Trade associations representing numerous companies doing business in Virginia have expressed strong opposition to a proposal to expand the state sales tax to cover digital goods. The proposal, put forth by Republican Governor Glenn Youngkin and endorsed by Democrats in their budget legislation, has faced criticism from the business community.
Both chambers of the Virginia legislature included the new sales tax on digital purchases such as streaming subscriptions, cloud storage, and online downloads in their two-year budget plans. The Senate went further by also applying the tax to business-to-business transactions.
In a letter sent to lawmakers, the Northern Virginia Technology Council and other business-focused lobbying and trade organizations urged the General Assembly to reject the proposed “tech tax.” The tax is estimated to generate over $1 billion in revenue over the next two-year state budget. The letter emphasized the potential negative impact on Virginia companies, stating that the tax hike would put them at a significant competitive disadvantage, potentially leading to reduced hiring and research and development investment.
The Virginia Chamber of Commerce, a data center coalition, a coalition of broadband providers, and the Virginia Manufacturers Association also signed onto the letter. The Virginia Manufacturers Association’s president and CEO, Brett Vassey, highlighted concerns that the proposed tax would increase the cost of software and online training materials used by factories.
Supporters of the tax expansion argue that it is a necessary adjustment to bring Virginia’s tax code in line with the digital nature of the modern economy. Currently, individuals pay sales tax on physical items like CDs but not on digital downloads, while companies pay taxes on physical servers but not on cloud storage. Democratic Senator L. Louise Lucas, chair of the Senate Finance & Appropriations Committee, stated that applying the same taxes to individuals and businesses consuming the same services is fair.
Governor Youngkin had proposed the expansion of the sales tax to cover the “Big Tech” loophole in his budget proposal. However, his plan also included an income tax cut that was voted down by Democrats. Youngkin’s spokesperson, Christian Martinez, emphasized the governor’s commitment to reducing the tax burden for Virginians.
The competing budget plans from both chambers of the legislature will be sent to a conference committee later this week to work on a compromise plan to present to Governor Youngkin.
