Virginia's interest rates will remain the same for the first quarter of 2024. Federal rates remain unchanged. State and certain local interest rates are subject to change
every quarter due to changes in federal rates established pursuant to Internal Revenue Code (“IRC”) § 6621.

Federal rates for the first quarter of 2024 will be 8% for tax underpayments (assessments) and 8% for tax overpayments (refunds) by noncorporate taxpayers. Accordingly, the Virginia rates for the first quarter of 2024 will be 10% for tax underpayments (assessments) and 10% for tax overpayments (refunds). 

Details about the interest rates for the first quarter of 2024 can be found in Tax Bulletin 23-9. 

As some pass-through entities (“PTEs”) are waiting for a free online filing option to file their Taxable Year 2022 pass-through entity tax (“PTET”) returns, Virginia Tax is granting a waiver of the minimum $100 Late Filing Penalty that would otherwise apply to a late-filed PTET return, so long as PTEs comply with the requirements as outlined in the bulletin. The relevant payment deadlines will remain the same.

View the tax bulletin.

VTAX updated the 2023 Legislative Summary to reflect the reconvened General Assembly session on April 12 and Special Session I on September 6. Any legislation included after Special Session I is not included.

The following became effective on September 14, 2023: 

• Clarification regarding Virginia's Conformity to the IRC
• 2023 Individual Income Tax Rebate Fund
• Reinstatement of the combined Sales and Use Tax Holiday
• Real Property Tax: Data Centers (Amendments to the 2023 Appropriation Act)

References to chapter numbers are to the corresponding chapters in the Acts of Assembly, which may be viewed at: https://lis.virginia.gov. 

Virginia's interest rates will change for the fourth quarter of 2023.The underpayment and overpayment rates for Virginia taxes are 2% higher than the corresponding federal rates. Federal rates for the fourth quarter of 2023 will be 8% for tax underpayments (assessments) and 8% for tax overpayments (refunds) by noncorporate taxpayers. Accordingly, the Virginia rates for the fourth quarter of 2023 will be 10% for tax underpayments (assessments) and 10% for tax overpayments (refunds).

Details about the interest rates for the fourth quarter of 2023 can be found in Tax Bulletin 23-7. 

Virginia Interest Rates Remain the Same for Third Quarter

Federal Rates Remain Unchanged: State and certain local interest rates are subject to change every quarter due to changes in federal rates established pursuant to Internal Revenue Code (“IRC”) § 6621. IRC § 6621 dictates that the federal underpayment and overpayment rates are three percentage points higher than the federal short-term rate. Federal rates for the third quarter of 2023 will be 7% for tax underpayments (assessments) and 7% for tax overpayments (refunds) by noncorporate taxpayers.

Virginia Code § 58.1-15 provides that the underpayment rate for Virginia taxes will be 2%
higher than the corresponding federal rate and the overpayment rate for Virginia taxes will be 2% higher than the federal overpayment rate for noncorporate taxpayers. Accordingly, the Virginia rates for the third quarter of 2023 will be 9% for tax underpayments (assessments) and 9% for tax overpayments (refunds). 

Details about the interest rates for the third quarter of 2023 can be found in Tax Bulletin 23-6

Virginia Department of Taxation

The 2023 Legislative Summary is now available. 

The Legislative Summary is published by Virginia Tax as a convenient reference guide to state and local tax legislation enacted by the 2023 Session of the General Assembly.

The Summary includes a general description of enacted legislation affecting:

• State taxes administered by Virginia Tax, and
• Local taxes for which Virginia Tax assists with administration, or on which Virginia Tax renders advisory assistance.

References to chapter numbers are to the corresponding chapters in the Acts of Assembly, which may be viewed at: https://lis.virginia.gov. Effective dates of the legislation vary and are set out in each description.

In general, legislation affecting taxes administered by other state agencies is not included in the Summary.

