Why It Matters
State revenue performance dictates budget flexibility for Virginia’s government services and infrastructure projects. The latest figures indicate the Commonwealth is maintaining a fiscal cushion despite broader economic headwinds.
What Happened
Governor Abigail Spanberger’s administration released its August state revenue report on Friday, showing that general fund collections rose 2.8% compared to the same month last year. Total collections for the first two months of fiscal 2027 reached $4.61 billion, marking a 5.4% increase over the prior year period.
Sales and use taxes provided early momentum for the new fiscal year, driven by strong July retail activity. These collections jumped 9.1% year-over-year through August 31, adding $77.3 million to the fund. Sales tax revenue specifically landed 5.6% above projections, contributing an extra $49.2 million.
Individual income taxes, which account for roughly 70% of general fund revenue, showed mixed signals. Net collections fell 1.2% in August, a drop of $18.8 million, though they remain up 2.1% for the fiscal year. Payroll withholding taxes declined 1.9% compared to last August, falling $37.3 million short of the monthly forecast.
Secretary of Finance Mark Sickles noted that August is typically a light month for revenue collections. He pointed out that withholding variances of $70 million to $90 million are common each month. Despite the monthly dip, nonwithholding income tax collections surged 17.2% in August, adding $19.9 million and finishing $11.2 million ahead of forecast for the year.
The state issued $92.6 million in individual income tax refunds during the month. Corporate income tax collections remained robust, sitting $35.2 million ahead of fiscal year projections. Recordation taxes increased 4.1% but stayed below official forecasts.
By the Numbers
$58 million — increase in Virginia general fund revenues in August vs prior year
2.8% — month-over-month collection increase in August
$4.61 billion — total collections during first two months of fiscal 2027
5.4% — revenue increase from same period last year through Aug. 31
$236.5 million — dollar amount of revenue increase through Aug. 31
1.8% — percentage ahead of official forecast through Aug. 31
$81.5 million — dollar amount ahead of official forecast through Aug. 31
4% — sales and use tax collection increase in August vs prior year
9.1% — sales and use tax collection increase for fiscal year to date
$77.3 million — sales and use tax collection increase for fiscal year to date
5.6% — sales tax revenue ahead of projections
$49.2 million — sales tax revenue amount ahead of projections
70% — share of general fund revenue from individual income taxes
1.2% — decline in net individual income tax collections in August
$18.8 million — dollar decline in individual income tax collections in August
2.1% — individual income tax collection increase for fiscal year
$22.4 million — amount individual income tax collections were below projections
1.9% — decline in payroll withholding taxes in August vs prior year
$27.9 million — dollar decline in payroll withholding taxes in August
$37.3 million — amount payroll withholding taxes were below monthly forecast
2.3% — withholding collection increase from same period last year through August
$9.6 million — amount withholding collections were below projections through August
$70 million to $90 million — typical monthly variance range for withholding collections
17.2% — rise in nonwithholding income tax collections in August
$19.9 million — dollar rise in nonwithholding income tax collections in August
7.4% — nonwithholding income tax collection increase for the year
$11.2 million — amount nonwithholding tax collections were ahead of forecast
$92.6 million — individual income tax refunds issued in August
$35.2 million — corporate income tax collections ahead of fiscal year projections
4.1% — recordation tax increase in August
$34.7 billion — official forecast for general fund revenue in fiscal 2027
Zoom Out
The state’s fiscal health arrives amid a cooling national labor market. The U.S. economy added 162,000 jobs in August, with the unemployment rate holding at 4.1%. Virginia’s unemployment rate dipped to 3.7% in July, though the state lost 9,600 jobs that month and June employment figures were revised down by 1,900.
National labor force participation slipped to 63%, while U.S. GDP grew at an annualized rate of 1.5% in the second quarter. Federal Reserve preferred inflation measures remained unchanged in July, suggesting price stability despite slower growth.
Virginia’s revenue trajectory contrasts with some states facing deficits. The Commonwealth’s ability to stay ahead of its $34.7 billion fiscal 2027 forecast provides lawmakers with options for future spending or tax adjustments. This fiscal stability occurs as regulators continue reviewing major energy sector changes, including the Dominion Energy-NextEra merger, which could impact long-term utility costs and state revenue streams.
What’s Next
Lawmakers will monitor subsequent monthly reports to confirm whether August’s sales tax strength persists into the fall. The official forecast projects nearly $34.7 billion in general fund revenue for fiscal 2027, a target that remains within reach given current performance.
Future budget decisions may hinge on corporate tax trends and individual income tax stability. As the state navigates energy policy shifts and potential legislative sessions, maintaining this revenue buffer will be critical for funding public services without raising taxes or cutting programs.