Virginia has recently considered several tax proposals that could affect high-income residents, investors, business owners, and families engaged in long-term wealth planning.

Some of these proposals have not passed. Others have been delayed or changed. One significant conformity change has already been enacted. Even so, the proposals are worth watching because they show the kinds of tax changes that may continue to appear in future legislative sessions.

For families with significant income, investment assets, trusts, real estate, or closely held businesses, the main takeaway is simple: Virginia tax planning should not be treated as static. A plan that works under today’s rules may need to be revisited if state tax law changes.

This article is a general educational overview. It is not legal, tax, or financial advice. Tax proposals can change quickly, and the impact on any taxpayer depends on income, residency, entity structure, asset mix, estate planning documents, and federal and state tax rules in effect at the time.

Why These Virginia Tax Proposals Matter

Virginia’s current top individual income tax rate is 5.75% on taxable income above a relatively low threshold. For many years, that has made Virginia’s income tax structure comparatively flat at higher income levels.

Recent proposals would have moved Virginia toward higher taxes on large incomes and investment income. That matters for people who receive income from:

• Capital gains;
• Dividends;
• Interest;
• Rental real estate;
• Business sales;
• Closely held companies;
• Trusts and estates;
• Large investment portfolios;
• Liquidity events, such as the sale of a business or real estate.

Even when a proposal does not become law, it may signal areas lawmakers are likely to revisit.

Proposed Virginia Net Investment Income Tax

One proposal, HB 378, would have created a Virginia-level net investment income tax. The bill proposed a 3.8% tax on individuals, estates, and trusts, generally modeled on the federal Net Investment Income Tax.

The proposed tax would have applied to the lesser of a taxpayer’s net investment income or the amount by which the taxpayer’s federal modified adjusted gross income exceeded the bill’s threshold. Sources discussing the proposal identify the threshold as $500,000 of federal modified adjusted gross income.

Investment income can include items such as:

• Capital gains;
• Interest;
• Dividends;
• Rental income;
• Royalties;
• Certain passive business income.

The 2026 version of this bill failed, so it is not current Virginia law.

Still, the proposal is important because it shows that Virginia lawmakers have considered a separate state-level tax on investment income. If a similar proposal were enacted in the future, high-income taxpayers with substantial investment income could face an additional Virginia tax on top of the existing state income tax and any federal tax.

For planning purposes, this could matter for people considering:

• Selling appreciated stock;
• Selling real estate;
• Selling a business;
• Taking large trust or estate distributions;
• Recognizing large capital gains;
• Changing residency;
• Changing trust situs;
• Restructuring investment or business ownership.

Proposed Higher Income Tax Brackets

Another proposal, HB 979, would have added higher Virginia income tax brackets for taxpayers with substantial income.

The proposal would have created an 8% rate on income over $600,000 and up to $1 million, and a 10% rate on income over $1 million.

That would be a significant change from Virginia’s current structure, where the top rate is much lower than 10%.

This kind of change would matter most for people with income spikes, including:

• Executives with large bonuses;
• Business owners with high pass-through income;
• Professionals with very high earnings;
• Entrepreneurs selling a business;
• Investors realizing large capital gains;
• Real estate owners selling appreciated property;
• Trusts or estates with significant taxable income.

The planning issue is not only annual salary. A person who does not normally earn more than $1 million could still be affected in a year involving a business sale, real estate sale, large bonus, stock option exercise, or other unusual income event.

Sales Tax Expansion to Services and Digital Products

Virginia also considered legislation that would expand the sales and use tax to more services and digital products.

HB 978 would have applied the retail sales and use tax to various services and digital personal property. The bill was continued to the next session, meaning it did not become law in its 2026 form but may return for future consideration.

A sales tax expansion can affect consumers and businesses differently from an income tax increase.

For individuals, it can raise the cost of services and digital purchases.

For businesses, it can create pricing, invoicing, collection, and compliance issues. Service-based businesses may need to determine whether their services are taxable, whether they need to collect tax from customers, and how to update contracts and billing systems.

This may be especially important for businesses that sell or buy:

• Digital products;
• Software-related services;
• Online services;
• Professional or personal services;
• Subscription-based services;
• Business-to-business services.

Even if income tax rates do not change, broadening the sales tax base can increase the total tax burden on households and businesses.

Virginia’s Change to Federal Tax Conformity

Virginia has also changed how it conforms to the federal tax code.

