Tax Preferences Codification & Revision Overview

Codification of Tax Preferences Joint Subcommittee to Evaluate Tax Preferences October 30, 2024 Division of Legislative Services Joshua Kaplan, Senior Attorney 1

Codification of Tax Preferences The appropriation act contains several provisions which alter tax preferences currently in code. Some have been in the budget for several biennial cycles, others are more recent. Reasons for these provisions may involve timing, compromise, or problem solving. Topics range from income tax, sales tax, gas tax, and recordation tax. some are minor clarifications, other modify certain amounts provided in code. If codified, the provisions would make no change to existing law, but may provide clarity. 2

Income and Recordation Tax Topic, Item Number, Relevant Code Section Provision Land Preservation Tax Credit Item 3-5.22, 58.1-512 Bill page 21-22 Limits the amount of tax credit that may be claimed in any taxable year to $20,000 per taxpayer, with the remainder carried over. Amount provided by code is $50,000 per year. The $20k limit was in effect from 2015-2023, lapsed in 2023, and was reinstated by the 2024 appropriation act. Income tax deduction: Contribution to ABLE savings accounts Item 3-5.10, 58.1-322.03 Bill page 1-3 Extends the income tax deduction for 529 account contributions to ABLE savings accounts. Included in budget since 2016. 529 deduction included in code, ABLE part is not. Recordation Tax: Additional $20 fee Item 3-6.01, 58.1-801 Bill page 41 Additional $20 fee paid on recording a deed, proceeds go half to Virginia Natural Resources Commitment Fund and half to general fund. Included in budget since 2014.

Sales and Use Tax Topic, Item Number, Relevant Code Section Provision Sales and use tax exemption: oil and gas drilling equipment Item 3-5.23, 58.1-609.3 Bill page 33, 35 Extends exemption for drilling equipment to July 1, 2025. Exemption in code existed from 1994 to 2024, the code was not amended but exemption continued for a year via the budget. Sales and use tax exemption: Federally funded research and development centers Item 3-5.10, 58.1-609.3 Bill page 33, 34 Exempts tangible personal property purchased by a federally funded research and development center sponsored by the U.S. Department of Energy from the retail sales and use tax. In budget since 2018, a similar, though not identical provision is included in the Code. Sales tax entitlement: Clarify portion of sales tax Item 3-5.24, 58.1-608.3 Bill page 29, 31 Clarifies that the portion of sales tax revenue to be retained by a public facility under 58.1-608.3 shall be 2.025 percent, the portion of sales and use tax revenues which is unrestricted. The code states that sales tax revenues dedicated to transportation and education are not included in the entitlement, rather than stating a defined percentage.

Corporate Income and Gas Tax Topic, Item Number, Relevant Code Section Provision Aviation fuel exclusion: Item 3-5.09, 58.1-2291 Bill page 41 Provides that the regional gas tax shall not be imposed on aviation fuel. Included in the budget since 2013 when tax was initially imposed. Intangible Holding Company Addback: Item 3-5.08, 58.1-402(B)(8) Bill page 7-8 Limits two exceptions to the intangible holding company add-back requirements, which are used in determining a corporation s income tax liability. The add-back statute and budget provisions have been in effect since 2004.