The State Senate today overwhelmingly approved a $96.2 million increase in Virginia business taxes to deal with what its finance committee chairman called an "extreme emergency" in the state budget.

The proposal, if adopted by the House, would recoup slightly less than half the revenue that Virginia is projected to lose over the next two to three years because of Reagan administration tax cuts. The state tax structure automatically follows federal tax law unless the legislature acts to change it.

Business groups opposing the measure had contended it would partially undercut federal policies aimed at encouraging business expansion. Confronted by a united wall of support for the bill by the Senate leadership, the business groups said yesterday they had decided to forgo the Senate and concentrate their lobbying efforts against it in the House of Delegates.

"We don't believe this is any time to be raising corporate tax rates, even temporarily," said Bill Nolley, vice president of the Virginia Manufacturers Association. "We'd rather see them make $100 million in expenditure reductions. But we knew the bill was going to pass in the Senate all along."

The measure would increase the state corporate tax from 6 to 7 percent for companies doing more than $100,000 worth of business a year in Virginia. Companies with less than $100,000 worth of business would have their tax rate increased from 6 to 6 1/2 percent. In addition, the measure would scrap a scheduled tax reduction in public utility gross receipts taxes from 2.3 percent to 2 percent.

The proposed state increases would, for most firms, undo only a small portion of the tax break they have received at the federal level through faster depreciation of new plant and equipment.

The bill was opposed on the Senate floor yesterday by Republicans who contended it was inequitable because companies that did not receive benefits from the federal tax cut would be hit just as hard as those that did. Finance Committee Chairman Edward E. Willey (D-Richmond) countered that the bill was a "prudent conservative measure which should only be used in extreme emergencies. Ladies and Gentlemen, we are facing one of those emergencies now." The final vote was 29 to 8.

The emergency to which Willey referred is a projected $500 million revenue shortfall resulting from federal budget and tax cuts and a recessionary economy. The business tax measure is the first of several proposed tax increases, including a proposed 3-cent increase in the 11-cent-per-gallon state gas tax, that the General Assembly will be considering over the next six weeks.