Advancement of Virginia's Conformity to Federal Internal Revenue Code
Virginia's fixed date of conformity to the terms of the Internal Revenue Code (IRC) has been advanced from Dec. 31, 2015 to Dec. 31, 2016. This legislation allows Virginia to conform to federal tax legislation enacted during 2016 that would impact the filing of Virginia income tax returns, including the United States Appreciation for Olympians and Paralympians Act of 2016.
Virginia will continue to disallow federal income tax deductions for:
- bonus depreciation allowed for certain assets under IRC §§ 168(k), 168(l), 168(m), 1400L, and 1400N
- five-year carryback of federal net operating loss deductions generated in taxable year 2008 or 2009
- federal income tax deductions for applicable high yield discount obligations under IRC § 163(e)(5)(F)
- federal income tax exclusions related to cancellation of debt income realized in connection with a reacquisition of business debt at a discount after Dec. 31, 2008, and before Jan. 1, 2011.
Tax Bulletin 17-1 provides taxpayers with directions on how to reconcile this legislation with their 2016 Virginia income tax returns.
See our 2016 Legislative Summary for information about changes in Virginia tax laws.
See Guidance Documents for new tax guidelines.
Bank Franchise Tax
Effective July 1, 2016, an $18 million cap was set on the maximum total annual bank franchise tax liability per bank. The cap will increase to $20 million if at least 5 banks pay the maximum tax for 3 consecutive calendar years. After 2 years at $20 million, the cap will increase by 3% annually. If the cap increases, we will notify all banks and trust companies no later than Aug. 15 of the year prior to the year of the increase.
Corporations and Pass-Through Entities
Modified Method of Apportionment for Taxpayers with Enterprise Data Center Operations
An enterprise data center operation in Virginia that enters into a memorandum of understanding with the Virginia Economic Development Partnership Authority to make a new capital investment of at least $150 million in that center is required to apportion Virginia taxable income using a single sales factor method.
This modified method of apportionment will be phased in:
- From July 1, 2016 until July 1, 2017, qualifying corporations are required to use a quadruple-weighted sales factor.
- After July 1, 2017, qualifying corporations are required to use the single sales factor method of apportionment.
Exception to the Captive Real Estate Investment Trust Addition
For taxable years starting on Jan. 1, 2016, any voting power or value of the beneficial interests or shares in a real estate investment trust (REIT) that are held in a separate asset account of a life insurance corporation are excluded from consideration for purposes of determining whether a REIT is a captive REIT subject to the Virginia income tax addition.
Form Changes for Corporations
Revised Schedule 500AC
Corporations filing as combined or consolidated are required to submit Schedule 500AC for each member, including the parent company, which is doing business in Virginia or has Virginia source income, and is part of the group included in the return. Information requested on the new 500AC more closely aligns with the information parent companies report on the Form 500.
Sales and Use Tax
Meals and Catering
Effective April 22, 2016, state and local governmental entities, nonprofit organizations, and nonprofit churches may use their Retail Sales and Use Tax exemption certificates issued in keeping with Va. Code § 58.1-609.1(4), § 58.1-609.11, and § 58.1-609.10(16) to make exempt purchases of food and meals, as well as certain taxable services provided in connection with the provision of meals. See Tax Bulletin 16-3.
Veterans Service Organizations
Qualifying nonprofit Veterans Service Organizations that are exempt from federal income taxation under IRC § 501(c)(19), as well as certain entities organized for one of the purposes IRC § 501(c)(19), may purchase eligible tangible personal property without paying sales and use tax. See Tax Bulletin 16-5.
Exemption for Items Used in Commercial Beer Production
Effective July 1, 2016, the sales tax exemption on beer manufacturing items was expanded to include smaller producers, like brewpubs, farm breweries, and other non-industrial microbreweries. Qualified licensed brewers in Virginia can receive an exemption on beer making items, provided that at least 50% of the item’s use is in the manufacturing of the beer.
- Qualified brewers must hold licenses or limited licenses issued by the ABC Board under Va. Code § 4.1-208, Subsections 1 and 2.
- Exemptions apply to items for direct use in beer production. Examples of exempted items include:
- Machinery, tools, equipment, repair and replacement parts, fuel, power, energy, or supplies
- Materials used for processing, manufacturing or conversion into beer, where the materials enter into the production, or become a component part of the beer
- Materials used for packaging beer shipments for sale
- Items used indirectly in production activities are subject to sales and use tax.
- If an item is used for 2 different activities:
- Apply the full tax if the majority of the item’s use (50% or more) involves indirect production activities.
- Apply the exemption if the majority of the item’s use (50% or more) involves direct production activities.
- Brewers must provide suppliers with a completed Form ST-11 to receive the sales tax exemption for qualified items.
Exemption for Data Centers
The sunset date for the sales and use tax exemption for purchases of equipment by data centers and their tenants was extended from June 30, 2020 to June 30, 2035. If a person makes a capital investment of at least $500 million in a data center on or after July 1, 2016, they may count jobs relocated from a data center that previously qualified for the data center exemption when meeting the thresholds to qualify for the exemption.
Exemption for Wind and Solar Energy Equipment
A public service organization is exempt from paying sales and use tax on machinery, tools, and equipment used to generate energy from sunlight and wind. This exemption is in effect Jan. 1, 2017 through June 30, 2027.
Exemption for Certain Drilling Equipment Extended
The sunset date for the sales and use tax exemption for purchases of materials, supplies, machinery, and other specified tangible personal property used directly in drilling, extraction, or processing of natural gas or oil and the reclamation of the well area was extended from July 1, 2016 to July 1, 2022.
See What’s New for Tax Credits for new credits and changes that affect filing for tax year 2016.