Proposed new Virginia ‘tech tax’ sparks backlash from business community

RICHMOND, Va. — Trade unions representing hundreds of companies doing business in Virginia have opposed a proposal to expand the sales tax to digital goods, something Republican Gov. Glenn Youngkin proposed and Democrats endorsed in their budget legislation.

Both chambers of the Legislature included the new sales tax on purchases such as streaming subscriptions, cloud storage and online downloads in the two-year budget plans they passed last week. The Senate went further than the House of Representatives by also applying it to business-to-business transactions.

In a letter sent to lawmakers Tuesday, the Northern Virginia Technology Council and other business-focused lobbying and trade organizations said the General Assembly should reject the proposed “technology tax,” which budget documents from both chambers show is estimated to will raise more than $1 billion. in revenues over the next two years of the state budget. At a minimum, the letter said that if policymakers move forward with the proposal, they would have to largely exempt business-to-business transactions — otherwise companies could be forced to pass the costs on to consumers or move to other states.

“The proposed technology tax increase would put Virginia companies at a significant competitive disadvantage in industries where global competition is high and margins are narrow. The tax will most likely impact hiring and reduce internal investment in research and development, much of which is currently concentrated here in Virginia,” said Jennifer Taylor, president and CEO of the group, in a statement accompanying the letter has been added. the organization shared with The Associated Press.

The Technology Council says on its website it has nearly 500 members, ranging from Fortune 100 companies to academic institutions and government contractors.

Other advocacy groups, including the Virginia Chamber of Commerce, a data center coalition and a coalition of broadband providers, also signed the letter.

So did the Virginia Manufacturers Association, whose president and CEO Brett Vassey said the proposed tax would drive up the cost of software and online training materials used by factories.

Democrats have said the tax expansion is a common-sense adjustment that brings Virginia’s tax code in line with an increasingly digital world.

Currently, individuals pay sales tax on a CD but not on a digital download, and a business would pay tax on a physical server but not on cloud storage, Democratic Sen. L. Louise Lucas, Senate Finance Chair & Appropriations Committee, she said as she unveiled her chamber’s budget proposal.

“I think it’s only fair that the same taxes apply to individuals and businesses that purchase the same services,” said Lucas, who called the proposal a “new economy” tax.

Youngkin called for sales tax expansion to close what he calls the “Big Tech” loophole when he unveiled his proposed version of the 2024-2026 budget in December. But he also tied it to an income tax cut, which Democrats voted against, in a budget package that would have reduced tax revenues overall.

“Governor Youngkin made it clear during his State of the Commonwealth address that he was only interested in a plan that would reduce the tax burden on Virginians. While the governor will review any legislation that comes to his desk, his Unleashing Opportunity budget proposed a nearly $1 billion tax cut over the two years, building on the $5 billion in tax relief he provided to Virginians on a bipartisan basis during his first two years in the country. office,” spokesman Christian Martinez said in an emailed statement.

Later this week, lawmakers will send their competing budget plans to a conference committee, a group of lawmakers who will try to find a compromise plan to send to Youngkin. That process takes place out of sight of the public and has not been completed on time in recent years.