McLean, VA – (February 26, 2024) – The Northern Virginia Technology Council urges the General Assembly to preserve the competitiveness of one of the largest and most successful, dynamic, and innovative sectors of the Virginia economy by saying no to a proposed $1 billion tech tax.
By enacting creative, forward thinking policies and investments, Virginia policymakers have created a workforce and business, tax, and regulatory environment that makes Virginia a global leader in technology businesses and jobs that help drive the innovation economy.
According to the Information Technology Industry Council, Virginia has one of the strongest per capita tech economies in the entire country, generating $21 billion in GDP and accounting for 17.4% of the Commonwealth’s total workforce. A $1 billion tax on this critical and impactful sector would harm Virginia businesses and risks pushing startups and existing businesses to states with more welcoming tax environments.
“A new tax on Virginia’s tech companies will force small and startup business like mine to consider cutting jobs or relocating out-of-state, an option that is easier than ever given the nature of high tech firms’ remote work policies, and the ease with which cloud capabilities can be moved geographically.” – Michael Weigand, Co-founder and Chief Growth Officer, Shift5
While both chambers included in their budget an expanded sales tax on certain aspects of the digital economy, the Senate went further than the House, and further than the vast majority of states, by applying sales tax to business-to-business (B2B) transactions. Unfortunately, it did so without any consultation with Virginia’s technology industry or input from the businesses that would be harmed by this extraordinary shift in Virginia’s tax structure.
If the General Assembly and Governor choose to impose additional taxes on Virginia’s digital economy, it is essential that they extend a broad exemption for B2B transactions in order to maintain the competitiveness of Virginia businesses and protect the Commonwealth’s reputation as a welcoming home for new, growing, and established businesses in the digital economy. The proposed B2B tax would place Virginia companies at a competitive disadvantage compared to their competitors around the country and around the globe who will not have to pay such taxes.
If this $1 billion per year tax hike is imposed on Virginia’s technology sector, Virginia companies will be forced to:
- Pass along higher costs to consumers
- Absorb the cost themselves, which reduces their ability to invest in and grow their businesses
- Leave Virginia for more business-friendly states
- Make Virginia less globally competitive as a place to start a company, work, and live
While the tech tax is pitched as a way to equalize tax treatment across the economy, it would, in fact, place digital commerce at a competitive disadvantage compared to the many other industries where taxes are not imposed on certain necessary equipment, materials, and other business inputs. Additionally, it would make online training and education, software, and software as a service more expensive to Virginians, government, and students.
The boundless nature of the digital economy makes the B2B tax unworkable for companies that operate globally. Buyers and sellers would face a nightmare labyrinth of tax liabilities that would result in higher compliance costs that may be passed onto consumers.
The tech tax would fall especially hard on Virginia startups and small tech businesses, the very businesses the Commonwealth should be supporting and encouraging.
The tech tax would also lead to a compounding of taxation as additional layers of taxation lead to higher prices that, as discussed above, are either passed on to consumers or absorbed by Virginia businesses that should instead be investing in research, innovation, workforce development, and growth.
“The proposed tech tax hike would put Virginia companies at a significant competitive disadvantage in industries where global competition is high and margins are narrow. The tax will very likely impact hiring and reduce research and development investment, the majority of which is currently concentrated here in Northern Virginia. We should embrace Virginia’s dynamic, growing tech companies and startups, not push them to other states with large, anticompetitive tax hike.” – Jennifer Taylor, President and CEO, Northern Virginia Technology Council
Billions of public and private sector dollars have been invested in developing the infrastructure, workforce, and tax and regulatory environment that supports a dynamic, thriving digital economy in Virginia. A $1 billion+ annual tax hike on this industry threatens to undo this progress and send businesses, jobs, and investment to other states.
