Virginia’s Democratic-controlled legislature has voted to raise state taxes, and to allow local government to raise local sales taxes (which most will). This is happening in a state that is now one of the eight highest-taxed states, according to the Tax Foundation.
The budgets passed by both houses of Virginia’s legislature would extend the state’s sales tax to “a host of digital products and services, adding 6% or more to the prices of downloads, streaming services, and online data storage.” The House passed its proposed budget by a 75-to-24 vote, while the Senate passed its proposed budget by a 38-to-2 vote. “The Senate’s revenue spreadsheet pegs the tax increase at $380 million in 2025 as the tax kicks in and then $950 million in 2026,” notes Stephen Haner of the Thomas Jefferson Institute, one of the people in Virginia who publicly opposes tax increases.
Both houses of the state legislature have also passed legislation allowing all local governments to raise the sales tax by 1% to pay for school construction, by veto-proof margins — with 69 of 100 votes in the House of Delegates, and 27 of 40 votes in the state Senate. Prior to the 2023 election, in which the Democrats picked up seats, this legislation would not have passed the state House of Delegates by a veto-proof margin, and it could have been vetoed by Virginia’s Republican governor.
Historically, local governments had to ask the legislature for permission to raise the local sales tax, and the legislature granted permission to only eight of Virginia’s 133 local governments, those that needed to raise sales taxes because their property values were low, leaving them with a small property tax base.
Requiring each locality to ask the state legislature for permission to raise sales taxes made sense, because sales taxes affect other people in the state that just those that live in the locality. A local sales tax hike doesn’t just affect residents of a city or county, it also affects non-residents who don’t live there and can’t vote local government officials out of office for unnecessarily raising taxes. By contrast, property taxes only affect local residents, so local governments have an incentive not to raise property taxes too much, even if such tax increases aren’t limited by state law.
Because sales taxes are paid partly by non-residents, the Thomas Jefferson Institute’s Stephen Haner predicts virtually all local governments will raise their sales tax by 1% after this legislation becomes law. The legislation would require residents to approve a local sales tax increase, but given the fact that the tax is paid partly by non-residents, “it is hard to imagine” such referendums “failing often,” he says. “I remain certain it will pass everywhere within a few years,” he says.
So local governments will switch from using property tax revenue for school construction, to using sales tax revenue. Then, they will use their existing property tax revenue for something else, like fancy municipal buildings or white elephant projects. Virginia’s Arlington County has built million-dollar bus stops, and once planned a $250 million trolley that would have resulted in road congestion. Virginia’s Fairfax County paid bus drivers to drive empty buses when schools were closed during the coronavirus pandemic.
These bills were passed by veto-proof margins. Moreover, while Virginia has a Republican governor, he does not have the large fiscal powers of government in other states, like New Jersey or (historically) Maryland. The legislature is the dominant branch of government in Virginia. It even picks the state’s judges.
In other news, a caucus that includes nearly half of Virginia’s Democratic legislators recently announced that it is in “profound solidarity” with the state’s criminals.
