Tax Type
Corporation Income Tax
Description
Taxable Income; Research and Development Expenses
Topic
Computation of Income
Date Issued
08-24-1992
August 24, 1992
Re: Ruling Request: Corporation Income Taxes
Dear***********************
This will reply to your letter dated February 12, 1992 in which you request a ruling allowing a subtraction on the Virginia income tax return of *************(the "Taxpayer") for research and development expenses disallowed in determining federal taxable income.
FACTS
Internal Revenue Code (I.R.C.) §280C© disallows the deduction of research and development expenses to the extent utilized in computing the research and development credit under I.R.C. §41(a). Virginia law does not permit a deduction for the amount so disallowed, even though a Virginia deduction is permitted for the wage expense in computing the federal targeted jobs credit. You are protesting the dichotomy of the treatment of seemingly similar expenses.
DETERMINATION
Va. Code §58.1-402 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 of B, C, or D. In determining Virginia taxable income, Va. Code §58.1-402.C does not permit subtraction of the research and development expenses disallowed by I.R.C.§ 280C(c).
By contrast Va. Code §58.1-402.C.6 does provide a specific subtraction for expenses disallowed at the federal level due to a taxpayer's eligibility for the federal targeted jobs credit.
Deductions allowed in computing Virginia taxable income are a matter of legislative grace. Under Va. Code §58.1-203, the Tax Commissioner is granted the power to issue regulations relating to the interpretation and enforcement of Virginia tax laws governing taxes administered by the Department of Taxation. The promulgation of an additional subtraction in computing Virginia income is not an interpretation of existing law; but rather, the creation of law.
Accordingly, the taxpayer is denied a Virginia income tax deduction for research and development expenses disallowed in computing federal taxable income, due to the federal research and development tax credit.
A bill reflecting interest will be sent to you shortly. Please remit the total amount imposition of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner