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

Associated Press | 2/29/2024, 6 p.m.
Trade associations representing hundreds of companies that do business in Virginia have come out swinging against a proposal to expand ...
Sen. Lucas

Trade associations representing hundreds of companies that do business in Virginia have come out swinging against a proposal to expand the state sales tax to cover 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 like streaming subscriptions, cloud storage and online downloads in the two-year budget plans they passed last week. The Senate went beyond the House of Delegates in also applying it to business-to-business transactions.

In a letter sent to lawmakers beginning Tuesday, the Northern Virginia Technology Council and other business-focused lobbying and trade organizations said the General Assembly should reject the proposed “tech tax,” which budget documents from both chambers show is estimated to generate over $1 billion in revenue over the next two-year state budget. At a minimum, the letter said, if policymakers move forward with the proposal, they should broadly exempt business-to-business transactions — or companies may be forced to pass along costs to consumers or move to other states.

“The proposed tech tax hike would put Virginia companies at a significant competitive disadvantage in industries where global competition is high and margins are narrow. The tax will very likely impact hiring and reduce internal research and development investment, the majority of which is currently concentrated here in Virginia,” Jennifer Taylor, president and CEO of the group, said in a statement included with the letter, which a representative of the organization shared with The Associated Press.

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

Additional interest groups, including the Virginia Chamber of Commerce, a data center coalition and a coalition of broadband providers, also signed onto 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 expansion of the tax is a common sense adjustment that brings Virginia’s tax code in line with an increasingly digital world.

Currently, individuals would pay sales tax on a CD but not a digital download, and a company would pay taxes on a physical server but not cloud storage, Democratic

Sen. L. Louise Lucas, chair of the Senate Finance and Appropriations Committee, said while unveiling her chamber’s budget proposal. “I find it only fair that the same taxes

apply to individuals and businesses when consuming the same services,” said Sen. Lucas, who dubbed the proposal a “new economy” tax.