Emergency Tax Conformity Legislation Failed in House, Revived by GOP

Press release from Virginia House of Delegates Speaker Kirk Cox (R-Colonial Heights)….

Emergency tax conformity legislation failed to pass the Virginia House of Delegates on Monday after 34 Democrats voted against a plan to immediately conform state tax law to federal law and put additional revenues in a Taxpayer Relief Fund lockbox in order to provide tax relief under separate legislation.

House Bill 2355, carried by House Appropriations Committee Chairman Chris Jones (R-Suffolk) was supported by all 51 House Republicans and 13 House Democrats.

“The House Finance Committee advanced a package of legislation that would immediately conform Virginia’s tax law to allow tax filing season to proceed uninterrupted while also setting aside all revenue to ensure that the money is returned to hard working taxpayers,” said House Speaker Kirk Cox. “All 51 House Republicans are united behind a plan to guarantee $950 million in tax relief while also ensuring a smooth tax filing season, and we will proceed tomorrow to do this even without the emergency clause.”

After the legislation was defeated by Democrats, Republicans revived the measure and will advance it Tuesday without an emergency clause, making it effective July 1, though that is after tax season is complete.

“Conformity is critically important for Virginia taxpayer to file timely and I’m disappointed that some of my colleagues voted against allowing this emergency legislation to proceed immediately,” said House Finance Committee Chairman Lee Ware (R-Powhatan). “We will continue to work toward a solution that conforms our tax code as is necessary while also passing a bill to ensure taxpayers get tax relief.”

“The plan advanced by the House of Delegates to this point was the responsible step to ensure that tax refunds can immediately be processed while still protecting the money that rightfully belongs to taxpayers,” said Chairman Jones. “It’s unfortunate that some of our Democratic colleagues blocked the House from reaching the 80 vote threshold necessary to pass this bill as emergency legislation.”

House Bill 2529 (Hugo) Background

House Bill 2529 is designed to address the state issues related to the Tax Cuts and Jobs Act, prevent a hidden tax increase and provide middle-class tax relief for working Virginians.

The substitute has three main components:

-Allows people to itemize regardless of how they pay their federal taxes

-Increases the standard deduction by $1,000 ($3k to $4k) for an individual and $2,000 ($4k to $6k) for a married couple.

-Leaves current law in place for state and local taxes, instead of capping them at $10,000

The substitute also:

-Includes technical corrections to the SALT language

-Eliminates an enactment clause made unnecessary by the conformity bill before the Committee

-Eliminates a drafting error on mortgage interest deductions

-Includes the “GILTI” subtraction to prevent a new tax on foreign income for businesses

This bill would provide about $575 million in tax relief, beginning in the next fiscal year. But even after this tax relief, the state would still take in more revenue in FY20 than it did in FY19 – by $37 million.

-By allowing people to continue to itemize, we ensure people are not hit with a hidden tax increase. For a married couple of homeowners each making $55,000 per year, this provision would prevent about an $800 tax increase.

-By raising the standard deduction, we are providing tax relief to anyone who claims the standard deduction, but mostly for low and middle-income Virginians. This will provide a married couple $115 in tax relief.

-By maintaining the current rules on SALT, we protect homeowners from getting hit with a second tax increase at the state level. The federal law caps deductions at $10,000 – a major issue where I am from in Northern Virginia.

HB2529 is a prospective, policy bill. This bill deals only with tax year 2019 and beyond, and seeks to provide middle-class tax relief.

HB2529 bill does not address the 2018 tax year. That revenue, approximately $375 million, is set aside in the Taxpayer Relief Fund by the conformity bill before you.

HB2529 did not address this out of simplicity. While we stated very clearly we wanted to resolve this very quickly this session, it is past the point of no return.

The hope would be to use this $400 million to make whole taxpayers, particularly itemizers, who get hit in tax year 2018.

House Bill 2355 (Jones) Background

House Bill 2529 moves Virginia’s fixed-date conformity with the federal tax code to December 31, 2019 and captures all additional revenues resulting from changes to individual income tax provisions in the “Taxpayer Relief Fund.”

House Bill 2529 includes an emergency clause so the act goes into effect upon its passage.

The plan would capture $952 million into the “Taxpayer Relief Fund,” which represents 100% of the limited-time individual provisions of the Tax Cuts and Jobs Act.

The legislation also includes an enactment clause to require the Department of Tax to develop a plan by August 1, 2019 to refund revenues in the fund to taxpayers.