The Summary is intended to provide a synopsis of enacted legislation and is for informational purposes only. The Summary is not a substitute for the actual state law, local ordinances, or tax related regulations. 

Effective July 1, 2023, House Bill 1442 (2023 Acts of Assembly, Chapter 410) requires Virginia Tax to annually publish on its website the current rate of the local transient occupancy tax of each county, city, and town. The tax-assessing officer of each locality must send this information to Virginia Tax as soon as the current rate is available after a request by Virginia Tax, or with at least 30 days’ notice prior to the effective date of any change in the rate.

Details about the local occupancy tax rates can be found in Tax Bulletin 23-5

Replacement of the Qualifying PTE Requirement with an Eligible Owner Requirement

Under legislation enacted by the 2023 General Assembly, changes were made to Virginia’s Pass-Through Entity Tax (PTET) that relaxed the requirements to qualify for the PTET election and altered how the PTET is calculated. This bulletin provides guidance on how to reconcile this legislation with 2022 Virginia PTET returns.

Details about the changes can be found in Tax Bulletin 23-3the Tax Bulletin

If you have additional questions, go to www.tax.virginia.gov, or contact us at 804.367.8031 for individual income tax questions and 804.367.8037 for business tax questions.

For taxable years beginning on and after January 1, 2021, but before January 1, 2026, the Virginia General Assembly has established a new elective pass-through entity (PTE) tax. Form 502PTET will allow qualifying pass-through entities to pay Virginia tax at a rate of 5.75% on behalf of their owners at the pass-through entity level rather than the owners paying the tax at the individual level, consequently avoiding the state and local tax cap on Schedule A of Form 1040. The elective income tax and corresponding refundable credit allow the qualifying PTE to shift the income tax burden from the PTE owners to the PTE itself.

Form 502PTET will be available in Drake Tax in late spring. Drake Software is asking that you plan accordingly.

Important Notes

• Entities that do not elect the PTET must file Form 502.
• Each electing PTE must obtain consent from its owners. The election is binding on all the owners once the election is made. An owner does not have the option to opt out of an entity’s election.
• A qualifying pass-through entity’s taxable income must be adjusted to eliminate any federal deduction for state and local income taxes.
• Due to the timing of this legislation, implementation of the Taxable Year 2021 PTE elective tax will occur on or after October 15, 2023, following separate guidance and procedures scheduled to be released prior to October 15, 2023.
• For taxable years beginning on or after January 1, 2022, but before January 1, 2026, a qualifying PTE may make an annual election on a timely-filed Form 502PTET.
• Form 502PTET automatically qualifies for a 6-month extension.
• Form 502PTET and all corresponding schedules must be filed electronically. No paper submissions will be accepted.
• Payments must be made electronically by the filing deadline of April 17, 2023, for calendar year entities. Payments are processed at:
  www.business.tax.virginia.gov/tax-eforms/ptetpmt.php

Additional resources: 

• www.tax.virginia.gov/sites/default/files/taxforms/corporation-and-pass-through-entity-tax/2022/502ptet-package-2022.pdf
• www.tax.virginia.gov/sites/default/files/inline-files/draft-pass-through-entity-guidelines.pdf
• www.tax.virginia.gov/sites/default/files/inline-files/ptet-faqs.pdf

Reduced Retail Sales and Use Tax Rate on Food Purchased for Home Consumption and Essential Personal Hygiene Products

Effective January 1, 2023, groceries (food purchased for home consumption and essential personal hygiene products) will be taxed at a reduced 1% rate. 

Background

Under prior law, groceries were subject to a reduced 1.5% state sales tax rate and 1% local option sales tax rate for a total rate of 2.5%. With this change, they'll remain subject to the 1% local option retail sales and use tax, and will continue to be exempt from all regional and additional local tax rates.

View the Tax Bulletin

If you have additional questions, go to www.tax.virginia.gov, or contact us at 804.367.8031 for individual income tax questions and 804.367.8037 for business tax questions.