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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 120. Corporation Income Tax
1/27/2023

23VAC10-120-110. Additional modifications.

A. In general. In addition to the modifications set forth in § 58.1-402 of the Code of Virginia for determining Virginia taxable income for corporations generally, the adjustments set forth in subsection B shall be made to the federal taxable income of savings and loan associations and as set forth in subsections C and D below for railway companies.

B. Addition for bad debts.

1. If the federal bad debt deduction is based on a percentage of income, such amount shall be added to federal taxable income. After federal taxable income has been adjusted by all of the additions and subtractions in § 58.1-402 of the Code of Virginia and the bad debt addition a new bad debt deduction is determined by applying to the adjusted federal taxable income the same percentage used to compute the federal bad debt deduction. The new bad debt deduction is then subtracted from the adjusted federal taxable income to arrive at Virginia taxable income.

2. If the federal bad debt deduction is computed by a method other than the percentage of net income (such as the experience method) then no addition or subtraction is required for the bad debt deduction.

C. Addition for NOLD. If federal taxable income for any taxable year has been reduced by a Net Operating Loss Deduction (NOLD) attributable to a net operating loss occurring in a taxable year beginning before January 1, 1979, then such NOLD must be added to federal taxable income.

D. Subtraction for NOLD.

1. Because federal law requires an NOLD to be carried back to the earliest year in which there is income to be offset, a railway company suffering a net operating loss in a taxable year beginning on or after January 1, 1979, might be required to carry such loss back to taxable years beginning before January 1, 1979. Since a railway company was not subject to Virginia income tax for years beginning before January 1, 1979, it would receive no Virginia benefit from such carryback, and the NOLD for other taxable years would be reduced or eliminated by the required federal carryback.

2. In this situation, railway companies must add back the NOLD actually allowed on their federal return for losses occurring in taxable years beginning on or after January 1, 1979. A new NOLD is computed for Virginia purposes following the federal law and regulations except that no such loss is carried back to a taxable year beginning before January 1, 1979.

3. Example A. XYZ Co. is a railway company reporting on a calendar year basis. For the years 1976-1982 XYZ Co. had no additions or subtractions to federal taxable income except for an adjustment for net operating loss deductions. The income of XYZ is as follows:

 

1975

1976

1977

1978

1979

Fed. taxable income before NOLD

50,000

50,000

25,000

(150,000)

75,000

NOLD

(50,000)

(50,000)

(25,000)

--

(25,000)

Fed. taxable income

-0-

-0-

-0-

-0-

50,000

Va. NOL adjustment

25,000

Va. taxable income

(Virginia income tax not imposed)

75,000

Under federal law the 1978 net operating loss is first carried back to offset 1975, 1976 and 1977 income. There would be $25,000 of the NOL remaining to be carried forward and deducted on XYZ Co.'s 1979 federal return. Because the loss occurred in a taxable year beginning before December 31, 1978, the NOLD on the 1979 return must be added to federal taxable income to determine Virginia taxable income.

4. Example B. Same facts as in Example A except that the loss occurred in 1980. The income of XYZ is as follows:

 

1977

1978

1979

1980

1981

Fed. taxable income before NOLD

25,000

25,000

75,000

(100,000)

75,000

NOLD

(25,000)

(25,000)

(50,000)

--

-0-

Fed. taxable income

-0-

-0-

25,000

-0-

75,000

Va. NOL adjustment


(Virginia income)

+50,000
(75,000)

25,000

Va. taxable income

(Tax not imposed)

-0-

-0-

50,000

Under federal law the 1980 net operating loss is first carried back to offset income in 1977 and 1978. The remaining $50,000 NOL is carried back to the 1979 federal return.

Because the loss occurred in a taxable year beginning on or after January 1, 1979, the entire NOL will be available to offset Virginia income reported in taxable years beginning on or after January 1, 1979. The federal NOLD of $50,000 is first added to the 1979 federal taxable income and then a new Virginia NOL carryback is computed and subtracted. The federal laws and regulations are followed except that no NOL shall be carried back further than 1979. The result is that the carryback to 1979 is $75,000 instead of $50,000 and there is still $25,000 of the NOL left to carryover to the 1981 return.

Statutory Authority

§§ 58.1-203 and 58.1-403 of the Code of Virginia.

Historical Notes

Derived from VR630-3-403, eff. January 1, 1985.

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