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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 500. Business, Professional and Occupational License Tax Regulations
9/28/2022

23VAC10-500-80. Deductions from gross receipts.

A. The following shall be deducted from gross receipts:

1. Any amount paid for computer hardware or software sold to the U.S. or a state government provided certain holding and contractual requirements are met; and

2. Any receipts attributable to a business conducted in another state or foreign country in which the taxpayer, or its shareholders, partners or members in lieu of the taxpayer, is liable for an income or other tax based upon income. A Virginia taxpayer is liable for an income or other tax based upon income if the taxpayer files a return for an income or income-like tax in that state or foreign country. The Virginia taxpayer, however, need not actually pay any tax to take the deduction.

B. Examples:

1. Merchant sells goods to a North Carolina resident and ships the goods to him in that state. Gross receipts from the sale of the goods are attributable to a definite place of business in Virginia. North Carolina imposes an income tax and merchant files a North Carolina income tax return. Merchant reports sales delivered to customers in North Carolina in the numerator of its sales factor for North Carolina income tax apportionment purposes. Gross receipts from sales delivered in North Carolina are deductible from merchant's Virginia BPOL taxable gross receipts (or the cost of the purchases are deductible from the tax base if the merchant is taxable on purchases.)

2. Same facts as in Example 1 except that sales are delivered to a customer in Ohio. In Ohio, merchant pays either a tax based on income or based on net worth, whichever is greater. Merchant files the appropriate Ohio tax return. Gross receipts (or the cost of purchases if merchant is taxable on purchases) from sales delivered in Ohio are deductible from merchant's Virginia BPOL taxable gross receipts. Receipts attributed to business conducted in another state or foreign country in which the taxpayer is liable for an income or an income based tax are deductible from Virginia BPOL taxable gross receipts, if such receipts are also attributable to a definite place of business in Virginia.

3. Same facts as in Example 2 except that sales are made to a customer in Nevada. Nevada imposes no income tax or other tax based upon income. Merchant does not file a return or perform any other actions to pay an income or income-based tax. For gross receipts relating to business conducted in another state or foreign country to be deductible from merchant's Virginia BPOL taxable gross receipts, merchant must be liable for an income or other tax based upon income. To be liable for an income or income-like tax, merchant must file a tax return for an income or income like tax in the state or foreign country. Merchant is not entitled to a deduction as it did not file a return for an income or income-based tax in Nevada.

Statutory Authority

§ 58.1-3701 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 24, Issue 23, eff. October 6, 2008.

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