Corporate income tax; sourcing of sales other than sales of tangible personal property.
Impact
The bill specifically addresses how sales are sourced for debt buyers, property information and analytics firms, and internet root infrastructure providers. For example, debt buyers would be taxed based on the residency of the debtors, irrespective of where the debt buyer is located; similarly, property information firms would be taxed based on the service receipt location within the Commonwealth. This focuses on establishing clearer links between state taxation and the actual economic activity taking place. The overarching intent is to align sourcing rules with market realities that dictate consumer behavior, thus, potentially boosting the tax revenues of the Commonwealth.
Summary
House Bill 1866 proposes significant changes to the sourcing of sales tax for various types of income-producing activities in the Commonwealth of Virginia. Effective for taxable years beginning on or after January 1, 2026, the bill introduces a market-based sourcing approach for sales other than sales of tangible personal property. This means that the determination of whether a sale is made within the Commonwealth will depend on where the taxpayer's market is located, diverging from prior models that primarily focused on the location of the income-producing activity. Such a change could alter tax liabilities for many businesses operating in Virginia, particularly in the sectors of services and intangible property.
Contention
Notably, one area of contention surrounding HB1866 is its potential impact on businesses that might see increased tax burdens due to the new sourcing rules. Critics fear that small and medium-sized enterprises, in particular, could be adversely affected if they lack the resources to navigate the new tax implications. There are concerns that the switch to a market-based approach could complicate compliance and potentially result in unexpected liabilities. The bill also repeals previous enactments that might have set different parameters, which raises questions about the transitional implications for businesses currently operating under those rules.