State and Local Tax Law Changes in Effect in 2024

The Virginia Department of Taxation released its 2024 legislative summary detailing changes, effective July 1, 2024, to Virginia’s state and local tax laws. The following discussion focuses on a few of the changes you may find significant and worth noting for future planning.

A “Collection Effort” is anything the Department of Taxation says it is.

Section 58.1-1802.1 of the Code of Virginia provides that a state tax may be collected only if a “collection effort” is commenced within seven years from the date of the assessment of the tax. For tax assessments made before July 1, 2016, the statute of limitations does not run until the collection effort is concluded by payment or settlement.

For year, the Virginia Department of Taxation has taken the position that a “collection effort” means any administrative or judicial proceeding in which the validity of a tax assessment is an issue. Thus, if you fail to pay a tax on time and the Department of Taxation sends a letter saying nothing more than “You’re late,” the department has indefinitely extended the statute of limitations on those pre – July 2016 assessments.

My students at the Washington and Lee Tax Clinic during the 2021–2022 academic year challenged that interpretation in several appeals with the Department of Taxation and raised a certain amount of uncertainty (or uneasiness) with the department. The department now has gone to the General Assembly for legislation stating the department’s position is to be “declarative of existing law.” Thus, the Virginia Department of Taxation has effectively eliminated the statute of limitations on the collection of state taxes assessed before July 1, 2016.

The General Assembly affirms efforts to preserve Virginia’s architectural history.

The 2024 Appropriation Act increased the maximum amount of the historic rehabilitation tax credit a taxpayer may claim per taxable year from $5,000,000 to $7,500,000. Taxpayers who have credit amounts in excess of $7,500,000 may carry forward excess credits and claim them in a future tax year within the credit’s current 10-year carryover period, or until the full amount of the credit is used, whichever occurs first. The $7,500,000 annual limitation applies to all credits claimed by a taxpayer for a tax year, including amounts carried over from prior tax years.

The Land Preservation Tax Credit Program was not so lucky.

The 2024 Appropriation Act imposed a $20,000 limitation on the amount of land preservation tax credits a taxpayer may claim each year for tax years 2024 and after. Section 58.1-512 of the Code of Virginia provides for a $50,000 per year limitation, but provisions in the Appropriation Act generally supersede conflicting provisions in the code.

Thus, the $50,000 referenced in Section 58.1-512 is not the law for tax years 2024 and after. Under current law, the land preservation tax credit continues to be subject to the following: (1) for tax years 2017 through 2022, an annual per taxpayer limitation of $20,000, (2) for tax year 2023, an annual per tax-payer limit of $50,000, and (3) for tax years 2024 and following, back to a $20,000 per year limit.

Contractors and the continuing sales tax / use tax confusion.

Section 58.1-610 of the Code of Virginia provides that a contractor, and not the customer, is responsible for paying sales tax or use tax on items used in a service transaction. House Bill 1508 of the 2024 legislative session provides that if a contractor has erroneously collected (from its customer) and over paid retail sales tax to the department with respect to a transaction for which the department has made a use tax assessment, the department must apply the erroneously remitted sales tax proceeds to the use tax assessment against the contractor for that particular transaction.

To obtain a refund of the erroneously over paid sales tax, the contractor must provide evidence of the erroneously paid retail sales tax amount collected and remitted in a particular transaction. The contractor may not apply for and receive relief if the contractor has previously applied for or received such relief, or unless and until the contractor can affirmatively show the sales tax amount has since been refunded to the purchaser or credited to the purchaser’s account by the contractor.

The bottom line is that in a contractor transaction, the contractor is responsible for the sales tax or use tax on all items used in the transaction. If the contractor has erroneously charged its customer for the sales tax, the burden is on the contractor to correct that transaction with its customer. In the meantime, the Department of Taxation has the authority to take any payments made with regard to the transaction and apply them to fulfill the contractor’s tax liabilities.

Reporting relief for small nonprofit entities.

Prior to July 1, 2024, a nonprofit entity in Virginia with gross annual revenue of $1,000,000 or more was required to provide the Department of Taxation with a financial audit before receiving a retail sale and use tax exemption.

That $1,000,000 threshold has now been increased to $1,500,000. Entities with gross annual revenue of $750,000 in the prior tax year, however, will still be required to provide a financial review performed by a certified public accountant before receiving a retail sales and use tax exemption from the Department of Taxation.

Installment agreements may now be available to pay delinquent local taxes.

House Bill 1503 of the 2024 legislative session allows the governing body of a locality to authorize its treasurer or other collecting official to enter into installment agreements with taxpayers who have been assessed with and failed to pay local taxes, including any penalty and interest, over a term of up to 72 months.

The act requires the installment agreement to provide for payment of current tax obligations, with payments credited to current tax obligations as they come due. This legislation is intended to improve effective tax administration and improve collections of delinquent taxes at the local level.

Income tax relief for distressed localities.

Senate Bill 564 of the 2024 legislative session requires the Department of Taxation and the Commission on Local Governments, in collaboration with local stakeholders, to assess the need for income tax relief in “distressed” localities experiencing significant population loss since 2013.

The Department of Taxation and the Commission on Local Government are required to report their recommendations to the governor and to key officials in the General Assembly no later than November 1, 2024. Such legislative studies and reports are a common feature of General Assembly sessions.

The only constant in life is change.

Benjamin Franklin stated that the only things certain in life are death and taxes. Ben overlooked the inevitability of tax law changes. If you have any questions on Virginia’s 2024 tax law changes, please contact the Tax Law team members at Woods Rogers.