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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 120. Corporation Income Tax
11/21/2024

23VAC10-120-190. Payroll factor.

A. In general. The payroll factor is a fraction, the numerator of which is the total amount paid or accrued within Virginia during the tax period by the corporation for compensation, and the denominator of which is the total compensation paid or accrued everywhere during the tax period.

B. Compensation.

1. Compensation, as defined in Va. Code § 58.1-302, shall be included in the payroll factor if it is effectively connected with the taxpayer's trade or business within the United States and the income from such trade or business is includible in both Virginia taxable income and federal taxable income.

2. The denominator of the payroll factor is the total compensation paid everywhere during the tax period. Accordingly, compensation paid to employees whose services are performed entirely in a state where the taxpayer is exempt from taxation, for example, by federal law 15 USC §§ 381-384, is included in the denominator of the payroll factor. However, compensation paid to employees whose services are connected with foreign source income as defined in Va. Code § 58.1-302 is excluded from the denominator because such income is not effectively connected with the taxpayer's trade or business within the United States and such income is not includible in Virginia taxable income.

C. Compensation within Virginia. The total wages reported to Virginia for unemployment compensation purposes are presumed to be compensation paid in Virginia (except for compensation excluded above). Compensation paid to employees which is deemed paid or accrued in Virginia under Va. Code § 58.1-413 shall be included in the numerator of the fraction whether or not such compensation is subject to the Virginia Unemployment Tax Act (Va. Code §§ 60.1-1 et seq.).

Statutory Authority

§§ 58.1-203 and 58.1-412 of the Code of Virginia.

Historical Notes

Derived from VR630-3-412, eff. January 1, 1985.

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