Additional Taxing Authority for Counties Passes Legislature with Governor’s Amendments

May 6, 2020

Legislation providing long-sought additional taxing authority for counties received final approval by the legislature at the April 22 reconvened session.  HB 785 (Watts and Kilgore) and SB 588 (Hanger and Favola) were amended by the Governor to delay the provisions related to transient occupancy taxes and to clarify that the provisions dealing with cigarette taxes take effect July 1, 2021.  With the legislature’s acceptance of these amendments, the bills are now in final form.  The bills provide important revenue diversification options to counties, and VACo is extremely grateful for the hard work of our legislative champions and the support of the Administration in securing passage of this legislation, as well as for the efforts of VACo members and partner organizations who advocated on behalf of the bills.

Key provisions of the legislation as enacted:

  • Authorizes all counties to levy a tax on admissions at a rate not to exceed 10 percent, with the exception of certain counties where an additional state sales and use tax is imposed (currently this provision applies to counties in the Historic Triangle).  This authority takes effect July 1, 2020.
  • Authorizes all counties to impose meals taxes at a rate not to exceed 6 percent and eliminates the referendum requirement.  This authority takes effect July 1, 2020; however, a locality in which a meals tax referendum failed prior to July 1, 2020, would have to wait six years after the date of the failed referendum to impose the tax.
  • Authorizes all counties to levy transient occupancy taxes at rates exceeding 2 percent.  The revenue derived from rates greater than 2 percent would be spent either (1) for purposes previously authorized or (2) for rates between 2 and 5 percent, for tourism promotion (as is currently required for the counties that previously secured this authority under Virginia Code § 58.1-3819).  Revenue from rates greater than 5 percent may be used for general purposes.  This authority takes effect May 1, 2021.
  • Authorizes all counties to impose cigarette taxes at a rate not to exceed 40 cents per pack.  This authority would take effect July 1, 2021.  In the interim, the Department of Taxation is required to convene a stakeholder workgroup to make recommendations to modernize the process for collection of cigarette taxes.  Cities and towns with rates higher than 40 cents per pack would be grandfathered at the rates in effect as of January 1, 2020.
  • Directs the Division of Legislative Services to convene a workgroup of stakeholders to identify any additional technical amendments that may be necessary, and to identify differing legal authorities and responsibilities applicable to cities and counties aside from taxation, “including those related to the provision of local services and related to sovereign immunity.”  Recommendations are due to the “money committees” by October 31, 2020.

VACo Contact:  Katie Boyle

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