Virginia Law

Chapter 110. Individual Income Tax

23VAC10-110-10. (Repealed.)

Historical Notes

Derived from VR630-2-300; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-110-20. Meaning of terms.

A. Generally. Words, terms, and expressions used in relation to the individual income tax shall have the same meaning as the words or expressions used in a comparable context in the income tax laws of the United States unless the context of the words or expressions contained within the Virginia law are otherwise defined or clearly required to have a different meaning. The meaning of a word or expression is clearly required to be different from the meaning of such word or expression in the income tax laws of the United States if:

1. Section 58.1-300 et seq. of the Code of Virginia expressly defines such word or expression, or

2. required to prevent an item from being subject to double taxation or double deduction in a single return, or

3. the Commissioner determines that a different meaning is required because the word or expression is not used in a comparable context in the laws of the United States and publishes such determination by regulation.

B. Laws of the United States.

1. When used in this chapter, the term "Laws of the United States" means the provisions of the Internal Revenue Code of 1954, as amended, (hereinafter referred to as "IRC"), as interpreted by the Treasury regulations, by the courts of the United States, and by the courts of Virginia.

2. Whenever the meaning of words or expressions used in the laws of the United States is changed by amendment, regulation, court decision or otherwise, the meaning of such words or expressions shall be similarly changed for application to the individual income tax.

3. Any such changes shall be effective for purposes of this chapter to the same extent, at the same time, and for the same taxable years as such changes are effective for federal purposes, unless otherwise specified.

C. Federal adjusted gross income. As used in this chapter, the term "federal adjusted gross income" (sometimes referred to as "FAGI") shall be accorded the meaning ascribed to it under IRC § 62.

Statutory Authority

§§ 58.1-203 and 58.1-301 of the Code of Virginia.

Historical Notes

Derived from VR630-2-301; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-30. Definitions.

A. Individual. An "individual" is any natural person, married or unmarried.

B. Resident.

1. Generally. For purposes of determining the income tax liability of any individual, the term "resident" includes (1) any individual domiciled in this Commonwealth (domiciliary resident), and (2) any individual who is not domiciled in this Commonwealth but who maintains a place of abode (actual resident) in Virginia for more than 183 days (in the aggregate) during the taxable year.

2. Actual resident. An individual may be an actual resident as defined in subdivision 1 of this subsection even though he retains his legal domicile elsewhere. The term "actual resident" does not include members of the United States Congress or members of the armed forces who are legally domiciled in another state. (For additional information on military and congressional personnel, see subdivisions 4 and 5 below.)

3. Domiciliary resident. A "domiciliary resident" is one whose legal domicile is Virginia. Most domiciliary residents actually live in Virginia; however actual presence in the state is not required. Any person who has not moved from the state with the intention of permanently residing outside of Virginia is still a domiciliary resident even though he may be actually living some place else.

A domicile once established continues until the individual moves to a new location with the bona fide intention of making his fixed and permanent home there.

A person can have only one domicile. If he has two or more places of abode, his domicile is the one which he regards and uses as his permanent home.

The determination of bona fide intention to change one's domicile is a factual matter which must be resolved on an individual case basis. In making this determination consideration is given to a number of factors, including, but not limited to the following: sites of real and tangible property, location of savings and checking accounts, motor vehicle registration and licensing, motor vehicle operator's license, voter registration, membership in clubs and civic groups, place of business, profession or employment, charitable contributions, location of schools attended by children, length of time of residence, place of birth and marriage, residence of family, reason for abandoning or acquiring domicile, and, in the case of a minor or married person, domicile of parents, husband, or wife and/or children. No single factor is dispositive in determining domicile; rather the factors are examined collectively to determine if the intent to acquire or abandon Virginia domicile exists. A simple declaration of intent to abandon domicile, or physical presence elsewhere is insufficient to abrogate Virginia domicile.

