Income tax brackets 2020 virginia9/26/2023 ![]() Corporations may structure their operations in such a way to maximize nowhere income and lower the amount of their profits subject to state corporate taxation. Shifting profits to subsidiaries in states with lower tax rates or no corporate tax at all is one way large corporations can avoid taxation.Īnother issue is the concept of “nowhere income,” which results when some portion of a corporation’s sales are not attributed to any state – for instance, when a corporation does not meet certain sales thresholds in a state – and so goes untaxed. Increased tax avoidance and the creation or expansion of various tax credits and deductions may minimize the amount of profits subject to state tax.Īlso, unlike 25 other states and the District of Columbia, Virginia does not require combined reporting, which requires large corporations to report profits from all their subsidiaries in all locations. There are several possible causes for the erosion of corporate income tax revenues. ![]() Nationally, before-tax corporate profits have grown 51.2 percent since FY 2009. These trends have emerged despite growing corporate profits. ![]() Collections rebounded in FY 2017 to $827 million. Inflation-adjusted collections totaled $779 million in FY 2016, a drop of 26.7 percent from the pre-recession peak. In the time period since FY 2003, state corporate income tax collections peaked at $1.1 billion in inflation-adjusted dollars in FY 2006. Virginia’s corporate income tax provided 15 percent of Virginia’s income tax revenue in 1980 compared to just 6 percent in 2016. In addition, key research indicates large multi-state corporations seem to be using aggressive methods of tax planning, which means greater opportunities to shift profits outside of Virginia to minimize the amount of taxes owed.Īs a result, the share of state income tax revenue from the corporate income tax has seen a steady decline over time. Corporations also are able to claim various tax credits and deductions to further reduce or even eliminate their taxable income. Many corporations in Virginia have zero state corporate tax liability, possibly because the tax only applies to net profits. ![]() Virginia currently taxes corporate profits at a 6 percent flat rate, which is tied for the eighth lowest rate of the 32 states with a flat corporate income tax. Underlying Problems: Analysis by Major Revenue Source In response to shortfalls, policymakers have consistently tapped into the state’s rainy day fund, a move viewed unfavorably by at least one major credit rating agency, which lowered Virginia’s economic outlook from “stable” to “negative” as a result.Īfter identifying the underlying causes of slow revenue growth, policymakers can pursue specific reforms to restore more of the tax base and put the state on a more sustainable path. It is unclear if these shortfalls were blips or whether they are evidence of deeper changes in areas like work arrangements, how corporations report profits, or consumer preferences. (Fiscal years run from July through June.) Although it is not unusual for actual revenues to vary from forecasts, these years of lower-than-expected revenue growth occurred even while the broader economy showed growth. In addition to that trend, actual state revenue collections were much lower than official projections in FY 2014 and FY 2016. This issue brief identifies troubling trends in each of the state’s major areas of revenue, lays out possible root causes, and offers remedies for lawmakers to address these challenges. But the way the current revenue system works was designed decades ago, with provisions that no longer work for today’s economy and are not keeping pace with current needs.Įnacting needed reforms to each revenue source would begin to reverse the erosion of Virginia’s revenue relative to the overall economy and provide for boosted investments in important priorities. Virginia has three major sources of state tax revenue: individual income taxes, corporate income taxes, and state sales taxes. And even though the state currently enjoys a strong overall economy with an unemployment rate of 3.7 percent, over 40,000 jobs added since last September, and signs that median household income is headed in a positive direction, revenue collections have fallen behind historical trends relative to the overall state economy. A major credit rating agency issued a “negative outlook” for Virginia as a result of lawmakers consistently tapping the state’s rainy day fund, even during periods of economic growth, when faced with revenue challenges. The Secretary of Finance recently informed state lawmakers that e-commerce is costing the state an estimated $229 million in lost sales tax revenue. A series of recent developments point to Virginia’s challenges.
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