A Virginia policy group is urging state lawmakers to expand the state’s sales tax to digital products to help shore up revenues in light of the COVID-19 pandemic.
In a May 19 blog post, Chris Wodicka, policy analyst for the Commonwealth Institute for Fiscal Analysis, said Virginia should tax digital products and streaming platforms to help address budget challenges.
According to Wodicka, Virginia is one of only 12 states with a sales tax that doesn’t apply a general sales tax to streaming platforms and is also one of only 16 states without a tax on digital products.
“By updating the tax code to include these products, the state would put them on a level playing field with equivalent goods that have been traditionally included in sales taxes and generate an estimated $40 million in needed state revenues in the upcoming budget, as well as new local revenues, during this time of economic turmoil,” Wodicka wrote.
“Given the budget challenges facing Virginia, we're hopeful that they take a serious look at this kind of proposal,” Wodicka told Tax Notes May 20.
Lawmakers considered a bill in 2018 (H.B. 1051) that would have applied Virginia’s 5 percent communications sales and use tax to audio and streaming services and prepaid calling. The measure could have raised about $7.9 million annually beginning in fiscal 2019, according to a fiscal impact statement.
The plan was backed by the Virginia Municipal League and the Virginia Association of Counties, which recommended amending the state’s communications sales and use tax in their legislative programs for the 2018 session.
However, the measure was killed by the House Committee on Finance after most committee members viewed the bill as a tax increase.
Another bill considered in 2018 would have expanded the sales tax to digital products (S.B. 390), but the bill died in the Senate Committee on Finance and Appropriations. It would have generated about $27.5 million in fiscal 2019 and up to $38.35 million by fiscal 2024, according to the bill's fiscal note.