Additionally, the fact that an individual may have sold or disposed of his former home is not conclusive. Further, the fact that a person who has changed his place of abode to a location outside of Virginia but within six months of doing so again resides in Virginia constitutes prima facie evidence that no intent to abandon Virginia domicile existed. Where a question arises regarding an individual's domicile, the department may request such person to complete a questionnaire providing factual information relevant to the determination of intent to abandon Virginia domicile. Thus a change in domicile requires two concurrent actions--residence in a new locale and the intention to remain there indefinitely. The burden of proof that an individual has abandoned or failed to establish domicile in Virginia rests with the individual. For military personnel, see 23VAC10-110-130.

4. Members of Congress. Any member of the United States Congress who retains domicile in another state shall not be deemed a resident, actual or domiciliary, of Virginia. However, aides and other personnel employed by members of Congress will be deemed actual residents of Virginia, subject to Virginia income tax, if they reside in Virginia for more than 183 days during the taxable year, even though they retain legal domicile elsewhere.

5. Military personnel. Pursuant to 50 USC 574 (Soldiers and Sailors Civil Relief Act), a person does not abandon domicile in his home state solely by reason of absence in compliance with military or naval orders, nor shall such person be regarded as having acquired a domicile in any other state during the period of active duty. (For military personnel specifically, see 23VAC10-110-130.) For part-year residents, see 23VAC10-110-40.

C. Nonresident. A "nonresident" is any natural person who is not a resident, actual or domiciliary, of Virginia.

D. Income and deductions from Virginia sources. "Income and deductions from Virginia sources" includes, but is not limited to, items of income, gain, loss and deduction attributable to the following:

1. Ownership of any interest in real or tangible personal property in Virginia; or

2. A business, trade, profession, or occupation carried on in Virginia and income attributable to intangible personal property, to the extent that such property is employed by the taxpayer in a business, trade, profession, or occupation carried on in Virginia.

E. State. As used in 23VAC10-110-220, the word "state" shall mean any state of the United States and the District of Columbia. As used elsewhere in this chapter, the word "state" may or may not include U.S. territories and possessions.

F. Foreign source income.

1. Generally. As used in this chapter, the term "foreign source income" means income as defined in subdivision 2 below. Foreign source income does not include all income from sources outside of the United States, but is limited to the types of income enumerated below, and is further limited by the federal definitions in IRC §§ 861 through 864 and the regulations thereunder in determining the source of a particular item of income.

2. "Foreign source income" defined. "Foreign source income" is limited to the items enumerated in subdivisions a through d below.

a. Interest. "Interest" means that derived from sources outside of the United States, subject to the limitations of IRC §§ 861 through 864.

b. Dividends. "Dividends" means those derived from sources outside the United States, subject to the limitations of IRC §§ 861 through 864.

c. Rents, royalties, license and technical fees. "Rents, royalties, license and technical fees" mean those derived from property located outside of the United States or derived from services performed outside of the U.S. The term "technical fees" shall not include wages, salaries, compensation or other "earned income" as defined in IRC § 911(b). Fees for the use outside the U.S. of patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises and other like properties constitute "license and technical fees."

d. Gains. "Gains" means those gains and other income derived from the sale of intangible or real property located outside of the United States.

Statutory Authority

§§ 58.1-203 and 58.1-302 of the Code of Virginia.

Historical Notes

Derived from VR630-2-302; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-40. Part-year residents.

A. Any individual who becomes a domiciliary or actual resident of Virginia during the taxable year or who, before the last day of the taxable year abandons his Virginia domicile, shall be taxed as a resident only for that portion of the taxable year during which he is a resident of Virginia.

B. The Virginia taxable income of a part-year resident shall be computed by determining income, deductions, subtractions, additions and modifications attributable to the period of residence in Virginia. Income attributable to Virginia is that which is received during the portion of the year in which the individual is a Virginia resident; itemized deductions attributable to Virginia are those for which payment was made during the period of residence in Virginia. The allowable standard deduction of a part-year resident is prorated based on that portion of federal adjusted gross income (FAGI) attributable to Virginia as compared with FAGI. If a taxpayer claims moving expenses for federal income tax purposes, he should attribute the expense to Virginia income if the expense is incurred in moving into Virginia. If the expense is incurred in moving out of Virginia, such expense is attributable to the state into which the taxpayer moves. The exemptions allowable to a part-year resident under § 58.1-322(D)(2) of the Code of Virginia (personal exemption and additional exemption for taxpayers age 65 and over) must be prorated by multiplying the amount of exemption by the ratio of days of residence in Virginia to 365 days unless the total FAGI of a part-year resident is attributable to Virginia, in which case, the individual may claim the allowable personal exemptions without any proration based upon days of residence. The following examples illustrate the computation of the Virginia taxable income of a part-year resident.

