that is not a retail company. This election is effective in years during which the 80% or more of sales test is met, and once made, the election cannot be changed without permission from the Department of Taxation. This legislation is effective for taxable years beginning on and after January 1, 2023.

PASS-THROUGH ENTITY TAXES

5.

Pass-Through Entity Tax Election. House Bill 1456 and Senate Bill 1476 amend Va. Code §§ 58.1-390.1 and 58.1-390.23 by making the following changes to Virginia’s pass-through entity tax election: The legislation (1) removes the requirement that to qualify for the tax election a pass-through entity must be 100% owned by natural persons or persons eligible to be shareholders in an S corporation; (2) defines "eligible owner" as an owner of a pass-through entity that is a natural person, estate, or trust; and (3) imposes the tax only on the share of income, gain, loss, or deduction attributable to eligible owners as opposed to imposing the tax on the entire entity. The legislation is effective July 1, 2023 and will apply to taxable years beginning on and after January 1, 2021.

INDIVIDUAL INCOME TAXES

6.

Installment Agreements for Payment of Individual Income Taxes. House Bill 1369 amends Va. Code § 58.1-1817 and requires the Department of Taxation to offer installment agreements to individual income taxpayers in which the taxpayer may satisfy his or her entire tax liability over a term of up to five years. The legislation does not affect installment agreements for any other tax. The legislation also repeals the Department’s authority to modify or terminate an installment agreement if the financial condition of the taxpayer has significantly changed or it fails to provide a financial condition update upon request. Virginia law does not currently set forth maximum or minimum terms with respect to installment agreements. Historically, the Department’s policy has been to limit the maximum term of installment agreements to two (2) years with some exceptions.  The legislation also establishes a working group for the Department to study current federal and state policies concerning installment agreements and make recommendations regarding how the Department policies could better align with installment agreement policies adopted by the Internal Revenue Service. This legislation is effective July 1, 2023.

RETAIL SALES & USE TAXES

7.

Exemption for Diagnostic Work for Automotive Repair. House Bill 1677 amends Va. Code § 58.1-609.5 by providing an exemption from the Retail Sales and Use Tax for amounts separately charged for labor rendered in connection with diagnostic work for automotive repair and emergency roadside service for motor vehicles regardless of whether there is a sale of a repair or replacement part or a shop supply charge. Under current law, amounts charged for diagnostic services are exempt from sales tax when those charges are not made in connection with the sale of tangible personal property or the tangible personal property exchanged is inconsequential to the transaction. This legislation is effective July 1, 2023.

8.

Agricultural Exemptions. House Bill 1563 and Senate Bill 1240 amend Va. Code §§ 58.1-609.2 and 58.1-610 and expand the Retail Sales and Use Tax agricultural exemption to include certain property, regardless of whether affixed to real property, used directly in producing agricultural products for market in an indoor, closed, controlled-environment agricultural facility. All items are required to be necessary to create, support and maintain the necessary growing environment for plants. The exemption does not apply to property used in producing cannabis. This legislation is effective July 1, 2023.

9.

Exemption for Oil and Gas Drilling Equipment. House Bill 2334 amends Va. Code § 58.1-609.3 by extending from July 1, 2022, to July 1, 2024, the sunset date of the sales and use tax exemption for materials and equipment used in the drilling, extraction, or processing of natural gas or oil and the reclamation of a well area. This legislation is effective July 1, 2023.

TAX CREDITS

10.

Land Preservation Tax Credits. House Bill 1834 amends Va. Code § 58.1-512 by extending the deadline for filing a complete application for the land preservation tax credit for conveyances made on or after January 1, 2017. The deadline is extended for any number of days exceeding 90 during which the application is being reviewed for verification of conservation value by the Department of Conservation and Recreation, provided that such application is otherwise complete at the time of the original filing deadline. This legislation is effective July 1, 2023.

11.

Livable Home Tax Credit. House Bill 2099 amends Va. Code § 58.1-339.7 by increasing the aggregate cap of the Livable Home Tax Credit from $1 million to $2 million per fiscal year, as well as increase the maximum amount of Livable Home Tax Credits a taxpayer may claim per year from $5,000 to $6,500. The provisions regarding the changes in the amount of the Livable Home Tax Credit a taxpayer may claim per year apply to taxable years beginning on and after January 1, 2023. This legislation is effective July 1, 2023.

12.

