Virginia business taxes, teacher pay raises to be hashed out in conference committees

(The Center Square) – To seek a compromise on business taxes and teacher pay raises, Virginia lawmakers from both chambers will meet in joint conference committees to establish agreed-upon legislation.

Both chambers passed their versions of bills to modify the state budget and to partially conform the state tax code to the federal code, but key differences in their versions will carry the debate into next week.

One of the top points of contention is taxes on businesses expenses from money obtained through forgivable Paycheck Protection Loans from the federal stimulus packages. The House-passed legislation would allow tax deductibility for up to $25,000 worth of expenses and the Senate-passed legislation would allow a deduction on up to $100,000 worth of expenses.

The federal government is exempting businesses from paying any taxes on these expenses at the federal level. Although Virginia lawmakers usually fully conform its state tax code with the federal code, Democratic leaders cited the unique financial circumstances from the COVID-19 pandemic for justifying only a partial conformity. The loans were provided to businesses to maintain payroll and keep workers employed through the pandemic.

Both versions differ from Gov. Ralph Northam’s proposal, which did not include any exemption for businesses on these loans. A coalition of business associations endorsed the Senate proposal, arguing that businesses are still struggling to make money and stay open with the state’s ongoing restrictions.

Although teacher pay raises are present in both versions of the budget bill, the House has proposed a larger increase than the Senate. The House seeks to provide a 5% increase for teachers starting July 1, 2021 and the Senate seeks a more modest increase of 3% beginning in August. The House version would cost the state more than $231 million, but the Senate version would only cost the state about $140 million.

Northam’s proposal only included a 2% bonus for teachers, which could have been turned into a 2% pay raise, depending on the state’s finances. Revenue growth for the commonwealth has continued to outpace the government’s predictions.

The budget proposals also address COVID-19 vaccination efforts and funding for criminal justice reform bills. It would also include one-time funding to offset the formulaic losses caused by the decreased enrollment during the pandemic. Northam and some lawmakers have said they predict enrollment to increase to normal levels with the end of the pandemic and that this money is necessary in the meantime.

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