Cecily Zamora
Virginia's tax laws are constantly changing, with new state laws coming into effect in July 2022, July 2023, and July 2025. Some of the recent changes include a decrease in sales tax on food and essential hygiene products, an increase in the standard deduction for individual and joint filers, and a higher tax credit for firearm safety devices. In addition, the state has introduced a one-time income tax rebate and a new sales tax form, ST-1. Virginia has also legalized the adult use of cannabis and will implement a 21% tax on retail marijuana sales from July 1, 2023. The state's tax legislation is complex and evolving, with regular updates being made to various credits, deductions, and tax breaks.
| Characteristics | Values |
|---|---|
| Date | July 1, 2025 |
| Standard deduction | $8,750 for single filers and $17,500 for joint filers |
| Virginia refundable earned income tax credit (EITC) | 20% of the federal EITC |
| Firearms safety devices tax credit | Eligible devices purchased from a commercial retailer |
| Major Research and Development Expenses Tax Credit | 5% of Virginia-qualified R&D expenses paid or incurred |
| Communities of Opportunity Tax Credit | Increased maximum amount of $500,000 per fiscal year from January 1, 2026 |
| Historic Rehabilitation Tax Credit | Increased maximum amount of $7.5 million per taxable year |
| Land Preservation Tax Credit | $20,000 limitation per taxpayer for taxable years 2024 and after |
| Sales tax on food for home consumption and essential personal hygiene products | 1% statewide from January 1, 2023 |
| Marijuana retail sales tax | 21% from July 1, 2023 |
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What You'll Learn
Tax on cannabis sales
Virginia has had a complex and evolving relationship with cannabis legislation. In 2020, Virginia decriminalised the possession of small amounts of marijuana, and in 2021, it became the first southern state in the US to legalise cannabis for adult recreational use. However, the implementation of a regulated market has faced significant challenges and delays.
Virginia's tax laws concerning cannabis sales have been a key aspect of the legislative debate. The initial legislation, HB 2312 and SB 1406, proposed a state tax of 21% on retail cannabis sales, in addition to the standard 6% sales tax. This tax structure aimed to generate revenue for various social initiatives, including a 30% allocation to a Cannabis Equity Reinvestment Fund. However, this legislation did not include specific tax rates, leaving the details to be determined by a new Cannabis Control Authority.
The progress towards implementing a regulated cannabis market in Virginia has faced setbacks due to political shifts. In 2021, Republicans gained control of the House of Delegates and the governorship, resulting in a shift in priorities. Governor Glenn Youngkin vetoed multiple cannabis policy reform bills in 2024 and 2025, including efforts to legalise adult-use sales and establish a regulated market. Youngkin cited public health and safety concerns as the rationale for his vetoes.
Despite these setbacks, Democrats regained control of both chambers of the Virginia General Assembly in 2023, raising hopes for the advancement of cannabis reform. In 2024, the House and Senate passed a bill to legalise recreational sales with a tax rate of 11.625%. However, this bill was also vetoed by Governor Youngkin, reiterating his health and safety concerns.
The legislative landscape surrounding cannabis taxation in Virginia remains dynamic, with ongoing efforts to establish a functional and equitable tax framework for cannabis sales in the state.
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Data centre purchases
Virginia has offered a data center retail sales and use tax exemption since 2010. This exemption allows qualifying data centers and their tenants to purchase computers and other equipment, such as servers, network infrastructure, cooling equipment, and generators, without paying sales tax. The exemption is available to data centers that meet minimum investment and job creation requirements.
To qualify for the exemption, a data center must enter into a Memorandum of Understanding (MOU) with the Virginia Economic Development Partnership (VEDP). The MOU outlines the investment and job creation requirements that the data center must meet to receive the exemption. The MOU is provided to the Virginia Department of Taxation (TAX) for review, and TAX issues an Exemption Certificate directly to the data center.
The eligibility thresholds for an extension of the tax exemption to 2040 include a $35 billion new capital investment in data centers and 1,000 direct new jobs located at data centers identified in the MOU. At least 100 of these new jobs must be paid at least 150% of the prevailing annual average wage in the locality. To qualify for the exemption, the purchase or lease of qualifying computer equipment must be made after the effective date of the Exemption Certificate, which is the date of the MOU between the data center and VEDP.
The data center industry is growing rapidly in Virginia, and Northern Virginia is the largest data center market in the world. The tax exemption is intended to attract large-scale data centers and has provided significant economic benefits to the state. However, some critics argue that the exemption could result in reduced quality of public services or increased taxes for citizens.
In addition to the state exemption, some localities in Virginia have also reduced their business personal property tax rates for computer equipment to attract data centers. These localities can collect substantial tax revenues from the data center industry, primarily through business personal property and real property (real estate) taxes.
