RICHMOND — Virginia’s House of Delegates on Tuesday moved to align state tax returns with federal returns, a normally mundane effort that this year has become highly partisan, leaving thousands of taxpayers unsure about how or when their 2018 state returns will be processed.
Republicans in the House advanced two bills, passed on party-line votes, that Democrats argue will benefit wealthier families who take advantage of the federal standard deduction under the 2017 Tax Cuts and Jobs Act passed by the GOP-led Congress and signed by President Trump.
The first bill would create a relief fund for families forced to pay more state taxes under the federal plan. The second would allow Virginians who use the federal standard deduction to file itemized deductions on their state tax returns.
With Democrats refusing to allow those changes to apply to the current tax season and a competing Senate Republican bill also in play, the lack of conformity between the state and federal tax codes has tied the hands of the Northam administration as more tax returns pour in every day, said Secretary of Finance Aubrey Layne.
So far, the state has received 345,000 tax returns that have yet to be processed because state officials don’t know which guidelines to follow, Layne said.
Partisan tensions in Richmond are high in an election year that could affect GOP control of the General Assembly, complicating what is usually a sleepy annual process of synchronizing state tax policy with federal policy.
Gov. Ralph Northam (D) and most Democratic state legislators want to conform to the federal code without changing state policy about deductions. Under that plan, they would pass some of the expected additional revenue created by the federal tax law to lower-income Virginians and spend the rest on teacher salaries, local economic development and other priorities.
With the governor’s clout severely diminished as he deals with the scandal over a racist photo on his page of his medical school yearbook, House Democrats tried in vain Tuesday to beat back a Republican plan that focused more on “middle-income” families earning between $120,000 and $150,000 a year.
“This bill, unfortunately, doesn’t accomplish what it should,” Del. Sam Rasoul (D-Roanoke) said on the House floor, arguing that the legislation follows a pattern by Republicans to steer away money from the neediest Virginians.
“We’re just sick and tired of having to beg for crumbs,” Rasoul said, eliciting protests from Republicans who argued that isn’t true.
Republicans said the plan would guarantee at least $950 million in tax relief.
They want the extra revenue generated under the Trump tax plan to go to those facing higher state taxes, the goal of a bill sponsored by Del. Chris Jones (R-Suffolk).
Del. Tim Hugo (R-Fairfax), who sponsored the bill that would allow for itemized deductions, said it could mean refunds as high as $800 for taxpayers.
The bill would also raise the state’s standard deduction to $4,000 for single individuals and $8,000 for married people filing jointly through 2025. The standard deduction, which hasn’t been changed for decades, sits at $3,000 for single individuals and $6,000 for married couples filing jointly.
“Instead of reaching into the purses of the taxpayers of Virginia, I say let’s stand with the single mom who is fighting to put food on the table,” Hugo said on the House floor.
Layne said the administration prefers the Senate Republican bill over the House legislation, mainly because it would require fewer administrative changes.
Among other things, that bill, co-sponsored by Senate Majority Leader Thomas K. Norment Jr. (R-James City), would increase the state’s standard deduction to $4,500 for individuals and $9,000 for married people filing jointly.
But, Layne said, the chief concern is to quickly reconcile the state code with the federal code.
“If we don’t get conformity, there are some 20 differences between us and federal authorities that individuals will have to take into account on their returns,” Layne said. “There’s just a lot of uncertainty.”