United States: Williams Mullen 2022 Virginia General Assembly Session Overview

General Overview:

The 2022 General Assembly session adjourned sine die  on March 12, 2022. This year's session was a so-called "long session," and lasted 60 days instead of the 45 day "short session," which occurs in odd-numbered years. Over the course of this year's session, the General Assembly considered approximately 2,000 bills and 1,000 resolutions. Of these, a little over 800 bills made it out of both the Senate and the House and on to the governor's desk for action.

While the General Assembly may have adjourned on March 12, it did so without completing all of its work. The House and Senate were unable to come to an agreement on the budget, and an additional 45 bills were left in conference. Accordingly, the House and Senate adjourned with the understanding that they would reconvene later in the spring to finish their conference work and budget work.

Currently, the governor's office is reviewing all passed legislation and must act on it – sign, amend, or veto – by midnight on April 11, 2022. The General Assembly will then return to Richmond on April 27 for the Reconvened Session (a.k.a. "Veto Session") where the legislature will deal with any vetoes or amendments from the governor.

On March 23, Gov. Youngkin formally called for the General Assembly to return to Richmond for a Special Session on April 4. At this juncture, it does not appear a deal has been reached on the budget so the timeline for special session is still unknown. It is not uncommon for the General Assembly to meet for one day and then return once there is an agreement on the budget. Once an agreement is reached, the governor can offer amendments to the budget and any unresolved bills during a reconvene session of the special session.

In many ways, the 2022 Regular Session brought a return to normalcy to the General Assembly, as both chambers returned to a fully in-person format for the first time since early 2020. 2021 saw the House of Delegates adopt a virtual model and the Senate of Virginia adopt a hybrid model, with the latter's in-person meetings being held in the Science Museum of Virginia. For both chambers, all public participation was limited to virtual testimony. In 2022, virtual committee testimony remained in place, but in-person public participation was once again allowed, permitting stakeholders and lobbyists critical face-to-face access to legislators.

NOTE: Listed in the section below are short summaries of significant legislation that passed the General Assembly. This list is not inclusive of every bill in each category. For a full list of legislation that passed during the 2022 session, please visit the General Assembly's Legislative Information Systems website at: http://leg1.state.va.us/.

Below are selected bills of significance, organized by topic. The links are active, so by clicking on them, you can access the bill's summary, full language and legislative history.

Tax Reform and the Budget:

With Virginia's unprecedented budget surplus and the governor's campaign promises of significant tax relief, tax reform was a top priority for both the Republican-controlled House and Democratic-controlled Senate. While both chambers have endorsed major tax relief initiatives, disagreement as to the magnitude of those changes has stalled the General Assembly with the House and Senate at odds over how much tax relief (both temporary and permanent) should be adopted and what future spending priorities should be put on hold.

Income Tax Deductions: The governor has proposed raising the standard income tax deduction from $4,500 to $9,000 for single filers and from $9,000 to $18,000 for married couples filing jointly. The House has adopted this proposal, but the Senate has called for a study of the issue. According to some studies, doubling the deduction could result in reducing state revenues by $1.24 billion in FY 2023. The Commonwealth Institute has estimated that this could balloon to $2.1 billion in lost revenue over the next two years. Because of the magnitude of the fiscal impact, the income tax deduction proposal is the primary reason budget negotiations stalled at the end of session.

Gas Tax: Several bills were introduced to either suspend or eliminate the gas and diesel tax in Virginia. While several initiatives cleared the House, all were defeated in the Senate. On March 16, Gov. Youngkin announced that he was going to send down a bill during the special session to suspend the gas and diesel tax for three months, resulting in potential savings at the pump but a cost of $437 million in transportation funding.

Grocery Tax: Gov. Youngkin made repealing the grocery tax one of his top campaign promises in 2021, and both chambers have proposed some variation of it. The House has proposed repealing the 1.5 percent state tax and the 1 percent local tax but requires the Commonwealth to provide supplemental funding to localities to make up for lost school funding from the elimination of the grocery tax. The Senate bill repeals only the 1.5 percent state portion of the tax, leaving the local portion intact. While these proposals seek to hold localities harmless when it comes to education funding, neither chamber has proposed how to make up for the lost transportation funding that will result from these cuts.

Income Tax Rebates: Both the House and Senate have agreed to one-time tax rebates of $300 per individual and $600 per married couple. Such rebates would reduce the state revenue by approximately $1.25 billion in FY 2023.

Special Session: As referenced before, the General Assembly will return to Richmond on April 4 for a Special Session to finish work on the budget as well as the other legislation left in conference. The governor has stood by his tax cut proposals, arguing, "I do believe we can and should have the largest tax reduction in the history of Virginia." While Gov. Youngkin acknowledged that he had not yet spoken with Senate Democrats about his proposals, he remains confident that the General Assembly will have a budget ready for action by April 4.

Beyond these tax cut and tax repeal proposals, there are several other tax-related bills worth highlighting here. HB 1121 and SB 692 permit a qualifying pass-through entity (PTE) to make an annual election for Taxable Years 2021 through 2025 to pay an elective income tax at a rate of 5.75 percent at the entity level. The bill would also allow a corresponding refundable income tax credit for Taxable Years 2021 through 2025 for any amount of income tax paid by a PTE having Virginia taxable income if such PTE makes the election and pays the elective income tax imposed at the entity level. In effect, this would allow a PTE to pay income tax rather than its owners and, thereby, enact a Virginia PTE workaround to the $10,000 cap on the federal deduction for state and local taxes paid.

HB 971 and SB 94 were the annual tax conformity bills, advancing Virginia's date of conformity to the Internal Revenue Code (IRC) from December 31, 2020 to December 31, 2021. This allows Virginia to generally conform to the American Rescue Plan Act as well as change Virginia's existing policy in regard to certain COVID-19 related business assistance programs. Most notably, these bills allow for 100% deductibility for PPP loans forgiven in the 2021 tax year.

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