<p class=ldtitle>A BILL to amend and reenact ยง 58.1-390.3 of the Code of Virginia, relating to income tax; pass-through entities; sunset.</p>
Impact
If passed, the bill would impose a tax rate of 5.75% on the Virginia taxable income of each pass-through entity that opts for this election. Nonresident owners would only be taxed on income attributable to Virginia sources. Additionally, the bill allows for tax credits that would adjust the taxable income for state and local taxes paid, thereby ensuring that owners can benefit from revenue generated at the entity level. This could increase state revenue while providing a clear pathway for taxation of these entities within Virginia.
Summary
House Bill 33 aims to amend and reenact section 58.1-390.3 of the Code of Virginia, focusing on the income tax for pass-through entities. It allows these entities to make an election to pay taxes at the entity level rather than passing the tax burden on to individual owners. This election is available for taxable years starting on or after January 1, 2021, with specific provisions for the tax rates and credits that would apply to eligible owners of the pass-through entities.
Contention
The bill's implications may be contentious as it centralizes taxation at the entity level, potentially affecting the way individuals report income from pass-through entities. Proponents may argue that this simplifies tax compliance and collection for the state, while critics might worry that it imposes a heavier tax burden on small businesses and individuals who rely on income from these entities. The sunset clause in related legislation indicates a potential re-evaluation of this tax structure in subsequent years, adding another layer of discussion regarding its long-term viability.