Updates to Virginia tax legislation

A variety of legislation was passed by the Virginia General Assembly in 2023. The below items all went into effect on July 1, 2023, unless otherwise noted. For a full report on all the changes, as this list is not all-inclusive, read the “2023 Legislative Summary” (PDF) from the Virginia Department of Taxation (TAX). 

Rolling income tax conformity 

For the first time in 20 years, the VSCPA’s legislative agenda is not topped by a push to get fixed-date conformity quickly passed by the Virginia General Assembly — thanks to rolling income tax conformity legislation passed in 2023. 

The House and Senate bills (HB 2193 and SB 1405) both provided for Virginia generally conforming to federal tax laws on a rolling basis, “meaning that Virginia tax laws incorporate changes to federal income tax law as soon as Congress enacts them on or after Jan. 1, 2023,” the bills stated. The bills were reconciled in conference to a $15 million impact threshold and $75 million aggregate cap, meaning Virginia will automatically conform to changes under the $15 million threshold but that automatic conformity is limited to an aggregate of $75 million worth of changes. Extenders to which Virginia already conforms will also be automatic and are not subject to either the threshold or the cap. 

Pass-through entity tax 

After legislation passed in 2022 to allow qualifying pass-through entities to pay entity-level taxes (the State and Local Tax cap workaround), companion bills were introduced in 2023 to repeal the definition of “qualifying entity” and replace it with “eligible owner,” and ensure the calculation of tax is based on the share of Virginia income, gain, loss or deduction attributable to the eligible owners. Ultimately, the bills were passed and signed by the governor on March 27, 2023. On March 29, TAX released Tax Bulletin 23-3 to respond to the new law and clarify the new definition of “eligible owner.” 

Filing tax returns or sending payments by mail 

HB 1927 stated TAX would deem a tax return or tax payment received on time if, through no fault of the taxpayer, no postmark was affixed or if the postmark affixed by the U.S. Postal Service was illegible — as long as the correspondence was received within five days of the due date. 

Limitation on tax collection 

According to HB 1625, the seven-year period of limitations on state collections actions will be suspended while any administrative or judicial proceeding contesting the assessment is pending. 

State tax rebates 

Due to a surplus in the state coffers, $906,800,000 was used to issue one-time individual income tax rebates of up to $200 for single taxpayers and $400 for married taxpayers filing jointly. All rebates were sent out prior to Nov. 30, 2023. 

Standard deduction increase 

Effective Jan. 1, 2024, and through Jan. 1, 2026, the standard deduction increases from $8,000 to $8,500 for single filers and from $16,000 to $17,000 for married taxpayers filing jointly. 

Corporate income tax deduction increases 

The individual and corporate income tax deduction for business interests increased from 30% to 50% of the business interest disallowed as a deduction under the federal business interest limitation.  

Changes to consolidated filing status 

The requirements were amended for an affiliate group to elect to change its corporate income tax filing status to or from the consolidated filing status by removing the condition that its tax liability for the previous tax year not be decreased by such a change in filing status.