After Youngkin (R) gave an upbeat assessment of the state’s finances to the committees, Finance Secretary Stephen E. Cummings presented the members with a slide show with more details. One of the slides noted “a backlog of corporate refunds [that] had accumulated from prior years,” and Earle-Sears (R) asked about it.
Cummings acknowledged that the administration had “pushed aside” the routine work of processing corporate refunds in its haste to mail tax rebates to individual taxpayers in the fall of 2022 and 2023. The timing of the individual refunds, which landed in mailboxes just before Election Day both years with Youngkin’s name on them, was widely criticized as politically motivated.
Youngkin, who often complains that Virginians are “overtaxed,” won $5 billion in tax relief in his first two years in office — including the two rounds of tax rebates for individuals. As the Department of Taxation issued those rebates, Cummings said, it diverted staff from processing routine corporate refunds — owed not due to any new tax breaks, but because the businesses had overestimated their earnings.
“In the time when rebates were being processed, which was crunchtime, resources were moved to focus on that, and a team was taking the focus off of corporate refunds. And it happened more than once in more than one cycle …,” Cummings said. “It was, frankly, just pushed aside.”
Administration officials did not immediately respond to questions about the size of the backlog, but the error resulted in about $230 million in overdue refunds for one year alone — attributable to 2021 tax returns, according to another footnote in material Cummings presented to the money committees in May.
Cummings told the committee Wednesday that the backlog had been nearly cleared; Youngkin spokesman Christian Martinez said later that Cummings was mistaken and that it has been fully cleared.
The revelation cast a cloud on an otherwise sunny presentation by Youngkin, still basking in Virginia’s recent designation as CNBC’s “Best State for Business.” The episode also drew attention to Earle-Sears as she is said to be considering a run for governor next year. Youngkin is prohibited by the state constitution from seeking back-to-back terms.
In his address to legislators, the governor reported that the state finished the fiscal year on June 30 with a surplus surpassing $1 billion. Virginia continues to see robust job growth, he said, with the labor force participation at 66 percent and more people working than at any other time in state history. He touted economic development and slashed regulations, noted that crime was down, investments in schools up.
“Virginia is financially stronger than she has ever been,” Youngkin said, noting the state’s ability to set aside hefty sums in its “rainy day” reserve fund and make investments in bipartisan priorities such as K-12 education, mental health, law enforcement, and the environment without raising taxes.
“What we are doing is working,” he said, making the pitch for staying the course when the legislature considers midpoint adjustments to the two-year budget in January.
After Youngkin left the room and Cummings wrapped up his presentation, members of the House and Senate committees peppered the secretary with questions, which was expected.
But it was a surprise when Earle-Sears got in on the questioning, too. As lieutenant governor, Earle-Sears presides over the Senate but does not sit on any committees. She was there as a member of the audience, sitting in the back. No one else in the crowd was allowed to query the secretary.
But House Appropriations Committee Chairman Luke E. Torian (D-Prince William), making an exception, informed Cummings that the lieutenant governor had a question.
“That’s not supposed to happen,” Cummings said with a laugh. “This better be a softball.”
It was not a softball.
Cummings explained the error, thanked Earle-Sears for drawing attention to it, and acknowledged that he should have mentioned it during his presentation.
“I think the corporate [refund error] was an important issue and I shouldn’t have skipped over it,” he said.
Earle-Sears, who has run her own home appliance business, noted the burden that the overdue refunds likely had on small businesses, who may have been forced to push off investments or new hires.
“If I’m a corporation and I’m waiting for my taxes to be refunded to me, it’s going to impact my bottom line,” she said. “If I wanted to buy another truck, that’s a problem, because I had the money, but I didn’t have the money because the government still held on to my refund.”
Praising her “excellent point,” Cummings said that if corporations caught the mistake and complained to the tax department, “it was taken care of immediately.” But it has taken quite a while to uncover and resolve all of the overdue refunds, he said.
“We’re back now where we have a clean set of numbers on this, and I can promise you that won’t happen again,” he said.
Earle-Sears did not respond to a request for comment after the meeting.
The lieutenant governor caught many by surprise when she popped up to speak.
“You could just look around the room and people said, ‘Whoa, hold on,’” said Del. Rodney Willett (D-Henrico). “It raised a lot of eyebrows.”
But her actions were not unprecedented. Sen. Mark D. Obenshain (R-Rockingham) recalled that when Democrat Tim Kaine was lieutenant governor, he routinely attended committee meetings, sitting in the front row with legislators and presenting bills. (Kaine went on to become governor and now serves as one of the state’s U.S. senators.)
“I thought that the chair was very respectful in allowing her to pose the question,” Obenshain said. “I thought it was a good catch on her part, a good thing to ask about.”
Willett agreed that Earle-Sears brought attention to a serious issue, though he and other legislators said they were still unclear on the details.
“Authorized rebates should be paid promptly and if they’re not, it’s a major issue,” he said, adding that he was uncertain how long the problem went on. “It does say ‘years.’ Is that two years? One year is bad enough. Multiple years? Unacceptable.”
