VA Governor Seeks To End State Grocery Tax, Offer One-Time Tax Rebates

VIRGINIA — Virginia Gov. Ralph Northam is proposing to offer one-time tax rebates to residents who file state income taxes in the state as part of his budget proposal for the next fiscal year, the governor's office said Tuesday.

Individuals would receive a $250 rebate, while married couples would receive a $500 rebate in 2022. Virginia last offered tax rebates in 2019, providing $110 for individual filers and $220 for married couples.

Northam also is proposing to eliminate the state sales tax on groceries. Virginia’s unprecedented economic strength makes the elimination of the tax possible, the governor said Tuesday. The state grocery tax is 1.5 percent.

The elimination of the state grocery tax would not affect revenues for localities, the governor's office said.

Northam's proposed budget for the fiscal year beginning July 1, 2022, is subject to approval by the Virginia General Assembly, where Republicans now control the House of Delegates while Democrats retain control of the Senate, as well as changes by Republican Gov.-elect Glenn Youngkin, who will be inaugurated in mid-January.

“When Virginia cuts taxes next year, it should be done in a way that benefits working people,” Northam said in a statement Tuesday. “Many professionals made it through the pandemic fine, as their work simply moved online. But workers haven’t been so lucky when their jobs require close contact with other people. Some jobs simply can’t move online — restaurant workers, early childhood educators, home care attendants, and others — and we all depend on the people who do this work.”

In his budget proposal, Northam also is proposing to make up to 15 percent of the federal earned income tax credit, or EITC, refundable for eligible families, which will give a tax break to low- and middle-income families.

The EITC reduces the amount that low- and middle-income working people owe in taxes. Making it “refundable” means people will get a refund from the state if they are working but earning income below a certain level. The amount depends on income level, marital status, and family size.

Another proposal by the governor would end “accelerated sales tax” payments for retailers. When a customer pays sales tax at a store or online, the retailer collects it for the state, and then forwards the money to the state.

When the economy collapsed in 2008 due to the global financial crisis, the state began requiring many retailers to pre-pay these tax payments early, even before they had even collected the revenue. This placed a burden on retailers, causing them to dip into their own pockets. Northam said he is proposing to end this system.

Together, these plans are expected to reduce state revenues by a total of $2.1 billion. Most of this amount is a one-time reduction for the state’s general fund, and $419 million is an ongoing obligation. All ongoing tax cuts will directly benefit working people through changes to the EITC and elimination of the state grocery tax, the governor's office said.

“Virginia is able to take these steps now because our sound fiscal leadership has shaped a booming economy,” Virginia Secretary of Finance Joe Flores said in a statement Tuesday. “These steps are tools to make sure that working people share in the prosperity.”

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