Virginia tax department outlines $131 million IRMS replacement, explains conformity and commuter tax rules
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Summary
Deputy Commissioner Kristen Collins briefed the committee on the Department of Taxation’s plan to replace its core tax processing system with a commercial product, the schedule and funding, and summarized how Virginia’s federal tax conformity rules and interstate reciprocity with Maryland and DC affect taxpayers and employers.
Kristen Collins, deputy commissioner at the Virginia Department of Taxation, updated the Senate Finance and Appropriations Committee on three items: the department’s Integrated Revenue Management System (IRMS) replacement, state conformity to federal income tax changes, and how income tax withholding and filing operate for commuters between Virginia, Maryland and the District of Columbia.
On IRMS, Collins said Virginia processes roughly $30 billion in general‑fund tax payments each year through the core system and that the 2025 budget included $131 million to replace the aging platform with a commercial off‑the‑shelf product. She said the procurement was in final stages, an intent‑to‑award would be issued in June, and the contract is planned to begin July 1. Implementation is expected to proceed over about 4–4.5 years with a phased rollout by tax type: sales and withholding first (targeting September 2026), then corporate taxes and other business taxes, individual income tax as a major later phase, and remaining miscellaneous taxes last. Collins said the department will report annually to the General Assembly as required by the appropriation act and that a stakeholder work group established by the 2024 appropriation act will continue to meet.
On federal tax conformity, Collins explained the difference between rolling conformity (automatic adoption of federal changes) and fixed‑date conformity (state law ties to federal law as of a set date). She reviewed Virginia’s recent history: rolling conformity at state adoption in 1971, a move to fixed‑date conformity in the early 2000s, and return to a hybrid rolling approach in 2023 that contains revenue triggers. Under the hybrid approach, automatic rolling conformity can be suspended if estimated revenue effects exceed legislated triggers ($15 million for an individual provision or $75 million in the aggregate). Collins said the 2025 session temporarily adjusted conformity treatment for two years and retained the existing reporting requirement: the department must estimate and report the fiscal impact of federal changes each Nov. 15 and update the General Assembly on any developments before the regular session.
Finally, Collins summarized withholding and reciprocity rules for commuters. As a general rule, employees pay income tax to the state where they work and claim a credit in their state of residence to avoid double taxation. But Virginia has reciprocal agreements with neighboring states including Maryland and, by operation of the Home Rule Act, the District of Columbia; under those agreements employers typically withhold to the employee’s state of residence and the employee files only in that home state. Collins noted Virginia has a form (Virginia 4) employees can use to notify employers about residency and withholding exemptions when reciprocity applies.
Ending: Collins invited questions and said the department will issue formal notifications as procurement milestones are reached. No formal votes occurred during her presentation.
