
By Steve Haner
Virginia will remain out of step with the rest of the United States on how it taxes service-providing businesses after General Assembly Democrats voted in lockstep to once again kill a logical income tax reform.
There was absolutely no partisan angle to the policy debate, yet party line votes killed it. It is impossible not to consider that one fatal flaw for the idea was that Republican Governor Glenn Youngkin supported it and suggested the Assembly make the change. But the idea has been knocking around for years, long before Youngkin. A respected tax department official told the House Finance Committee she had been working on the issue for 15 years.
โIt shifts the burden from in-state companies to out-of-state companies,โ Kristin Collins of the Department of Taxation told legislators. You would think this would be a bipartisan winner.
The tax rule Democrats rejected by defeating House Bill 1866 in House Finance on January 31 has been adopted by at least 39 of the 48 states that have corporate income taxes. The senate version, Senate Bill 1456, was killed January 28.
Most of the states Virginia competes against for business locations and expansions use what is called โmarket based sourcingโ in calculating the tax on income from services.ย According to the fiscal impact statement prepared by the Department of Taxation (very detailed, as usual) โnone of the states contacted reported an unexpected revenue loss as a result of market-based sourcing.โย













