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FALLS CHURCH, VA — Falls Church officials are counting on state lawmakers to make up for any revenue the city would lose if the General Assembly votes to eliminate the state grocery tax.
The City of Falls Church could lose out on $1.8 million in revenue from the scrapping of the state grocery tax. But city officials expect the state will make localities whole for any revenue that might be lost from eliminating the tax.
The General Assembly is scheduled to come back into session next week, where negotiating an agreement on a fiscal year 2023 state budget will be a top priority.
Included in the budget proposals is a plan to completely eliminate the 2.5 percent grocery tax. Another plan endorsed by Democrats calls for the elimination of only the 1.5 percent portion of the tax that goes to the state and keep the 1 percent that goes to localities.
Falls Church officials are hoping the final bill will include a commitment for a long-term funding source that would make up for revenue losses from the repeal of the grocery tax.
Falls Church City Manager Wyatt Shields said verbal agreements are in place with both the Senate and House of Delegate bills to ensure localities do not lose out on revenue if the grocery tax is suspended or eliminated.
“We can feel reasonably confident that the General Assembly is going to make us whole on the grocery tax, at least for this coming year — for the FY23 budget,” Shields said.
Falls Church City Council Member David Snyder cautioned against assuming the General Assembly will provide the funding for localities if the grocery tax is eliminated. “The political environment in Richmond is pretty volatile right now,” he said at the April 11 city council meeting.
Right now, of the 2.5 percent grocery tax, 1 percent goes to local cities and counties. One percent of the revenue from the state’s 1.5 percent tax rate goes toward local school funding, and the remaining 0.5 percent is allocated to the state’s transportation fund.
Of the 13 states that impose sales tax on groceries, Virginia is one of six states that taxes groceries at a reduced rate. Virginia has a 2.5 percent grocery tax rate, compared to the 5.3 percent sales tax for most items.
The Republican-controlled House of Delegates voted to eliminate the 2.5 percent tax on groceries during the 2022 legislative session. The Democratic-controlled Virginia Senate approved a partial cut of the tax, voting to remove the 1.5 percent that goes to the state but keep the 1 percent earmarked for local governments.
During his visit to Reston on Tuesday, Virginia Gov. Glenn Youngkin said the House of Delegates’ bill that calls for elimination of the grocery tax “includes a full replacement for the budgets and the education budgets particularly, in the localities.”
“That was a really important part of what we were doing is to make sure that as we eliminate the grocery tax, we don’t find that there is a hole to fill,” Youngkin said in response to a question from Patch editor Michael O’Connell.
The governor was in Reston on Tuesday to thank Google for making plans to invest more than $300 million in Virginia this year.
“They’re doing this in a very, very creative way, because right now, we, in fact, have plenty of money in the system,” Youngkin said of lawmakers’ negotiations on the grocery tax repeal. “This is a very unique moment for us, to cut taxes and invest, if we can do this and backfill the local government receipts for the grocery tax.”
Both Republican and Democratic lawmakers have expressed support for repealing at least the state’s 1.5 percent tax on groceries, calling it a regressive measure that most negatively impacts low-income Virginians, especially at a time of high inflation.
Former Gov. Ralph Northam had backed the repeal of the state’s portion of the grocery tax in a budget proposal he submitted before leaving office in January.
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