HB 1743 (Watts), which deals with the ability of businesses to deduct gross receipts attributable to business conducted in another state or foreign country from taxation under the BPOL tax, is headed to a conference committee to resolve differences between the House and Senate versions. Last Tuesday, the Senate Finance and Appropriations Committee converted the bill to a study directive – a much preferable approach, from VACo’s perspective – and this version passed the Senate last Wednesday. On Friday, the House rejected the Senate’s version. Conferees are expected to be appointed soon. VACo will be urging conferees to accept the Senate’s approach, which will allow this policy proposal to be fully vetted prior to making changes to the Code.
Under current law, receipts attributable to business conducted in another state or foreign country in which the taxpayer is liable for an income tax or other tax based on income are deductible. As passed by the House, HB 1743 would expand this provision to cover receipts from other states or foreign countries with a net income tax or other tax based upon gross or net income or receipts. This version of the bill has a delayed effective date of July 1, 2026, and requires the Department of Taxation to convene a working group to review the current methodology of the existing deduction, potential revenue impacts of the expanded deduction, and potential complexities for tax administration and for taxpayers, among other elements.
Expansion of the ability of businesses to deduct gross receipts attributable to business conducted outside of Virginia is expected to affect local revenues, with a potentially significant impact in some jurisdictions, although the full scope is difficult to quantify. Allowing the deductibility of gross receipts generated in states with other types of taxes also would add complexity to tax administration, since states have different rules and thresholds for filing. Given the unknown revenue impact and administrative complexity involved in the bill, and the compressed timeline of the short session, VACo has encouraged a more thorough review of its implications in discussions with the patron and proponents of the legislation.
As passed by the Senate, the bill would be limited to the directive to the Department of Taxation to convene the working group, which would include participation by VACo, VML, the Commissioners of the Revenue Association of Virginia, the Virginia Chamber of Commerce, and other business representatives, with a report due by October 1.
VACo Contact: Katie Boyle