Virginia should quickly adopt tax conformity, resolve policy debates separately

December 12, 2018 6:01 am

The Capitol at dusk. (Ned Oliver/Virginia Mercury)

Tax season is approaching and there is a pressing issue that will affect whether or not Virginia taxpayers can quickly and easily file their taxes in the commonwealth: tax conformity.

Only the Virginia General Assembly and Gov. Ralph Northam can address this issue, which will have a profound effect on taxpayers’ ease of filing, how fast those due to receive refunds can collect their checks and how quickly the state can gather tax revenue.

What is tax conformity?

Simply put, it’s whether a state’s tax code adopts the federal definitions of income outlined in the U.S. Internal Revenue Code.

Conformity doesn’t include tax rates, tax brackets or exemption amounts — Virginia sets its own.

Not conforming to the federal tax code creates havoc for taxpayers when it comes to filing state taxes. Failure to conform would require individuals and businesses to make numerous complex modifications to their returns.

Every year, the Virginia General Assembly must pass emergency legislation to conform to the IRC on many, though not all, provisions.

This year, conformity is even more urgent because of federal tax reform.

There are a lot of larger tax policy discussions to be had on the state level related to the Tax Cuts and Jobs Act of 2017. ‘

Lack of guidance from the U.S. Internal Revenue Service has made assessing the impact of the act difficult, and the 2018 General Assembly did not address TCJA changes beyond those affecting 2017 tax returns.

For instance, the much larger federal standard deduction creates a scenario in which taxpayers no longer have a federal incentive to itemize, but then may have larger state tax.

Lawmakers may find it tempting to bundle larger solutions related to TCJA, such as increasing the standard deduction or allowing taxpayers to itemize on Virginia returns, into legislation with conformity.

But waiting to conform to the federal tax code until Virginia makes its decisions on TCJA would be a mistake.

Virginia Secretary of Finance Aubrey Layne speaks to reporters following an event to announce proposed school funding increases, including an additional 2 percent raise for teachers, part of which is expected to be paid for through (Ned Oliver/Virginia Mercury – Dec. 11, 2018)

The best course of action is to pass emergency conformity legislation as soon as possible after session convenes and address tax policy in a separate bill. This will minimize taxpayer confusion, reduce the burden of returns that need to be amended and resubmitted and mitigate the risk of a chaotic, compressed filing season.

As a certified public accountant, it is my duty to faithfully represent my clients and assist them with their taxes, and I’m not alone in my concerns.

A whitepaper released in September from the Virginia Society of CPAs, “Virginia Tax Conformity: 2018 and Beyond”, fully promotes tax conformity and gives recommendations for the Virginia General Assembly to address in 2019.

Even Virginia Secretary of Finance Aubrey Layne, also a CPA, believes this is the right course of action. In an interview with the VSCPA, he said “it will be difficult to even discuss tax reform in Virginia if we don’t start from a place of conformity.”

I hope the General Assembly hears the concerns of the CPA community and acts quickly to protect all Virginia taxpayers.

Views of op-ed contributors are their own and do not necessarily reflect those of the Virginia Mercury.

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Daniel Chenoweth
Daniel Chenoweth

Daniel Chenoweth, MPA, CPA, is a member of the Virginia Society of Certified Public Accountants. He is a tax partner at PB Mares in Newport News.