Bulletin Number
VTB 82-5
Tax Type
Corporation Income Tax
Description
Taxable Years Ending on or After January 1, 1981
Topic
Allocation and Apportionment
Date Issued
05-15-1982
DATE: May 15, 1982
SUBJECT: Income Tax Changes Effective for Taxable
Years Ending on or After January 11, 1981
Senate Bill 641, enacted by the 1981 General Assembly for taxable years beginning on and after January 1, 1981 primarily affects multistate and multinational corporations by revising the formulas for allocating and apportioning income to Virginia but it also contains amendments which affect nonprofit organizations and amendments which affect all corporations conducting business operations in Virginia.
Provisions Relating to Nonprofit Organizations
Nonprofit organizations both corporate and noncorporate, which are exempt from United States income taxes under Internal Revenue Code § 501(c) are exempt from Virginia income taxes. However, for taxable years beginning on and after January 1, 1981 the unrelated business taxable income of such organizations, as defined by Internal Revenue Code § 5129 is taxable in Virginia. See §§ 53-151.03 and 58-151.013, Code of Virginia.
Provisions Relating to Allocation and Apportionment of Income
Allocation of Income
§ 58-151.337 - Dividends. Under the amended law only dividends constitute allocable income; Dividends to the extent includable in Virginia taxable income (See § 58-151.032(g), Code of Virginia) are allocable to the state of commercial domicile of the taxpaying corporation.
Apportionment of Income
The sections of the Virginia Code pertaining to the three-factor formula (property payroll, and sales) used in apportioning income have been amended as follows.
§ 58-151.042--Property Factor. Includable property is now limited to real and tangible personal property that is owned and used or rented and used.
§ 58-151.045--Payroll Factor. Salaries of officers with company-wide authority are no longer excludable from the factor.
§ 58-151.048--Sales Factor. Virginia sales are now defined as those with an ultimate destination to a purchaser in this State. Recapture provisions are no longer applicable in determining Virginia sales.
Further, apportionment factors are limited to inclusions of property, payroll, and sales used to produce Virginia taxable income and effectively connected with the conduct of a trade or business within the United States, the income from which is includable in federal taxable income.
Provisions Relating to Foreign Income
§ 58-151.013(c)(8). Provides for a subtraction of subpart F income.
§ 58-151.013(c)(9). Provides for a subtraction of foreign source income. The following categories are includable in the determination of foreign source income:
(1) Interest other than interest derived from sources within the United States;
(2) Dividends other than dividends derived from sources within the United States;
(3) Rents, royalties, license, and technical fees from property located or services performed without the United States or from any interest in such property, including rents, royalties, or fees for use of or the privilege of using without the United States any patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like properties; and
(4) Gains, profits, or other income from the sale of intangible or real property located without the United States.
In determining the source of income for purposes of 1 through 4 above, the provisions of §§ 861, 862, and 863 of the Internal Revenue Code shall be applied.
§ 58-151.079:1. Prohibits worldwide consolidation or combination of any controlled foreign corporations in an affiliated group.
Provisions Relating to All Corporations
§ 53-151.013(c)(7). Provides for a subtraction of expenses eligible for the federal work incentive program which were not deducted for federal income tax purposes on account of the provisions of § 280C(a) of the Internal Revenue Code.
§ 58-151.032(g). Provides a subtraction in computing Virginia taxable income for dividends received from affiliated corporations in which the taxpaying corporation owns fifty percent or more of the voting stock.
§ 58-151.079. Provides for the filing of combined returns of corporations affiliated within the meaning of § 58-151.081. A combined return shall mean a single return for a group of corporations in which income or loss is separately determined in accordance with paragraphs a. through d. below.
a. Virginia taxable income or loss is computed separately for each corporation;
b. Allocable income is allocated to the state of commercial domicile separately for each corporation;
c. Apportionable income or loss is computed, utilizing separate apportionment factors for each corporation;
d. Income or loss computed in accordance with a. through c. above is combined and reported on a single return for the affiliated group.
Prior elections continue in effect and can be changed only with permission granted by the Department.
Tax Bulletins