How Could Virginia’s 2026 Budget Affect Your Business?

State and local tax considerations for Virginia Businesses

Virginia’s newly enacted budget introduces several tax changes that businesses should evaluate over the coming months. While many companies will see little immediate impact, organizations operating in technology, energy, retail, and regulated industries may face new compliance requirements or planning opportunities beginning in 2026.

Understanding these changes now can help your business prepare for upcoming filing obligations and operational decisions.

New Data Center Electricity Tax Begins July 1, 2026

Perhaps the most significant business provision is Virginia’s new electricity consumption tax on data centers.

Beginning July 1, 2026, qualifying data center operators will pay a tax of $0.011 per kilowatt-hour of electricity consumed. The tax applies regardless of whether electricity is purchased from a utility, competitive provider, cooperative, or generated internally.

The law broadly defines data centers to include facilities primarily used for storing, managing, and processing digital data, along with the supporting electrical, cooling, networking, security, and infrastructure systems necessary for operations.

Businesses operating data centers should prepare for several immediate considerations:

• Estimating the financial impact of the new monthly tax
• Reviewing electricity usage and reporting processes
• Monitoring guidance from the Virginia State Corporation Commission
• Preparing for the first tax payment, which will include electricity consumed from July through August 2026 and will be due in September

Although Virginia has capped annual collections at approximately $600 million, refunds may be available if collections exceed the cap.

Cannabis Businesses Receive Important Tax Relief

The budget also establishes Virginia’s framework for adult-use retail cannabis sales.

Once retail sales begin, businesses will collect a new state excise tax of 6%, increasing to 8% beginning July 1, 2029. Localities may also impose an additional tax ranging from 1% to 3.5%.

At the same time, Virginia adopted an important state income tax provision by decoupling from Internal Revenue Code Section 280E for businesses licensed under the Cannabis Control Act.

While Section 280E continues to apply for federal income tax purposes, Virginia will allow licensed cannabis businesses to deduct ordinary and necessary business expenses when calculating Virginia taxable income. For many operators, this represents a meaningful state tax planning opportunity.

Sales Tax Exemptions Continue

Businesses involved in oil and natural gas operations will benefit from the extension of Virginia’s sales and use tax exemption for qualifying drilling, extraction, processing, and reclamation equipment through July 1, 2028.

Companies planning capital expenditures in these industries should continue evaluating whether purchases qualify under the extended exemption.

Local Sales/Use Tax Authority Expands

The budget also allows every Virginia county and city to seek voter approval for an additional local sales and use tax of up to 1%.

Because implementation depends on local referendums, businesses with multiple Virginia locations should monitor activity in the jurisdictions where they operate. Future local tax rates could differ depending on voter approval and locality.

Preparing for What’s Ahead

The breadth of this legislation reinforces the importance of regularly reviewing state tax obligations alongside broader business planning. Whether your organization operates a data center, serves the technology sector, is entering Virginia’s cannabis market, or simply wants to understand how local tax changes may affect operations, early planning can help reduce compliance challenges and identify opportunities.

Businesses should also be aware that Virginia recently enacted its 2026 tax conformity legislation, establishing which federal tax provisions enacted under the One Big Beautiful Bill Act the Commonwealth will adopt and which it will not. Because Virginia does not automatically conform to all federal tax law changes, understanding these differences is an important part of state income tax planning. Learn more in our Virginia Tax Conformity Update article.

Contact Keiter to discuss how Virginia’s 2026 budget may affect your organization’s tax compliance, planning, and operational decisions.