Firearm Safety Device Tax Credit. House Bill 2387 establishes a nonrefundable individual income tax credit of up to $300 for the cost incurred in the purchase of one or more firearm safety devices in an eligible transaction. The legislation caps the aggregate amount of credits allowable at $5 million per taxable year. The legislation is effective for taxable years beginning on and after January 1, 2023 but before January 1, 2028.

13.

Virginia Port Authority; Tax Credits and Grants. House Bill 1832 and Senate Bill 1345 amend Va. Code § 62.1-132.3:2 bv converting tax credits to grant programs, including the Barge and Rail Usage Tax Credit and the Virginia Port Volume Increase Tax Credit when they expire on January 1, 2025. The legislation also converts the Port of Virginia Economic Development Grant Program to consist of two component programs: The Economic and Infrastructure Development Grant Program and the International Trade Facility Grant Program in replacement of the International Trade Facility Tax Credit. The bill also moves the sunset date of the existing Port of Virginia Economic and Infrastructure Development Grant Fund and Program from June 30, 2025 to December 31, 2024

14.

Wholesome Food Donation Tax Credit. House Bill 2445 and Senate Bill 1525 amend Va. Code § 58.1-439.12:12 and renew the Wholesome Food Donation Tax Credit for taxable years beginning on or after January 1, 2023 but before January 1, 2028. The legislation allows any person engaged in the business of farming that donates food crops or wholesome food, defined in the bill, produced by the person in the Commonwealth to a nonprofit food bank to claim a tax credit for the taxable year of the donation in the amount of 50 percent of the fair market value of such donation, not to exceed $10,000 for all such donations made by the person during such year.  This legislation is effective July 1, 2023.

MISCELLANEOUS TAXES

15.

Electronic Filing of Bank Franchise Tax. House Bill 1896 and Senate Bill 1182 amend Va. Code §§ 58.1-1206, 58.1-1207, and 58.1-1212 by requiring banks to file their annual bank franchise tax returns electronically through a secure online portal maintained by the Department of Taxation. Any bank is permitted, in accordance with procedures established by the Tax Commissioner, to elect a 60-day filing extension for the return and schedules. In addition, the legislation provides that all localities imposing a local bank franchise tax must provide electronic processes for banks to access real estate assessment records. This legislation is effective January 1, 2025.

16.

Transient Occupancy Tax. House Bill 1442 adds Va. Code §§ 58.1-210.1 and 58.1-3827 and requires the Department of Taxation to annually publish on its website the current transient occupancy tax rates imposed in each locality. The legislation also (i) requires the tax-assessing officer of a locality to administer and enforce the assessment and collection of transient occupancy taxes from accommodations intermediaries, and (ii) specifies certain return filing requirements for accommodations intermediaries. This legislation is effective July 1, 2023.

PROCEDURAL / COLLECTIONS

17.

Period of Limitations on Collection. House Bill 1625 amends Va. Code § 58.1-1802.1 by suspending the statute of limitations on state tax collections actions while any administrative or judicial proceedings contesting the assessment are pending. The legislation also repeals a provision suspending the statute of limitations while the taxpayer is outside of the Commonwealth. Under current law, collection actions must cease after 7 years from the date of assessment. The running of the seven-year statute of limitations is suspended while the taxpayer is in bankruptcy, is located outside of Virginia for more than six months or has entered into an installment agreement. This legislation is effective July 1, 2023.

18.

Work Group. House Bill 1368 requires the Department of Taxation to convene a work group to study its current policies and procedures in order to determine options for a mechanism for tax practitioners to provide feedback to the Department on an ongoing basis. The work group must include members selected by the Tax Section of the Virginia State Bar Association, the Virginia Society of Certified Public Accounts, and the Virginia Society of Enrolled Agents. The work group will complete its meetings by November 1, 2023, and the Department must submit a report of its findings and recommendations to the Chairmen of the House Committee on Finance, the House Committee on Appropriations and the Senate Committee on Finance and Appropriations by December 1, 2023.

19.

Filing of Tax Returns or Payment of Taxes by Mail. House Bill 1927 amends Va. Code §§ 58.1-9 and 58.1-3916 by allowing a tax return or a tax payment to be deemed to have been timely received if, through no fault of the taxpayer, no postmark is affixed, or if the postmark affixed by the U.S. Postal Service is illegible or bears no date and such tax return or payment is received within five days of the due date. The legislation also provides that no penalty or interest will be imposed if a taxpayer provides evidence that a return filing or payment was timely processed by producing a U.S. Post Service Certificate of Mailing, or other proof of mailing, showing such return or payment was made on time, or if a taxpayer’s failure to file a return or make a payment to a locality was the fault of the U.S. Postal Service. This legislation is effective July 1, 2023.

