Virginia Department of Revenue launches $131M tax system overhaul project

In a recent meeting of the Virginia Senate Finance and Appropriations Committee, key discussions centered around the state's Integrated Revenue Management System (IRMS) and its significant role in tax processing. The IRMS is crucial for managing approximately $30 billion in general fund tax payments annually, which constitutes about 95% of the state's general fund. The system supports various functions, including tax processing, compliance, and customer relationship management.

The meeting highlighted the ongoing efforts to replace the outdated IRMS, a project that has been in the works since 2017. The state has opted for a commercial off-the-shelf (COTS) solution, similar to systems adopted by other states. In the 2025 budget, $131 million was allocated to complete this project over five years, with the goal of starting implementation by July 1, 2025. The rollout will occur in phases, beginning with sales and use tax and withholding taxes in September 2026, followed by corporate income tax and individual income tax in subsequent years.

Another significant topic discussed was Virginia's conformity to federal income tax law. The state has shifted to a hybrid rolling conformity model, which allows for automatic adoption of federal tax changes unless certain revenue triggers are exceeded. This approach aims to provide more certainty for taxpayers while maintaining legislative control over state revenues.

The committee also addressed the taxation of workers commuting between Virginia and neighboring states. Virginia has reciprocity agreements with several states, allowing residents to pay taxes to their home state rather than the state where they work. This system simplifies tax obligations for many commuters and ensures that they are not double-taxed.

Overall, the meeting underscored the importance of modernizing Virginia's tax processing systems and adapting tax policies to align with federal regulations while considering the needs of taxpayers. The committee plans to continue monitoring these developments and will report annually to the General Assembly on the progress of the IRMS project and the implications of federal tax changes.