The Virginia Department of Taxation announced that the General Assembly replaced Virginia’s rolling conformity to the Internal Revenue Code with a fixed conformity date of December 31, 2025. Virginia also stated that it will continue to automatically conform to federal tax law amendments that extend the expiration date of a federal provision to which Virginia conforms or previously conformed.

This matters because state tax law does not always follow federal tax law automatically.

When Virginia does not conform to a federal tax change, a taxpayer may receive one result on the federal return and a different result on the Virginia return. That can affect taxable income, deductions, business interest expense, depreciation, and other tax items.

For higher-income taxpayers, business owners, and trusts, conformity changes can be easy to overlook but financially important.

Planning Issues for High-Income Virginians

These proposals and changes highlight the importance of reviewing Virginia tax exposure before major transactions occur.

Planning may be especially important for people with:

• Appreciated investment assets;
• Large brokerage accounts;
• Rental real estate;
• Closely held businesses;
• Business sale opportunities;
• Stock options or equity compensation;
• Trusts with Virginia connections;
• Family entities;
• Multistate residency issues;
• Large expected capital gains.
• The right strategy depends on the specific facts, but planning may include reviewing:
• The timing of capital gains;
• Whether to accelerate or defer income;
• Residency and domicile issues;
• Trust situs and trustee location;
• Entity structure;
• Business sale timing;
• Installment sale treatment;
• Charitable planning;
• Estate and income tax coordination;
• The mix of retirement, taxable, and business assets.

The goal is not to react to every proposal as if it will become law. The goal is to preserve flexibility before a transaction, sale, or distribution makes the tax result difficult to change.

What Investors Should Consider

Investors with large unrealized gains should pay close attention to state-level tax proposals.

A new investment income tax or a higher top bracket could make the timing of a sale more important. The same asset sale could produce a different tax result depending on the year of sale, the taxpayer’s residency, and the tax law in effect at the time.

Investors may want to review:

• Concentrated stock positions;
• Real estate with large built-in gain;
• Private equity or business interests;
• Planned liquidation events;
• Trust-owned investments;
• Capital loss harvesting opportunities;
• Charitable gifting strategies.

This does not mean taxpayers should sell assets simply because a proposal is introduced. But it does mean major gains should be planned, not left to chance.

What Business Owners Should Consider

Business owners may be affected by both income tax and sales tax changes.

Higher income tax brackets could affect owners of pass-through businesses, especially in years with unusually high profits or a sale transaction. A sales tax expansion could also affect businesses that sell services, digital products, software, or subscription-based offerings.

Business owners should consider whether their current structure still makes sense if Virginia changes its tax treatment of high income, investment income, or services.

Important questions may include:

• Would a business sale create a large Virginia income tax event?
• Is the owner planning to move before or after a sale?
• Does the company sell services that could become taxable?
• Would customer contracts allow sales tax to be added?
• Would billing systems need to change?
• Would entity structure affect state tax exposure?
• Would charitable or installment planning help manage a liquidity event?

These questions are easier to address before a transaction is underway.

What Families With Trusts Should Consider

Families with trusts should be careful not to assume that state tax exposure is fixed.

Trust taxation can depend on several factors, including the trust’s governing law, the fiduciary’s location, the beneficiary’s location, the source of income, and how the trust is administered.

If Virginia continues to consider taxing investment income or raising rates for high-income taxpayers, trust planning may become more important.

Families may want to review:

• Where the trust is administered;
• Who serves as trustee;
• Where beneficiaries live;
• Whether the trust accumulates or distributes income;
• Whether the trust owns appreciated assets;
• Whether a large sale or distribution is expected;
• Whether the trust’s situs still makes sense.

Trust planning should be coordinated with estate planning, fiduciary duties, and income tax planning. It should not be changed casually, but it should be reviewed when state tax law may shift.

The Bottom Line

Virginia has recently considered proposals to increase taxes on investment income, create higher tax brackets for high-income taxpayers, and expand the sales tax to additional services and digital products.

Not all of these proposals became law. The proposed Virginia net investment income tax failed in its 2026 form. The sales tax expansion bill was continued to the next session. But Virginia did enact a change replacing rolling federal tax conformity with a fixed conformity date of December 31, 2025.

For high-income Virginians, investors, business owners, and families with significant assets, the practical lesson is clear: state tax planning deserves attention.

A future change in Virginia tax law could affect when to sell assets, how to structure a business transaction, how to administer a trust, and how to coordinate estate and income tax planning.

The best time to review those issues is before a major transaction or law change limits your options.