Virginia businesses facing big payroll tax hike without General Assembly action

Virginia

RICHMOND, Va. (WRIC)-As Virginia’s economy rebounds, some businesses fear a big tax hike could set them back.

Businesses are required to contribute to the unemployment trust fund periodically to sustain the state’s safety net. During the pandemic, that fund was depleted due to a record number of jobless claims. 

Virginia’s Secretary of Finance Aubrey Layne said the state borrowed money from the federal government as a temporary fix. Now, to get back up to pre-pandemic levels, he said there are two options: higher taxes or federal relief funds.  

“Without any action, it will be a very significant tax increase and unfortunately a burden on small businesses. At a time when we are trying to help them with grants, to me, it doesn’t make a lot of sense to turn around and increase their taxes,” Layne said in a phone interview on Thursday.  

If the General Assembly doesn’t act, businesses statewide are facing a fourfold increase in payroll taxes starting in 2022, according to projections cited in a recent Virginia Employment Commission presentation. 

Nicole Riley, the Virginia director for the National Federation of Independent Business, said that amounts to an average annual contribution of $360 per employee in 2022, up from $90 in 2021 and $70 in 2020.  

Riley said businesses that had to lay off a lot of workers will be taxed above the average rate because of the way the state’s formula calculates business contributions.

Layne said the General Assembly should use at least a billion dollars from the American Rescue Plan–the latest coronavirus relief package–to shore up the unemployment trust fund and avoid a “crippling” tax increase.

“I’m pretty comfortable they are going to do this but it’s just a matter of magnitude,” Layne said. 

However, that doesn’t mean a smaller tax hike is off the table, according to Layne.

The governor is expected to make formal spending recommendations before the General Assembly reconvenes later this summer but state lawmakers will have the final say on where federal relief funds go.

A spokesperson for House Appropriations Committee Chair Del. Luke Torian (D-Prince William) said there will likely be an update sometime next week.

Meanwhile, anxiety is building among small businesses owners waiting to see if higher taxes are on the horizon.

Liz Kincaid co-owns four restaurants in the Greater Richmond region, including Bar Solita, Tarrant’s Cafe,  Tarrant’s West and Max’s on Broad. Even with capacity restrictions lifted in Virginia, she said they are still having to restrict operating hours due to staff shortages 

“We’re already not making a profit so this would just put us further in the hole,” Kincaid said. “Any kind of additional tax at a time where we aren’t able to make a profit is really tone-deaf.”  

Carlyle Bland owns Brown Chicken Brown Cow, Venture Kitchen & Bar and Marker 20 In Hampton. He said, after being forced to shut down in-person service and restrict capacity, any increase would be frustrating. He thinks the tax rate should be restored to pre-pandemic levels. 

“I just don’t want to pay for something I had nothing to do with,” Bland said. “I didn’t lay people off because my business was bad. I laid people off because the governor said I couldn’t sell.”

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