Youngkin to Ax Digital Goods Tax Expansion in Virginia Budget

Virginia Gov. Glenn Youngkin will amend the state budget the General Assembly approved last month and remove a provision extending the sales tax to include digital goods, such as streaming services.

The Republican announced Monday his plans to submit a package of “over 200 amendments,” that would abandon his original plan for a sales tax overhaul. Youngkin mentioned finding “common ground” with legislators on a principle of neither introducing new taxes nor reducing existing ones—a compromise that left him “a bit frustrated” as he has pushed for additional tax cuts.

“I will propose today that we don’t fight over tax decreases, but also recognize it’s not a time, nor will it ever be, for tax increases that will interrupt this economic model that is working so well,” Youngkin said at a news conference in Richmond.

Lawmakers will return April 17 to take up the governor’s vetoes and changes.

Virginia lawmakers approved a budget last month expanding the state’s sales tax base to include digital goods like streaming services, including business-to-business transactions for software application services. The software provision came after budget negotiators compromised between the state House’s proposal, which only taxed retail digital transactions, and the Senate’s version, which applied taxes more broadly to business-related sales.

Youngkin originally pitched a budget plan with personal income tax reductions, to be financed by increasing the sales tax rate from 4.3% to 5.2% and extending the tax to digital products, in an effort to seal what he termed a “big tech tax loophole.”

The legislature’s compromise budget would have extended the sales tax to retail sales of software application services, computer-related services, website hosting and design, data storage, and streaming services. The tax would have only applied to software application services for business-to-business sales. The expansion to include such “business inputs” faced resistance from business organizations, including the Council on State Taxation and the Virginia Chamber of Commerce, which said the tax could potentially cost businesses up to $360 million annually.