Skip to main content

Virginia's 2026–2028 Budget: What CPAs Need to Know About the Tax Provisions in HB 30

August 01, 2026

By Patrick Cureton, CPA

Virginia's newly enacted biennial budget brings a mix of permanent tax relief, targeted new deductions, and structural changes that practitioners should build into client planning now. Below is a summary of the tax-relevant provisions contained in HB 30, the budget/appropriations act for the 2026–2028 biennium.

Increases to the Standard Deduction

HB 30 increases the standard deduction — currently set at $8,750 for single filers and $17,500 for joint filers in 2026 — to the following:

  • 2027: $9,200 (single/married filing separately) / $18,400 (joint)
  • 2028–2029: $9,300 (single/married filing separately) / $18,600 (joint)

Earned Income Tax Credit

Virginia's refundable Earned Income Tax Credit — equal to 20% of the federal EITC — was scheduled to expire after tax Year 2026. HB 30 extends it through Taxable Year 2029, with the credit now set to sunset for taxable years beginning on or after January 1, 2030.

Sales and Use Tax Changes

  • Bullion exemption extended: The sales tax exemption for qualifying gold, silver and platinum bullion and legal-tender coins was extended through July 1, 2028.
  • Local sales tax referendum authority expanded: Counties and cities gained expanded authority to place an additional local sales and use tax of up to 1% before voters.

Data Center Electricity Consumption Tax

As part of the 2026 budget deal, Virginia enacted a per-kilowatt-hour tax on data center electricity use. The budget creates a $0.011/kWh electricity consumption tax on data centers, effective July 1, 2026, while preserving the state's existing sales tax exemption on data center equipment. The tax applies to utility-supplied and self-generated electricity, is capped at $600 million in annual collections (with excess refunded pro-rata to operators), and is scheduled to sunset July 1, 2028.

Cannabis Businesses — Decoupling from IRC Section 280E and Sales Tax Impacts

Virginia's 2026 budget establishes a retail recreational cannabis marketplace that would generally become effective July 1, 2027. Alongside it, decouples the state from the federal deduction limitation under IRC Section 280E.

Section 280E bars businesses "trafficking" in Schedule I or II controlled substances (which includes cannabis, given its federal classification) from deducting ordinary business expenses like rent, payroll and marketing — they can generally only deduct cost of goods sold. This has historically pushed effective tax rates for cannabis businesses well above normal levels.

Virginia will no longer apply the federal Section 280E deduction limitation to licensed cannabis businesses for state income tax purposes, allowing those businesses a broader set of deductions at the state level than they receive federally.

The budget sets a state cannabis excise tax of 6%, rising to 8% after July 1, 2029, in addition to Virginia's existing state sales tax (base rate 5.3%, higher in some regions). Localities may also impose an additional tax of between 1% and 3.5%. Combined, this puts the initial effective tax rate on recreational cannabis sales at roughly 12.3% to 14.8%, depending on the locality. Medical cannabis purchases remain exempt from the new state excise tax.

A note on scope: HB 30 is the Commonwealth's appropriations act — it governs spending and includes budget-language tax provisions. Substantive changes to Virginia's income tax conformity with the Internal Revenue Code were enacted separately through the 2026 “caboose” budget bill (HB 29). The two bills are often discussed together but they are legally distinct pieces of legislation with separate effective dates and separate purposes.

For completeness, and because clients will inevitably ask about these in the same breath as the budget, here are the key items from HB 29 — again, a distinct bill from HB 30.

  • Fixed-date IRC conformity: Effective Feb. 20, 2026, Virginia now conforms to the Internal Revenue Code as it existed on Dec. 31, 2025. Previously, Virginia followed a rolling conformity system, automatically adopting most federal tax changes as they occurred. Under the new static conformity approach, Virginia must specifically adopt future federal changes.
  • Pass-through entity tax (PTET) made permanent: The scheduled sunset on Virginia's elective PTET was removed, making the regime permanent. This preserves PTET as an ongoing SALT cap workaround for eligible owners of partnerships, LLCs and S corporations, and removes a recurring point of client anxiety around annual extension risk.
  • Decoupling from select OBBBA business provisions: Virginia does not conform to the following:
    • Increased expensing limits under IRC §179 ($1,220,000 limitation with a phase-out of $3,050,000 vs $2,500,000 limit and $4,000,000 phase-out under the OBBBA).
    • Immediate expensing of all bonus depreciation provisions, including the new qualified production property under IRC §168(n) and domestic research and experimental expenditures.
  • Business interest addback reduced: Virginia now follows the federal rules for limiting business interest deductions under IRC Section 163(j). However, starting Jan. 1, 2025, Virginia will allow businesses to subtract only 20% of the interest that was not allowed for federal taxes (instead of 50% before).
  • Pease limitation: Virginia has not adopted the OBBBA's replacement of the federal Pease limitation. The state continues to apply the prior Pease limitation on itemized deductions for individual taxpayers.

Taken together, HB 30 and HB 29 mark one of the more consequential budget cycles for Virginia tax practitioners, combining permanent relief, new revenue sources, and a shift in the state's approach to federal conformity. Virginia CPAs should begin incorporating these changes into client planning now and should flag clients in affected industries early, given the scheduled rate changes and sunset dates built into several provisions.

Patrick Cureton, CPA, partner at Meadows Urquhart in Richmond, sits on the VSCPA Tax Advisory Committee.