Report Concludes Repealing Virginia's Corporate Income Tax Would Be Disastrous

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Virginia Delegate Harry Purkey, chairman of the House Finance Committee, introduced a bill earlier in the year to eliminate the state’s corporate income tax as a way to give the state (often ranked as one of the most business friendly) a “competitive edge.”  While the bill was not enacted, a joint resolution was passed directing staff of the Joint Legislative Audit and Review Commission (JLARC) to undergo a comprehensive study of Virginia’s corporate income tax system.

The draft report was released last week and delivered news that Del. Purkey is not likely to like.  The bottom line?  Virginia cannot afford to lose its corporate income tax, the state’s third largest revenue source.  Researchers found that eliminating the corporate income tax would result in a five year revenue loss of more than $3.6 billion while only generating about $220 million in additional personal income tax revenue.  To break even on revenue from eliminating the corporate income tax, Virginia would need to add more than 160,000 new jobs.  The study estimated the change would result in an additional 12,500 jobs, only 8 percent of what would be needed.  

But the corporate income tax is more than just an important revenue source. It's also an important part of ensuring tax fairness.  As the draft report says, “The fundamental purpose of all taxes is to raise revenues to finance public programs and services.  Nearly all states tax corporations because they benefit from many of these programs and services. For example, corporations use state-maintained roads to transport goods, hire employees who have been educated and trained in state-funded facilities, and rely on state courts to resolve legal matters.”

It would behoove the new governors in Wisconsin, South Carolina, and Florida, all of whom have proposed eliminating their state’s corporate income tax, to consider the new Virginia study before making a move that will deplete state revenues with no economic gain.

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