What the 1% Sales Tax Referendum for Schools Actually Does

The General Assembly approved amendments to Sections 58.1-605.1 and 58.1-606.1 to allow all Virginia cities and counties to put forth a referendum to their voters to give the locality the power to impose an additional 1% sales and use tax in the locality, provided the revenues from the additional tax may only be used for school capital projects.  In order to appear on the November 3 ballot, Virginia localities must petition and have an order from the local circuit court on the referendum question by August 14.

As discussion continues around the proposed 1% sales tax referendum for school construction and capital improvements, a few common questions keep coming up. Here are the key points.

It Doesn't Grant New Debt Authority

The referendum would allow voters to approve a dedicated 1% sales tax for school capital projects. It does not give the locality any new authority to borrow money. Any future school financing would still have to follow existing legal processes, including bond issuances or other authorized financing methods.

Revenues Can Be Used for New Projects, Not Existing Debt Service

The statute provides that the tax revenues can be used for new construction and major renovation for schools.  An Attorney General opinion under the previous version of the statute opined that the revenues could not be used for existing debt service, only for debt or project costs related to new projects.  Revenues can be used to pay debt service on bonds issued to finance school projects or can be applied directly to pay for project costs.

The Tax Ends After 20 Years

State law limits the tax to 20 years from the date the county adopts the resolution requesting the referendum. While school financing may extend beyond that timeframe, the tax itself cannot.

School Projects Can Still Be Financed Over 30 Years

The 20-year tax limit does not restrict the length of school financing. School construction projects are often financed over 30 years. After year 20, other county revenues will need to cover remaining debt service.

The Revenue Goes to the County, Not Directly to Schools

If approved, the revenue would be deposited into a designated county fund and used for school capital projects or related debt service. School divisions can monitor how the funds are used, but they do not receive the money directly.

Voter Approval Is Not the Final Step

A successful referendum does not automatically impose the tax. The locality would still need to adopt an ordinance establishing the tax. The tax can be imposed on the first day of the month at least 120 days after the ordinance is adopted.  So, the earliest the tax could likely be assessed is May 1, 2027, assuming an ordinance approval in December following the November election.

No Public Hearing Is Required

State law does not require a public hearing before the county adopts a resolution placing the referendum question on the ballot.

Key Takeaways

• The referendum creates a funding source, not borrowing authority.
• These tax revenues can only be used for new projects, not existing debt service.
• The sales tax expires after 20 years.
• School financing can extend beyond the life of the tax.
• Revenue is held and administered by the county.
• Voter approval must be followed by a separate ordinance before the tax takes effect.
• No public hearing is required to place the question on the ballot.

At its core, the referendum gives voters the opportunity to decide whether a dedicated 1% sales tax should be used to help fund future school construction and capital improvement.

If you have any questions, please contact one of our Local Government Attorneys.

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