A Virginia House of Delegates panel has punted on the issue of whether the state should conform to the Internal Revenue Code on a rolling basis.
The House Finance Committee voted January 18 to table H.B. 1788 by a vote of 22 to 0, which sets discussion on the bill aside but allows it to be brought up again if the committee decides to revisit it later.
The bill, introduced by Del. Joseph McNamara (R), would conform to the IRC on a rolling basis for income tax purposes starting with tax year 2021. Virginia is a fixed-conformity state, which means it conforms to changes in the IRC as of a specific date rather than automatically adopting the changes as they are made in Congress.
The bill would also fully conform the state to the Coronavirus Aid, Relief, and Economic Security Act and the Consolidated Appropriations Act of 2021. Doing so could reduce state revenues by between $1.1 billion and $1.3 billion in fiscal 2022, according to the bill’s impact statement.
Under a provision in the bill, the state would decouple from any IRC changes that increase or decrease general fund revenues by greater than 0.25 percent in the fiscal year in which the amendment was enacted or any of the succeeding four fiscal years.
During a January 18 meeting, House Finance Committee Chair Vivian Watts (D) said she had been a strong proponent of rolling conformity last session with the kind of trigger safeguards included in H.B. 1788.
Watts said the bill could be revisited if lawmakers are able to work out an agreement. “It may well be an ongoing discussion that needs to be had, and getting something out well in advance of next session may be the course if it is regarded as the responsible action for the management of Virginia’s finances and our control over how we target spending, rather than giving blanket type of forgiveness for whomever whether they need it as much or not,” Watts said.
McNamara said he supports Watts’s approach. “We’ll try to match up the rolling conformity bill with the exclusions that we come up with as a General Assembly,” he added.
Meanwhile, the committee advanced conformity bill H.B. 1935, which would update the state’s references to the IRC from December 31, 2019, to December 31, 2020, but would decouple from some recent IRC changes that would substantially reduce state revenues.
H.B. 1935's introduced version was replaced with a substitute, adopted on a vote of 14 to 8, that would decouple from provisions of the Consolidated Appropriations Act “related to deductions, tax attributes, and basis increases for certain loan forgiveness and other business financial assistance.”
Secretary of Finance Aubrey Layne explained that IRC conformity, which is included in the governor’s budget recommendations, was based on a forecast that assumed Paycheck Protection Program loans would not be taxable and that expenses related to the loans would not be deductible. H.B. 1935 as drafted did not account for changes in the federal Consolidated Appropriations Act, signed into law December 2020, that allow businesses to deduct expenses paid with forgiven PPP loans.
Layne explained that conforming to the PPP loan relief is not the best way to help struggling businesses because many of the business hardest hit by the COVID-19 pandemic are not the ones that received forgiven loans.