Virginia’s New 2026 Tax Laws – Nonprofits, Businesses, and Individuals
The 2026 Virginia General Assembly session brought sweeping changes to the Commonwealth’s tax laws, affecting individuals, businesses, and nonprofit organizations. From permanent standard deduction increases to a first-of-its-kind data center tax and expanded local sales tax authority, these changes require careful attention from taxpayers and their advisors.
For nonprofit leaders, business owners, and individual taxpayers across Virginia, understanding these new laws is essential for compliance and strategic planning. This comprehensive guide breaks down each major change, explains what it means for you, and provides practical guidance for navigating the updated tax environment.
Standard Deduction Increases: Permanent Relief for Virginia Taxpayers
One of the most taxpayer-friendly changes in the 2026 budget is the permanent increase to Virginia’s standard deduction. Under House Bill 30, the standard deduction — currently set at $8,750 for single filers and $17,500 for joint filers in 2026 — will increase in subsequent years .
The scheduled increases are as follows:
2027: $9,200 (single/married filing separately) / $18,400 (joint)
2028–2029: $9,300 (single/married filing separately) / $18,600 (joint)
Critically, the General Assembly removed the sunset provision that would have allowed the standard deduction to revert to $3,000 for single filers and $6,000 for married couples after taxable year 2026. This makes the higher deduction amounts permanent, providing long-term certainty for Virginia taxpayers.
For nonprofit organizations with employees, this change may affect payroll tax planning and employee compensation discussions. For individual taxpayers, it may influence the decision to itemize versus take the standard deduction.
Earned Income Tax Credit Extension
Virginia’s refundable Earned Income Tax Credit (EITC), equal to 20% of the federal EITC, was scheduled to expire after Tax Year 2026. HB 30 extends this credit through Taxable Year 2029, with the credit now set to sunset for taxable years beginning on or after January 1, 2030 .
This extension provides continued relief for low-to-moderate-income working families across Virginia. Nonprofits that serve these populations should be aware of the extension for client education and outreach purposes.
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 . This change follows the 2026 legislative session’s broader discussion of local revenue options for school construction and transportation projects.
Under the new law:
The additional tax must be approved by referendum
Funds must be used for school construction or renovation, or public transportation for certain localities
Food purchased for home consumption and essential personal hygiene products are exempt from the increase
For nonprofits and businesses operating in localities that adopt the tax, point-of-sale systems will need updates to reflect the new rate.
Data Center Electricity Consumption Tax: A First in the Nation
As part of the 2026 budget deal, Virginia enacted a per-kilowatt-hour tax on data center electricity use — the first such tax in the nation .
Key provisions of the tax include:
Rate: $0.011 per kilowatt-hour
Effective Date: July 1, 2026
Scope: Applies to utility-supplied and self-generated electricity
Cap: $600 million in annual collections, with excess refunded pro-rata to operators
Sunset: July 1, 2028
Notably, the budget preserves Virginia’s existing sales tax exemption on data center equipment. The tax applies to all electricity consumed at each data center per month, and operators must report and remit the tax to the State Corporation Commission.
For nonprofit organizations that operate data centers or rely on cloud services, this tax may indirectly affect costs as providers pass through the expense.
Cannabis Businesses: Decoupling from IRC Section 280E
Virginia’s 2026 budget establishes a retail recreational cannabis marketplace, generally effective July 1, 2027. Alongside it, Virginia decouples from the federal deduction limitation under IRC Section 280E .
IRC 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. Historically, these businesses could only deduct cost of goods sold, pushing effective tax rates well above normal levels.
Under the new law:
Virginia will no longer apply the federal Section 280E deduction limitation to licensed cannabis businesses for state income tax purposes
This allows 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
Localities may impose an additional tax of between 1% and 3.5%
Medical cannabis purchases remain exempt from the new state excise tax
For nonprofit organizations involved in cannabis-related advocacy or education, these changes may affect their constituents and programming.
Fixed-Date IRC Conformity: A Major Structural Change
Effective February 20, 2026, Virginia now conforms to the Internal Revenue Code as it existed on December 31, 2025 . Previously, Virginia followed “rolling conformity,” automatically adopting most federal tax changes.
This shift to fixed-date conformity means that any federal tax changes enacted after December 31, 2025, will not automatically apply to Virginia returns. Taxpayers must now carefully track “deconformity” items — specifically Section 179 expensing and bonus depreciation — and may need to make add-back adjustments on their Virginia returns.
For nonprofits and businesses, this change creates additional compliance complexity. Working with a qualified tax professional who understands Virginia’s conformity rules is essential.
Virginia Nonprofit Sales Tax Exemption Requirements
For nonprofit organizations seeking to maintain or obtain Virginia sales and use tax exemption, the requirements remain stringent :
Federal Exemption: The organization must be exempt from federal income taxation under §§ 501(c)(3), 501(c)(4), or 501(c)(19)
VDACS Compliance: Proof of compliance with Virginia’s charitable solicitation law
Administrative Cost Limit: Annual administrative costs (including salaries and fundraising) must not exceed 40% of annual gross revenue
Financial Review Threshold: Organizations with gross annual revenue of at least $750,000 in the previous year must provide a financial review performed by an independent CPA
Audit Threshold: Virginia Tax may require a full financial audit for organizations with gross annual revenue of at least $1.5 million
Form 990 Provision: A copy of the federal Form 990, 990-EZ, 990-PF, or 990-N must be provided
Nonprofits can apply for and manage their exemption through Virginia Tax’s Nonprofit Online portal. The application process requires detailed financial information, including total annual gross revenue, fundraising expenses, and administrative costs.
Real Property Tax Exemption Clarifications
The 2026 session also brought changes to real property tax exemptions for nonprofits. House Bill 854 clarifies that localities may, by ordinance, exempt from real or personal property taxes the property owned by an ownership entity of which a controlling interest is held by one or more nonprofit organizations, notwithstanding any for-profit ownership interests, if used for charitable or benevolent purposes .
This change is intended to promote affordable housing and charitable initiatives by expanding local governments’ authority to exempt properties from taxation when used for specific purposes . However, critics have raised concerns about potential misuse of the provisions by for-profit entities leveraging nonprofit status for tax advantages.
How Nova Tax & Accounting Services Can Help
At Nova Tax & Accounting Services, we help individuals, businesses, and nonprofit organizations navigate Virginia’s evolving tax landscape. Our team stays current with all legislative changes, including the 2026 budget provisions, fixed-date conformity, and nonprofit exemption requirements.
Our services include:
Tax preparation and planning for individuals and businesses
Nonprofit Form 990 preparation and compliance
Sales and use tax exemption applications and renewals
Audit and assurance services for organizations required to provide financial reviews or audits
Strategic tax planning to minimize liability under the new conformity rules
For more information, visit https://novataxservices.com/ or schedule a free consultation.
Additional Resources
For more detailed information on Virginia’s 2026 tax law changes, consult these official resources:
