Tax Type
Corporation Income Tax
Description
Deduction of salary and wage expenses
Topic
Computation of Income
Date Issued
09-06-2000
September 6, 2000
Re: Request for Ruling: Corporate Income Tax
Dear ****
This will respond to your letter in which you request a ruling allowing a subtraction on the Virginia corporation income tax return for salary and wage expenses not allowed as a deduction in determining federal taxable income due to the taxpayer utilizing the federal Empowerment Zone Employment Credit.
FACTS
Internal Revenue Code (IRC) § 280C(a) disallows the deduction of salary and wage expenses to the extent utilized in computing the Empowerment Zone Employment Credit under IRC §1396. You request a ruling as to the deduction of salary and wage expense disallowed due to IRC §1396, citing similar treatment of expenses allowable for the federal Work Opportunity Tax Credit.
RULING
Code of Virginia § 58.1-402.A defines Virginia taxable income as "federal taxable income and any other income taxable to the corporation under federal law for such year of a corporation" adjusted as provided in subsections B, C, or D. Likewise, Code of Virginia § 58.1-322A. defines the "Virginia taxable income of a resident individual [to mean] his federal adjusted gross income for the taxable year .... with the modifications specified in this section." Therefore, items not deductible for federal income tax purposes are not deductible for Virginia income tax purposes unless Code of Virginia § 58.1-402 specifically states otherwise.
Code of Virginia § 58.1-322 (C)(6) and 402 (C)(6) allows individuals and corporations to subtract "wages or salaries eligible for the federal Targeted Jobs Credit which were not deducted for federal purposes on account of the provisions of §280C(a) of the Internal Revenue Code." Legislation enacted by Congress in 1996 renamed the Targeted Jobs Credit, the "Work Opportunity Tax Credit."
Therefore, Virginia law specifically allows a subtraction to taxpayers for wages and salaries disallowed because of the federal Work Opportunity Tax Credit. However, Virginia law contains no similar provision for the Empowerment Zone Credit. Accordingly, a Virginia income tax deduction for salary and wage expense not allowed in computing federal taxable income because of a taxpayer's election to utilize the Empowerment Zone Employment Credit is not allowable as a subtraction in the computation of Virginia taxable income.
If you have any questions regarding this ruling, you may contact ***** of the Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26750P
Rulings of the Tax Commissioner