Virginia House Bill HB1997

Virginia 2025 Regular Session

• Introduced: 1/7/25
• Refer: 1/7/25
• Report Pass: 1/22/25
• Engrossed: 1/27/25
• Refer: 1/29/25

Caption

Income tax, state; pass-through entities, sunset.

Impact

The implementation of HB1997 would introduce a standard income tax rate of 5.75% on the Virginia taxable income of eligible pass-through entities that opt for this election. Notably, this bill also outlines specific provisions regarding nonresident owners, limiting the taxable income to that which is attributable to Virginia sources. This adjustment aims to create a more equitable tax framework by ensuring that only income generated within Virginia is taxed for nonresident owners.

Summary

House Bill 1997 aims to amend the Virginia tax code specifically regarding the taxation of pass-through entities. The bill allows these entities to elect to pay taxes at the entity level rather than at the individual owner level. This provision is particularly targeted at simplifying the tax obligations of pass-through entities, such as partnerships and S-corporations. The proposed change is set to apply to taxable years beginning after January 1, 2021, and includes stipulations for elections to be made annually based on timely filed returns.

Contention

While the bill includes several provisions to ensure compliance and offer credits against other state taxes, it may lead to discussions surrounding the broader impacts on state revenue and the corporate taxation landscape. There is potential contention regarding whether such changes adequately provide relief to small businesses or whether they disproportionately benefit larger entities capable of navigating these tax obligations. Stakeholders are likely to debate the balance of incentivizing business growth while ensuring adequate contributions to state revenues.