RICHMOND, Va. (WRIC) — A push to cut Virginia’s sales tax on groceries has bipartisan support, but state lawmakers still need to decide whether to eliminate it entirely or keep the portion levied by localities.
The Republican-controlled House of Delegates voted to wipe out the 2.5% tax on food and personal hygiene products during the 2022 legislative session, a key campaign promise from Gov. Glenn Youngkin.
The Democratic-controlled Virginia Senate approved a partial cut of the tax, voting to remove the 1.5% that goes to the state but keep the 1% earmarked for local governments. Former Gov. Ralph Northam’s outgoing budget proposed this tax cut.
The competing plans would both bring hundreds of millions of dollars in lost tax revenues, but the estimated impact for the state and localities differ depending on which proposal gets approved.
Virginia is one of 13 states that impose a sales tax on groceries, according to the Center on Budget and Policy Priorities. One percent of the revenue from the state’s 1.5% tax rate goes towards local school funding and the remaining 0.5% is allocated to the commonwealth’s transportation fund.
While both proposals have provisions that would replace much of the tax revenue localities would lose for school funding, there are concerns over the impact on transportation funding. The opposing plans don’t replenish the lost revenue for the transportation fund, which helps pay for road improvements, maintenance and public transit systems.
“Virginia finally adopted HB 1414, the ‘Transportation Omnibus’ bill in 2020 that finally put us on a path to address transportation needs and now we’re already seeing it unravel as the grocery sales tax was a reliable dedicated source of funding,” Lisa Guthrie, executive director of the Virginia Transit Association, told 8News.
State lawmakers agree on cutting the tax on groceries and hygiene products, but negotiations over which plan to adopt won’t be settled until the legislature convenes for a special session to resolve differences in the state budget and several bills.
Multiple attempts to reach the sponsors of both measures — Del. Joe McNamara (R-Roanoke County) and state Sen. Jennifer Boysko (D-Fairfax) — were unsuccessful.
Here are a few key differences between the proposals:
The House’s plan
The House’s proposal would take effect in July if approved. It would distribute a “supplemental school payment” to localities starting in fiscal year 2023, which begins July 1, to help fund education.
According to Virginia Department of Taxation estimates, eliminating the 2.5% tax would result in a revenue loss of nearly $600 million in FY 2023 for the commonwealth and its localities before factoring the proposed budget and supplemental school payment provisions.
The estimates from the Department of Taxation show a loss of more than $1.2 billion over the next two fiscal years, including over $500 million in funding for local governments and K-12 schools.
The commonwealth’s transportation trust fund would lose nearly $120 million in FY 2023 and close to $140 million each year until FY 2028.
Figures from the Virginia Association of Counties estimate the losses cities and counties will experience if the 1% local option is also eliminated:
| Locality | FY 2023 | FY 2024 |
| City of Richmond | $4,200,858 | $4,716,938 |
| Chesterfield County | $10,408,196 | $11,686,855 |
| Henrico County | $11,579,432 | $13,001,979 |
| Hanover County | $3,634,815 | $4,081,356 |
The Senate’s plan
The Senate’s measure, which would take effect in 2023, would give localities the 1% in “educational funding that would have otherwise been distributed to them absent the exemption” created by the proposal starting Feb. 1, 2023. But the Senate’s version doesn’t ensure a replacement for lost tax revenue allocated to schools in future budgets.
The plan would cost the state more than $372 million in K-12 funding and more than $187 million in transportation funding over the next two years, according to Department of Taxation estimates that don’t factor in the revenue adjustment for the partial tax cut in Northam’s proposed budget.
In total, the estimates show that cutting the 1.5% tax and keeping the 1% local option would bring revenue losses of about $560 million over the next two years and more than $400 million each year until FY 2028.
