The October 30 meeting of the Joint Subcommittee on Tax Preferences featured further discussions on the two study areas assigned to the Joint Subcommittee that had been the focus of the body’s September 17 meeting: taxes on “other tobacco products” (non-cigarettes) and state incentives for motion picture production.
For several years, language in the state budget has directed the Joint Subcommittee to study options to modernize the state’s tax on cigarettes, to include the tax treatment of liquid nicotine products. At the September 17 meeting, members discussed a discrepancy between state Code and the state budget with respect to how these products are taxed. Legislation passed in 2024 created a two-tier system of taxation of vaping products, depending on whether the product was a “closed” or “open” (refillable) system (one of the patrons of the legislation indicated that this difference was intended to reflect varying levels of nicotine in the two types of products) – but the superseding budget language retains an across-the-board cents-per-milliliter tax (which was increased in the 2024 Appropriation Act).
Dylan Bishop, representing the Virginia Smoke Free Association, encouraged members to consider liquid nicotine, or “vaping” products, as products that are less harmful than cigarettes and as tools to help adults quit smoking. Mr. Bishop told members that high excise taxes on vaping products could discourage cigarette smokers from transitioning to these less-harmful options, and shared information on the tax treatment of vaping products in other states. Delegate Vivian Watts, who chairs the Joint Subcommittee, instructed staff to prepare options for consideration at the next meeting that would harmonize the statutory and budget provisions governing the taxation of these products; these recommendations are to preserve the differential treatment of closed and open systems approved in current Code, but may adjust the tax rates to avoid reducing revenues assumed in the Appropriation Act.
Members also received a presentation from the Cigar Association of Virginia, which contends that the 2020 actions to double the state “other tobacco products” tax on cigars (to 20 percent of the manufacturer’s sales price) have harmed retailers in Virginia by encouraging purchases in neighboring states with lower taxes on these products. However, there is limited data available on the number of cigars sold in Virginia, and the Association encouraged Joint Subcommittee members to authorize the Department of Taxation to require reporting of these sales figures. The Association also encouraged members to impose a rate of 20 percent or $0.30 per cigar, whichever is lower. Members discussed the fairness of this approach to consumers of less costly cigars, and whether a cents-per-cigar tax would need to be adjusted over time to keep up with inflation.
The Joint Subcommittee also received a presentation by Rita McClenny, President and CEO of the Virginia Tourism Corporation, with additional information on the state’s film incentives that had been requested at the September 17 meeting. The Joint Subcommittee had received a referral from the Chairman of the House Appropriations Committee earlier this year requesting a review of legislation that was considered in 2024 that would have expanded the state’s Motion Picture Opportunity Tax Credit, which is a refundable individual and corporate income tax credit for motion picture production companies spending a certain amount of money on production costs in Virginia. Mandy Rafool of the National Conference of State Legislatures also presented information on film incentives offered by other states.
Lastly, members discussed draft legislation that would harmonize certain tax provisions in the Appropriation Act with language in the Code. State budget provisions have the force of law, and some of these provisions have remained in the state budget for many years, but do not appear in the Virginia Code. Members discussed several provisions that would expire absent legislative action to extend them, and whether these provisions should include sunset clauses when they are incorporated into the Code. Members will consider these proposals, as well as statutory tax preferences that are scheduled to expire in 2025, at a future meeting of the Joint Subcommittee.
VACo Contact: Katie Boyle