The Governor and legislative leaders have put forth a broad spending plan that includes over $1 billion in new taxes and an estimated $2.5 billion in budget cuts to cover an estimated $3 billion deficit in fiscal year 2026. The budget plan will leave a reserve for fiscal year 2027 and includes “federal spending triggers” that would kick in should there be federal budget reductions.
Revenue measures include a 3% tax on data and IT services that would collect an estimated $500 million and a 2% tax on capital gains income of over $350,000, which would raise an estimated $367 million.
Other tax reforms include creating two new income tax brackets for high-income earners. Those who earn $500,000 to $1 million would have to pay 6.25%, while those who earn over $1 million would have to pay 6.5%.
To increase transportation funding, the House plan increases excise taxes for the sale of vehicles, increases vehicle registration, and doubles titling fees for new and used vehicles. It also raises taxes on cannabis sales and sports betting.
However, leaders have agreed not to include an increase in the 6% state sales tax, a 75-cent fee on retail deliveries, or a property tax hike. Additionally, there will be no expansion of gambling into iGaming, no estate tax increase, no changes to the car trade-in allowance, and no new taxes on sugary drinks or gasoline.
While there is broad agreement, House and Senate leaders will work over the next two weeks to resolve differences to finalize the budget by April 7, the last day of Session. The House of Delegates will debate its version of the budget on the floor this week. The Senate Budget and Taxation Committee will discuss and vote on its version of the budget this week.
Summary of the Budget Reconciliation and Financing Act tax provisions
Budget agreement could generate more than $1 billion in new revenue
Top Democrats reach deal on budget with more cuts, $1.6B in new taxes and revenue
HB 350 Budget Bill
HB 352 Budget Reconciliation and Financing Act
