HB 1743 (Watts) 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. 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 reported by the House Finance Committee on Wednesday, 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. 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.
This legislation 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 adds 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. VACo strongly prefers a reenactment clause to a delayed enactment, as in the current version of the bill, because it would allow the implications of the policy change to be fully vetted prior to making changes to the Code, rather than making statutory changes this session and returning to revise those changes in 2026.
VACo Contact: Katie Boyle