92-32 | Virginia Tax

Tax Type

General Provisions

Description

92 Legislative Changes

Topic

Reports

Date Issued

04-15-1992

92 Legislative Changes
Should Have Minimal Impact

Tax-related legislation passed by the 1992 General Assembly should have minimal impact on taxpayers and tax professionals. Some changes, however, may impact 1992 estimated tax declarations for individuals. These changes include:

· Deferral of Virginia's conformity to the federal income tax deduction for ½ of Social Security self-employment taxes paid -- this will require taxpayers to make a Virginia addition for the amount of the federal deduction claimed in 1992 and 1993; however, additions made for taxable years 1990 through 1993 may be claimed as subtractions on returns for taxable years 1994 through 1997.

· Deferral of the effective date of the Virginia low-income housing credit for individuals and corporations until taxable year 1994; however, the credit will come into effect then only if the federal low-income housing credit remains in effect.

· Repeal of the individual and corporation income tax credit for broadcasters who air substance abuse advertising -- -this credit otherwise would have taken effect for taxable year 1992.

Other legislative changes of interest include:

· Deferral until January 1, 1995 of provisions allowing individual itemizers to claim additional Virginia withholding exemptions to reflect the difference between the standard deduction and their anticipated itemized deductions.

· Extension of recovery period for corporate ACRS additions -- subtractions to reclaim previous additions will not be allowed in taxable years 1992 and 1993; however, the recovery period will be extended by two additional years to taxable year 1998.

· Deferral of the effective date of the sales tax exemption for nonprescription drugs from July 1, 1992 until July 1, 1994.

· Repeal of the sales tax exemption for sales by state ABC stores, effective July 1, 1992.

· Exemption of distributions from IRA’s and SEP’s from income tax withholding, retroactive to January 1, 1992 (however, all other amounts paid to Virginia residents and subject to federal withholding under Internal Revenue Code §§ 3402 or 3405 remain subject to state withholding).

· Modifying the individual income tax credit for income tax paid to another state, effective for taxable year 1992, to hold harmless Virginia residents whose only source of income is wages earned in North Carolina -- due to a recent N.C. law change, these taxpayers were required to pay tax to both states; the law change will provide these taxpayers with a credit equal to the tax they paid to N.C. (not to exceed the Virginia tax, however).

New Compliance Initiatives Taking Shape in '92

The department has received additional appropriations for the remainder of fiscal year 1992 and the biennium beginning July 1, 1992 to enhance existing compliance programs and implement other new and innovative programs.

These appropriations are expected to generate approximately $65 million in additional revenue for the 1992 -1994 biennium. New positions are being added, both in compliance areas (audit and collections) and support areas (systems development, taxpayer and technical assistance, compliance program development, tax policy, etc.).

In addition to new auditors and collectors, the department will be piloting three initiatives:

· New compliance programs emphasizing the utilization of multiple data sources to identify nonfilers and under reporters;

· A program of income and expense audits of individuals and corporations; and

· A program to promote and expand voluntary compliance through enhanced communications with taxpayers and practitioners.

Interdisciplinary teams are currently at work throughout the department planning the logistical and organizational changes necessary to implement the expanded compliance program.

Age Deduction Indexation Will Affect ’92 Estimates

The age deduction for individuals 62 and older will be indexed annually beginning with taxable year 1992. For purposes of making 1992 estimated tax declarations, taxpayers should use the following base amounts for the deduction:

- - - - Age 62 – 64 $ 6,236
        Age 65 or over $12,472

The base amounts must still be reduced by the total Social Security and Tier 1 Railroad Retirement benefits the taxpayer expects to receive in 1992.

Filing Tips for '91 Returns: From TAX's Perspective

REFUNDS: The accelerated refund (AR) program continues to be a success. This is possible through the cooperation of taxpayers, practitioners, and local tax officials. To ensure that the program continues to run smoothly, please take a moment to make sure the taxpayer meets the filing criteria below before submitting an accelerated refund for processing:

· Eligible for a refund (please, no AR’s on zero balance or tax due returns, or returns of less than $1 in tax!)

· Filed a 1990 Virginia return;

· Name(s), address, and Social Security number(s) on '90 return have not changed; and

· Filing status has not changed since the'90 return.

Also, AR’s also should not be filed for deceased individuals.

Filing AR’s that meet the above criteria will ensure the continued success of the program.

AGE DEDUCTION: On joint or combined returns, remember that each spouse age 62 or older is now entitled to the age deduction. Thus, where one spouse cannot fully use the deduction, the excess now can be used to offset the taxable income of the other spouse.

Criminal Investigation Unit Getting Results

The department's new Criminal Investigation Unit, formed in July 1991, focuses on tax evasion resulting from criminal or fraudulent activities. The 5-person unit has already proven its value -- one particularly successful investigation resulted in the collection of over $458,000 in sales and income taxes.

Other investigations have resulted in the conviction of four individuals for conversion of sales and withholding taxes held in "trust" for the state (one was sentenced to two years in prison) and two other individuals for income tax evasion. The unit has also investigated several businesses which routinely paid taxes by bad check -- prosecutions have not been recommended, however, as the checks have been made good.

A key to the future success of the unit is the 1992 General Assembly's enactment of a class 6 felony for the willful conversion of trust taxes collected or withheld by businesses.

Rulings of the Tax Commissioner