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Income tax rebate
On May 2, 2025, Virginia's Governor Glenn Youngkin signed a biennial budget (H.B. 1600) into law. This budget included a one-time income tax rebate of $200 for single filers and $400 for joint filers. The law also permanently increased the standard deduction to $8,750 for individuals and $17,500 for joint filers, extending increases originally set to expire in 2026.
The Virginia income tax rebate was introduced as part of a wider set of changes to the state's tax laws. For example, the Virginia refundable earned income tax credit (EITC) increased from 15% to 20% of the federal EITC for 2025 Virginia income tax returns. Additionally, the tax credit for firearms safety devices was expanded to include eligible devices purchased from commercial retailers, not just federally licensed firearms dealers.
The income tax rebate was a response to the economic challenges faced by many Virginians. The rebate aimed to provide financial relief to taxpayers, particularly those filing jointly, who may have been struggling financially. By increasing the standard deduction and expanding the EITC, the state also sought to put more money back into the pockets of its residents.
To be eligible for the income tax rebate, taxpayers needed to file by a specific deadline. For the 2023 rebate, the deadline was November 1, 2023. This meant that eligible taxpayers who filed their taxes by this date could receive their rebate when filing their tax returns.
It is important to note that the income tax rebate was a one-time payment, and future rebates are not guaranteed. However, the permanent increases in the standard deduction and EITC will provide ongoing tax relief for Virginia residents.
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Research tax credits
Virginia offers a range of tax credits for businesses, including the Research and Development Expenses Tax Credit. This particular credit was established during the 2011 Session of the Virginia General Assembly, through House Bill 1447 and Senate Bill 1326. The credit was further amended during the 2014 and 2016 Sessions, with changes including an increase in the overall credit cap and the annual amount of credits each taxpayer may claim. The most recent updates to the guidelines for this credit were published in 2017 and are effective for Taxable Year 2016 and after.
The Research and Development Expenses Tax Credit is an income tax credit for certain taxpayers incurring Virginia-qualified research and development expenses. It is available to both individuals and corporations. Taxpayers can elect to compute the credit using a simplified method or the default method. To apply for the credit, taxpayers must provide certain information to the Department of Taxation, which may then disclose some information to the General Assembly upon request.
The credit is limited to 50% of the qualified investments made to qualified businesses during the year, with a cap of $50,000. Any unused credits can be carried forward for 15 years. To qualify, the investment must not be linked to compensation received from the business within one year before or after the investment. Additionally, the business must not have obtained more than $3 million in aggregate gross cash proceeds from equity or debt investments during its existence.
Other business development credits offered by Virginia include the Worker Retraining Tax Credit, which covers 35% of eligible training costs for qualified workers, and the Manufacturing Training Tax Credit, which covers 35% of direct costs associated with providing manufacturing training to middle and high school students. These credits are limited to $500 per qualified employee per year, or $1,000 for non-highly compensated workers, with a total cap of $1,000,000 in training credits issued.
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Firearm safety device tax credit
Beginning with the 2023 tax year, Virginia residents may be able to claim a nonrefundable tax credit for the purchase of one or more firearm safety devices. The maximum credit allowed is $300 for individual filers and $600 for joint filers, with only one application allowed per year. The purchase must have been made during the same tax year. For example, if applying for the credit for the 2023 tax year, the purchase must be made between January 1, 2023, and December 31, 2023.
The term "firearm safety device" refers to any device that, when installed on a firearm, prevents the firearm from being operated without first deactivating the device. It also includes safes, gun cases, lock boxes, or other devices designed to store a firearm and can only be unlocked by a key, combination, or similar means.
The Virginia tax credit for firearm safety devices initially only applied when the devices were purchased from a federally licensed firearms dealer. However, as of July 1, 2025, the tax credit now also applies to eligible firearm safety devices purchased from a commercial retailer. This change was part of several new state laws that went into effect in Virginia in 2025, including increases in the standard deduction and the refundable earned income tax credit (EITC).
To apply for the firearm safety device tax credit, individuals must submit purchase receipts with their income tax returns to verify the amount paid for the firearm safety device(s). Credits will be allocated on a first-come, first-served basis. After applying for the credit, individuals must then claim the credit when filing their individual income tax returns, with the option to submit a paper application through Form FSD.
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Frequently asked questions
A 21% tax is levied on retail sales of marijuana, retail marijuana products, and paraphernalia sold by a retail marijuana store. This tax is in addition to any existing Virginia sales and use taxes.
Yes, Virginia's firearm safety device tax credit was expanded to include eligible devices purchased from commercial retailers, not just federally licensed firearms dealers. The definition of "firearm safety device" was also broadened to include any device that prevents a firearm from being operated without first being deactivated.
Effective July 1, 2025, the standard deduction for single filers increased to $8,750, and for married couples filing jointly, it rose to $17,500. Additionally, the Virginia refundable earned income tax credit (EITC) increased from 15% to 20% of the federal EITC.
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