Virginia Tax Reform: Overview of Recent Policy Changes

2019 Virginia Tax Reform: House Bill 2529 and Senate Bill 1372 October 7, 2019

2019 Tax Conformity Advancement of the Date of Conformity During the 2019 Session, the General Assembly enacted legislation that advanced Virginia s date of conformity to the IRC from February 9, 2018 to December 31, 2018 (House Bill 2529 and Senate Bill 1372) Conformed Virginia to most of the provisions of the Tax Cuts and Jobs Act ( TCJA ) and Bipartisan Budget Act of 2018 Included several Virginia tax policy changes Provided Tax Relief Refunds to certain taxpayers

Virginia Tax Policy Changes Tax Policy Changes Effective for Taxable Year 2019 Increase the standard deduction from: $3,000 to $4,500 for individuals and married filing separately $6,000 to $9,000 for married taxpayers filing joint returns This provision would be effective for Taxable Year 2019 through Taxable Year 2025 This sunset date would coincide with the expiration of most of the federal individual changes included in the TCJA Allow a deduction for real and personal property taxes in excess of the $10,000 federal limitation (i.e., deconform from the federal SALT cap)

Virginia Tax Policy Changes Tax Policy Changes Effective for Taxable Year 2019 Deconform from the federal suspension of the Pease limitation Limitation on the amount of itemized deductions permitted for certain higher-income taxpayers Does not apply to deductions for medical expenses, investment interest, casualty, theft, or wagering losses, and charitable contributions The limitation was suspended by the TCJA for Taxable Year 2018 through Taxable Year 2025 This deconformity results in a Virginia-specific Pease limitation

Virginia Tax Policy Changes Tax Policy Changes Effective for Taxable Year 2018 Individual and corporate income tax deduction equal to 20% of the disallowed portion of the federal business interest expense deduction The federal deduction for interest expenses was limited by the TCJA The Virginia-specific deduction would partially undo the limitation Corporate tax subtraction for global intangible low-taxed income ( GILTI ) The TCJA requires certain US corporations and shareholders to pay federal income tax on GILTI (abnormally high overseas profits) This is an expansion of the existing Virginia-specific subtraction for subpart-F income

2019 Taxpayer Relief Fund and Refunds Provision of Individual Refunds Any revenues generated as a result of the individual reform provisions of the TCJA were required to be transferred to the Taxpayer Relief Fund ( the Fund ) To be eligible for a refund, the 2018 individual tax return was required to be filed by July 1, 2019 Refund amount is a maximum of $110 for an individual return and $220 for a joint return Limited to the tax liability after any deductions, subtractions, or credits Subject to Debt Setoff

2019 Taxpayer Relief Fund and Refunds Provision of Individual Refunds The Governor, in consultation with the State Comptroller and the Tax Commissioner, required to certify revenue for the Taxpayer Relief Fund on or before September 1, 2019 Ernst & Young (E&Y) retained to analyze the 2018 tax returns to determine the amount of additional revenue that was attributable to either the underlying economic growth or the TCJA provisions E&Y determined that net revenue of $455 million received due to the TCJA provisions Deposited in the Taxpayer Relief Fund for Taxpayer Relief Refunds

2019 Taxpayer Relief Fund and Refunds Provision of Individual Refunds HB 2529 and SB 1372 require refunds to be issued by October 15, 2019 Anticipate mailing 2.5 million checks Mailing expected to be completed October 7 Taxpayer Relief Refund payments estimated to total $430 million