House of Delegates Appropriations Chairman Del. Chris Jones, R-Suffolk. (Ned Oliver/Virginia Mercury)

A House Republican leader wants to advance tax conformity and funnel money from federal tax changes into a new fund instead of using it for budget changes.

Del. Chris Jones, R-Suffolk, added some twists to his previously straightforward tax conformity bill. Virginia would adopt conformity —  a regular, usually non-debated action that adopts federal tax definitions — which will funnel hundreds of millions more dollars to the state, thanks to President Donald Trump’s Tax Cuts and Jobs Act of 2018.

A portion of the money Virginia will get comes from taxpayers who may want to take a new higher federal standard deduction. If they do that, though, they cannot itemize their state taxes, per Virginia law. That means the state will keep that money. 

But instead of using that money to help fund $2.1 billion of budget amendments proposed by Gov. Ralph Northam, Jones wants to put it in a new account until the state figures out the best way to get the money back to taxpayers.

“People forget — it’s not the state’s money,” Jones said. “People work hard for what they have.”

Under Jones’ proposal, which passed out of a committee with a 9-4 vote and nine abstentions from Democrats, most people would see no change in their state tax refunds this year. People who typically itemize their taxes and choose not to do so in order to take the higher federal standard deduction may see an increase on their state taxes, which means a smaller refund. Any policy change — like raising the state standard deduction or allowing itemizing while taking the federal standard deduction — would be reflected in next year’s tax refunds.

“When they can proceed, they’re going to find out that they’re no longer able to deduct at the state level and they’ll be the ones who would’ve gotten a refund before who are paying more,” Jones said.

The money left on the table this year from the taxpayers who take the standard deductions and can’t itemize would be put in a new fund that would eventually be given back to them through a plan established by the Department of Taxation, according to Jones’ bill.

Del. Rip Sullivan, D-Fairfax, said he thinks the plan “kicks the can down the road.”

“This releases the General Assembly of what I think is frankly its duty to figure out this session what to do,” he said.

Jones said his idea gives the General Assembly plenty of time to debate tax policy options. There are several options that lawmakers have suggested which include raising the standard deduction and making the earned income tax credit refundable; only making the earned income tax credit refundable, as Northam suggested; or the House Republican plan to raise the standard deduction, allow itemization at the state level when taxpayers opt for the federal standard deduction and lifting some caps on tax write-offs.

Freshman Del. Joe McNamara, R- Rockbridge, said not conforming would affect every taxpayer, while many of the policy changes would only affect portions of the population. He supported Jones’ strategy since any tax policy would need a super-majority to pass and go into effect for this tax season.

“I’m not sure we’re going to get the 80 percent on anything that determines where the revenue is going to go,” he said.

If lawmakers don’t agree on new tax rules this session, the debate can carry over into a special session or next year, Jones said.

That’s similar to the way that the state handled the 1986 tax changes, said Secretary of Finance Aubrey Layne. That was the last time the federal tax code changed as significantly as it has under Trump’s plan. The Northam administration took no position on Jones’ bill, but said it would be important to handle it quickly since Northam’s budget proposals depend on some of that money.

Jones said the House Appropriations Committee is forming budget amendments from a roughly $600 million estimate from the Governor’s Advisory Council on Revenue Estimates. He didn’t say which of Northam’s proposals have made it into the working budget, but did say he plans to retain a 3 percent teacher pay raise (which totals a 5 percent raise for the biennium) and does not support making the earned income tax credit fully refundable.

CORRECTION: This story has been corrected to reflect the cost of Gov. Ralph Northam’s budget proposals.