Virginia lawmakers debate sales tax base expansion, income tax adjustments

RICHMOND, Va. (WRIC) -- Virginia is continuing to debate the state's tax structure as lawmakers consider bills that would expand the sales tax base and adjust income tax rates.

On Monday, Feb. 9, Del. Vivian Watts (D-Fairfax) and Del. Joe MacNamara (R-Roanoke) each sponsored two major tax bills at the House Finance Subcommittee No. 3 related to how Virginia collects taxes.

Democrats argue that these bills tax more services and higher earners and cut some essential services, including groceries. On the other hand, Republicans believe these proposals would raise costs for everyday Virginians and small businesses.

House Bill 978

Affordability has taken center stage at the State Capitol after Democrats and Republicans clashed over it earlier this month.

Democrats supported increasing Virginia's minimum wage to $15 per hour, arguing the raise would help make it easier for working Virginians to make ends meet.

MORE: Democrats and Republicans spar as affordability takes center stage at State Capitol

House Bill 978 proposes expanding the state sales tax to cover a wide range of services, including:

• Admissions
• Charges for recreation, fitness or sports facilities
• Nonmedical personal services or counseling
• Dry cleaning and laundry services
• Companion animal care
• Residential home repair or maintenance, landscaping or cleaning services when paid for directly by a resident or homeowner
• Vehicle and engine repair; repairs or alterations to tangible personal property
• Storage of tangible personal property
• Delivery or shipping services
• Travel, event and aesthetic planning services
• Digital services

Watts, the bill's sponsor, argues that Virginia relies far more heavily on income taxes than the average state. Despite having the sixth-lowest tax burden in the nation, Watts said that the state's tax structure does not keep up with changes in consumer spending, especially with a shift toward services over goods -- particularly digital services.

"We do not have the breadth of looking at discretionary taxes," she said. "This kind of sat until about two years ago when the governor came forth with a tax on digital services."

Opponents of the bill include Jim Mertz, of the Self Storage Association, and members of the Hanover County Board of Supervisors, who argue that adding sales taxes on services will increase costs for everyday Virginians.

One of those Hanover Board of Supervisors members pointed out that Virginians and disproportionately hurt in lower-income communities.

"This bill negatively impacts working families and small businesses in my community," said Faith Pritchard, the only Democratic member of the Hanover Board of Supervisors in decades. "It might seem very well that having your house cleaned is a luxury, but in fact, for the women who clean those houses, that's a day to day to income stream to feed their children."

"And when prices go up, people cut back on services," she added.

Watts emphasized some amendments that she feels would address the concerns mentioned in public testimony.

"You don't raise taxes unless there is a need for them," Watts said.

The amendments to the bill dictate that money collected does not go into the general state budget as usual. Instead, it is earmarked for specific purposes, such as education, per Watts.

The bill also imposes the retail sales and use tax on a digital product delivered electronically that the purchaser owns, such as DoorDash, or can continually access without having to pay an additional subscription or usage fee to the seller after paying the initial purchase price.

The bill would also eliminate the 1% local grocery tax.

House Bill 979

House Bill 979 focuses on income tax reform. It proposes increasing the standard deduction and creating several new income tax brackets for higher earners -- with Watts, who also sponsored this bill, saying that this would benefit every Virginian at the same amount.

The bill would increase the standard deduction to $10,000 for single individuals, $15,000 for individuals eligible to claim head of household for federal tax purposes and $20,000 for married individuals beginning in the taxable year 2027.

"It's long time that we update our tax brackets and make our tax code more fair," said Megan Davis with the Commonwealth Institute.

"It's not just a numbers person," Watts said. "They make a difference in real lives and we need to help people with these this kind of tax cuts that I have laid out."

The motion will be moved to carry the bill over to 2027.

House Bill 12

House Bill 12 would remove the expiration date of the higher standard deduction, which would expire.

The bill would make permanent the enhanced standard deduction amounts of $8,750 for single individuals and $17,500 for married individuals filing jointly.

MacNamara, the bill's sponsor, said this is a formality that would ensure they would have another avenue that would extend the deduction.

It is part of the budget bill and the conformity bill, per Watts.

As a result, the committee voted 5-2 on a parliamentary motion to temporarily set aside said bill or issue to address an urgent matter.

House Bill 13

The House of Delegates did not make a motion to move forward with House Bill 13, due to its similarities to the HB 703 bill.

The bill would eliminate the 1% local grocery tax imposed on food purchased for human consumption and essential personal hygiene products beginning on July 1, 2026.

As of the time of reporting, no other sales and use tax is applied to such products, and this bill would require an equivalent amount of revenue to be distributed to cities and counties monthly in compensation for the lost tax revenue.

The committee recommended continuing to 2027.