20.

Litter Tax. House Bill 1645 and Senate Bill 996 amend Va. Code § 58.1-1709 by limiting the Department of Taxation’s ability to impose penalty and interest for failure to pay the litter tax in full without notifying the taxpayer 30 days prior to the return due date that a return is required. Under current law, penalty and interest is generally applied to delinquent litter taxes, and there is no requirement for the Department to provide notice that a return is required or the due date. This legislation is effective July 1, 2023.

REAL PROPERTY TAXES

21.

Notice of Rate and Assessment Changes. House Bill 1942 amends Va. Code § 58.1-3330(B) by requiring that, in any county, city, or town that conducts an annual or biennial reassessment of real estate or in which the reassessment of real estate is conducted primarily by employees of the locality under direction of the commissioner of the revenue, if the proposed real estate tax rate exceeds the “lowered tax rate” under Va. Code § 58.1-3221 that would result in the locality collecting no greater than 101 percent of the previous year’s real property taxes, the notice shall set out the effective tax rate increase. This legislation is effective July 1, 2023.

22.

Delinquent Tax Lands. House Bill 2110 amends Va. Code § 58.1-3965 by extending to 72 months the time period for which a local tax official may suspend an action for the sale of tax delinquent property upon entering into an agreement with the owner of the property for the full payment of the delinquent amounts in installments within that period. Under current law, local tax officials may suspend an action for the sale of tax delinquent property for up to 60 months if the taxpayer enters into an agreement to pay the delinquent taxes in installments within those 60 months. This legislation is effective July 1, 2023.

23.

Exemption for Disabled Veterans. House Bill 2414 amends Va. Code § 58.1-3219.6 by providing that, for purposes of the real property tax exemption for disabled veterans, the veteran or surviving spouse may claim the exemption prior to purchasing the qualifying dwelling by filing any required documentation, including valid documentation of the purchase agreement for the qualifying dwelling. The commissioner of the revenue of the must, within 20 business days following receipt of such documentation, process the application and send the veteran a letter stating whether the application is approved or denied. If the application is approved, the letter must also include the amount of the tax exemption for the qualifying property the veteran intends to purchase. However, the exemption described in such a letter will become effective only after the veteran becomes the owner of the property. This legislation is effective July 1, 2023.

24.

Deed Recordation; Address Transfer for Taxation. Senate Bill 1389 amends Va. Code § 58.1-3303 by requiring that the local commissioner of revenue must, upon receipt and review of the recordation receipt from the clerk of the circuit court of his jurisdiction, ensure that the land book is updated to reflect each grantee and property address or any other such address as may be specified in writing by the grantee for the delivery of future tax bills.

PERSONAL PROPERTY TAXES

25.

Farm Machinery and Farm Implements. House Bill 1486 amends Va. Code § 58.1-3505 by expanding the list of farm machinery and farm implements that a locality may exempt from personal property taxes to include (i) motor vehicles used primarily for agricultural purposes, (ii) privately owned trailers primarily used by farmers in their farming operations, and (iii) season-extending vegetable hoop houses used for in-field production of produce. The legislation states that a locality that exempts motor vehicles or privately owned trailers pursuant to these provisions shall not collect any unpaid tangible personal property taxes, including interest or penalties, that are owed to the locality as of July 1, 2023. Any such unpaid taxes shall be stricken from the books of the treasurer. This legislation is effective July 1, 2023

BUSINESS LICENSE TAXES

26.

Penalties. House Bill 1685 amends Va. Code §§ 58.1-3703.1 and 58.1-3916 by requiring that applications for local business licenses clearly state the due date for the application and the amount of the penalty charged for late application filing, the underpayment of estimated tax, and the late payment of tax. The legislation also requires that any bill and communication separately state the total amount of tax owed, the amount of any interest assessed, and the amount of the penalty imposed. Similarly, any bill issued by the treasurer imposing a penalty or interest for a local machinery and tools tax or business tangible personal property tax must separately state the total amount of tax, interest, and penalties owed. This legislation is effective July 1, 2023.