2025 House Bill 1743 (2025 Acts of Assembly, Chapter 192) requires the Department of Taxation (“the Department") to convene a workgroup to review the local Business, Professional, and Occupational License tax (“BPOL") deduction in Virginia for receipts attributable to out-of-state business, including a review of:

• Current policy and methodology of the deduction set forth in Subsection B 2 of Virginia Code § 58.1-3732;

• Any constitutional or case law concerns regarding the existing laws governing such deduction;

• Any potential impact on local government revenue as a result of determining such deduction based upon receipts subject to a net income tax or gross receipts tax in another state or foreign jurisdiction and alternatives to phase in any such potential impact;

• The potential administrative complexities or benefits for taxpayers and the support structure necessary to verify across local jurisdictions the applicable deduction and to enforce compliance; and

• Any impact to such deduction from other existing provisions of law.

The workgroup was required to consist of individuals with experience in local license tax compliance and enforcement, including representatives of:

• The Virginia Municipal League,
• The Virginia Association of Counties,
• The Commissioners of the Revenue Association of Virginia,
• The Virginia Society of Certified Public Accountants,
• The Council on State Taxation,
• The Virginia Chamber of Commerce, and
• Any other key business tax representatives as determined by the Department.

The legislation requires the Department to submit a report of the findings and recommendations, if any, of the workgroup to the Joint Subcommittee on Tax Policy and to the Chairs of the Senate Finance and Appropriations and House Appropriations Committees by October 1, 2025.

Virginia Code § 58.1-3732 (B)(2) provides that any receipts attributable to business conducted in another state or foreign country in which the taxpayer (or its shareholders, partners, or members in lieu of the taxpayer) is liable for an income or other tax based upon income are deductible from gross receipts or gross purchases for license tax purposes. The Department is authorized by Virginia Code § 58.1-3703.1 to issue determinations on taxpayer appeals of BPOL assessments. The Department’s rulings on the scope of the deduction have clarified that the deduction is available for taxes paid to other states that are based on income regardless of whether such taxes are called an “income tax" but the out-of-state taxes being deducted must be assessed on net income to be deductible.

The Department convened a meeting with workgroup members on June 3, 2025. The workgroup discussed all of the legislatively mandated topics related to the out-of-state BPOL deduction. While the participants engaged in frank and productive discussion, no consensus was reached to an extent that would permit the Department to make any recommendations in this report except that consistency, clarity, and fairness are all vital to the administration of BPOL and should be central to any action taken to change the deduction administratively or legislatively. On a broader level, all participants in the work group seem to support clarity in the statute and consistency in its interpretation, fairness for multi-jurisdictional businesses, and solutions that would ease the administrative burden related to both the enforcement and compliance sides of the deduction.