Restructuring Virginia's Tax System

Apr 2, 2013

In the last 20 years, Virginia’s manufacturing sector has declined by 46%. 

Given the fierce competition worldwide to attract businesses, state lawmakers are examining whether it makes sense to restructure the Commonwealth’s state and local tax system to remove financial hurdles to doing business here.  

That could include getting rid of some taxes, while imposing new ones.

While the state levies a corporate income tax, most localities impose yearly business taxes and rely on these revenues. But businesses say they’re too burdensome.  A Thomas Jefferson Institute for Public Policy “tax restructuring” plan would eliminate those local taxes and the two bottom state income tax brackets, and cut other income taxes.  It replaces that revenue with sales taxes on many services that are now exempt. 

Senator Creigh Deeds questioned whether localities would reap the same amount of revenue.
“There aren’t enough lawyers, there aren’t enough real estate transactions, and the barbers can’t cut enough hair—I don’t think.”

The Institute’s Michael Thompson said the plan would increase disposable income and investments by millions of dollars, create 79,000 jobs, and boost the state GDP by $8.4 billion.

“It’ll be a larger check because you’ve broadened the industries that don’t now collect sales tax.  And the offset is the income tax reductions that everybody gets in the state.  And the BPOL [Business, Professional, and Occupational], machine and tool, and merchants’ capital tax are no longer collected.”

Lawmakers say the next step is to find out if all localities would do as well or better under restructuring.