Document Number
Tax Type
Individual Income Tax
Subtraction, Qualified Technology Business and Eligible Investment
Date Issued


June 27, 2018



Re:      § 58.1-1821 Application:  Individual Income Tax


Dear *****:


This will reply to your letter in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayers”) for the taxable year ended December 31, 2014.




The Taxpayers, a husband and wife, filed a Virginia individual income tax return for the 2014 taxable year, claiming a subtraction for a long-term capital gain. Under review, the Department denied the subtraction on the basis that the investment that created the capital gain was not a qualified investment.  The Taxpayers appealed, contending they met all the statutory requirements to claim the subtraction.




Virginia Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required.  Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia.  For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI).  Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Virginia Code § 58.1-322.


By reason of their character as legislative grants, statutes relating to deductions and subtractions allowable in computing income and credits allowed against a tax liability must be strictly construed against the taxpayer and in favor of the taxing authority.  See Howell's Motor Freight, Inc., et al. v. Virginia Dep't of Taxation, Circuit Court of the City of Roanoke, Law No. 82-0846 (10/27/1983).


For individual income tax purposes, Virginia Code § 58.1-322.02 24 provides for a subtraction for any income taxed as a long-term capital gain for federal income tax purposes.  The following restrictions apply:


To qualify for a subtraction . . . , such income shall be attributable to an investment in a “qualified business,” as defined in 58.1-339.4, or in any other technology business approved by the Secretary of Technology, provided that the business has its principal office or facility in the Commonwealth and less than $3 million in annual revenues in the fiscal year prior to the investment.  To qualify for a subtraction . . . , the investment shall be made between the dates of April 1, 2010, and June 30, 2020.  No taxpayer who has claimed a tax credit for an investment in a “qualified business” under 58.1-339.4 shall be eligible for the subtraction under this subdivision for an investment in the same business.


The Department denied the subtraction because the investment was not a “qualified investment,” as defined by Virginia Code § 58.1-339.4 A.  The Taxpayers, however, argue that Virginia Code § 58.1-322.02 24 only requires an “investment” with no reference to the qualifications for investments under Virginia Code § 58.1-339.4 A.


The Department has already interpreted the term “investment” in Virginia Code § 58.1-322.02 24 with reference to the types of investments that are eligible for the subtraction.  See Public Document (P.D.) 16-83 (5/16/2016).  The Department concluded that an investment must be in the form of equity or subordinated debt in order to qualify.  It is not necessary for the investment to meet the requirements of a “qualified investment” under Virginia Code § 58.1-339.4.  The Taxpayers have provided evidence that the investment was made in the form of equity.  All other factors for the subtraction under § 58.1-322.02 24 have been met.  Accordingly, the Taxpayers are entitled to the subtraction and the assessment will be abated.


The Code of Virginia sections and public document cited are available on-line at in the Laws, Rules & Decisions section of the Department's web site.  If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.




Craig M. Burns
Tax Commissioner





Last Updated 07/26/2018 10:18