BY MICHAEL MARTZ Richmond Times Dispatch, February 4, 2019.
Emergency legislation to conform Virginia’s tax code with new federal tax law failed in the House of Delegates on Monday, leaving the state unable to process hundreds of thousands of tax returns it already has received for the 2018 tax year.
“It looks to me like we’re headed for a pretty disrupted tax season,” said Secretary of Finance Aubrey Layne, who said that Virginia had received 344,000 tax returns by Monday morning.
Emergency tax legislation has now failed in the House and Senate. That means there is no guidance for Virginia taxpayers who began filing returns a week ago on their taxable income from last year. Returns filed without conformity between the two tax codes will require an additional 20 questions for individual taxpayers to answer and 30 for businesses.
House Bill 2355, proposed by Appropriations Committee Chairman Chris Jones, R-Suffolk, failed to receive the 80 votes necessary to pass emergency legislation. Such legislation requires the backing of 80 percent of the House and 80 percent of the Senate in order to take effect immediately upon the governor’s signature, rather than on July 1, two months after the May 1 tax filing deadline.
House Republicans revived the bill and then amended it to strip the emergency clause from the measure, which the House then advanced to a vote on final passage on Tuesday, the crossover deadline for each chamber to act on its own legislation.
The pending showdown on the amended conformity bill and a separate Republican tax policy proposal comes in a politically charged atmosphere — heightened by dramatic accusations against Gov. Ralph Northam and Lt. Gov. Justin Fairfax, both Democrats — in an election year with control of the General Assembly at stake.
Partisan views emerge on new tax revenues
Virginia expects an additional $1.2 billion in income tax revenues because of the Tax Cuts and Jobs Act, which President Donald Trump signed more than 13 months ago. Republicans and Democrats are framing the opportunity differently as they prepare to battle for votes in affluent suburbs that could feel a bigger bite in their state taxes this year.
Republicans accuse Northam of seeking a “back-door tax increase” by proposing to spend the tax windfall instead of changing state law to let taxpayers itemize deductions on their state returns while claiming the standard deduction that the new tax law roughly doubled for federal taxpayers.
“We do have an opportunity to act on a straight tax increase on Virginians,” Jones said of attempts by Democrats to strip provisions from the bill that would sequester the additional revenues in a separate “taxpayers relief fund.”
Democrats blamed the higher state taxes on “the Trump tax cuts.” They called for a bill that would conform the tax codes immediately to help taxpayers with the 2018 returns, without changing Virginia tax policy.
Before the House dropped the emergency clause, Del. Marcus Simon, D-Fairfax, tried to eliminate the proposed fund and make the measure “a clean conformity bill” that could take effect immediately, and “allow Virginia taxpayers to get on with the business of filing their taxes.”
Simon’s amendment died on a 48-51 party-line vote.
Some Democrats break ranks in vote on legislation
Thirteen Democrats broke party ranks in the earlier vote on Jones’ emergency legislation, which failed on a 64-34 tally, or 16 votes shy of the 80 needed for passage.
All of the Democrats who supported the bill represent suburban swing districts, including Del. Dawn Adams, D-Richmond, who narrowly defeated Republican incumbent Manoli Loupassi two years ago in a district that includes parts of the city as well as Chesterfield and Henrico counties.
Six Democrats who serve on the Appropriations Committee, including Del. Lashrecse Aird of Petersburg, also voted for Jones’ bill.
Northam and Democrats wanted both chambers to pass tax conformity legislation with no changes in tax policy, which they said lawmakers could debate and settle later.
“We should be focusing like a laser on conformity,” said Del. Rip Sullivan, D-Fairfax.
Jones and other House Republican leaders said his bill is the only vehicle remaining in the General Assembly to address conformity of the tax codes without setting new policy.
Separate tax measure from Northern Va. Republican
Republicans are trying to push through major tax policy changes in separate legislation proposed by Del. Tim Hugo, R-Fairfax, one of the few remaining Republican legislators in Northern Virginia.
House Bill 2529 would effectively decouple Virginia’s income tax system from the federal code by letting taxpayers itemize deductions on state returns even if they claim the standard deduction that the Trump tax act roughly doubled for federal taxpayers.
House Republicans say Hugo’s bill is aimed at married couples earning $125,000 to $150,000, whom they describe as middle class. They say those households would pay most of the increased state taxes under the federal tax law.
However, Democrats say a study for the state tax department shows that Hugo’s bill would give the most benefits to middle- to high-income taxpayers, who would pay proportionately less in state taxes than low- to middle-income earners. They warn it also would force Virginia to administer and audit tax deductions without help from the IRS.
The Senate faces the same impasse after Democrats blocked emergency passage on Friday of tax conformity legislation proposed by Majority Leader Tommy Norment, R-James City. Senate Bill 1372, loaded with major tax policy changes, passed on a 21-19 party-line vote after Senate Republicans stripped its emergency clause.
“We’ve just got to hold the returns,” Layne, a certified public accountant, said Monday. “The longer it goes on, the more it’s going to impact taxpayers.”