Example 1: Taxpayer A, a single individual with one dependent, resided in Virginia for 200 days during taxable year 1982. A's FAGI for the taxable year is $20,000 consisting of $10,000 in wages earned in Virginia during his period of residence, $500 in taxable interest from a savings account held while a Virginia resident and $10,000 in wages earned in State X while a resident there. A claims $4,000 of itemized deductions, $2,000 of which were paid while a Virginia resident. A incurs $500 in expenses in moving to State X which he deducts in the computation of FAGI. A's Virginia taxable income is computed as follows:

(For transitional modifications affecting the computation of Virginia taxable income, see 23VAC10-110-110.)

Example 2: Taxpayer B, a single individual with no dependents, resided in Virginia for 190 days during taxable year 1983. B's FAGI is $20,000 including $4,900 in wages earned in Virginia during B's period of residence, $100 in taxable interest from a savings account held while a Virginia resident, and $15,000 in wages earned in State Y while a resident there. B does not itemize deductions, and therefore utilizes the Virginia standard deduction. B's Virginia taxable income is computed as follows:

C. No person who becomes a resident of Virginia during the taxable year is entitled to any credit against his Virginia tax liability for any tax payable to the state or jurisdiction of former residence or domicile for that portion of the taxable year during which he was a resident of such other state or jurisdiction.

For credit for taxes paid to another state, see 23VAC10-110-220.

D. Any part-year resident who derives income from property owned or business, trade, profession or occupation carried on in Virginia during that portion of the taxable year in which he was a resident of another state or jurisdiction shall be taxed as a nonresident with respect to such income.

Statutory Authority

§§ 58.1-203 and 58.1-303 of the Code of Virginia.

Historical Notes

Derived from VR630-2-303; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-50. (Repealed.)

Historical Notes

Derived from VR630-2-308; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-110-60. Refund of overpayment.

A. Generally. If the amount of tax paid by any individual exceeds that which is actually due, the overpayment shall be refunded to the taxpayer or, at the taxpayer's request, credited against his tax liability for the next succeeding taxable year.

B. Set-off debt collection.

1. Generally. Pursuant to the provisions of the Set-Off-Debt Collection Act (§ 58.1-520 et seq. of the Code of Virginia) the tax refund of any individual may be used in whole or in part to set off any delinquent debt owed by the taxpayer to a claimant agency as defined in § 58.1-520 of the Code of Virginia, which includes all state agencies, local governments, and the Supreme Court. The determination of whether a refund set-off is proper and the resolution of questions concerning a set-off must be addressed to the claimant agency and not the Department of Taxation.

2. Amended returns. Any portion of a tax refund which has been transmitted to a claimant agency pursuant to a final debt set-off is deemed to have been paid to the taxpayer. Therefore, if an amended return is filed relative to an overpayment of tax which has been transmitted to a claimant agency, only that portion in excess of the amount transmitted shall be refunded. If an amended return shows a lesser overpayment than that on the original return and such prior refund amount has been transmitted to a claimant agency, the taxpayer will be liable for payment to the department for the difference between the original overpayment and the amount shown on the amended return, as though the original refund had been made directly to the taxpayer.

A husband and wife who file separately on a combined return and who, after notification that all or a portion of the refund resulting from such return has been set-off to satisfy a delinquent debt claim, file an amended return which results in a shift in the refund interest from one spouse to the other shall be deemed to have fraudulently conveyed interest in the refund and such amended returns shall not be accepted unless the result is an overall increased refund. (For additional information, see Set-Off Debt Collection Act Regulations, Chapter 380 of Title 23 of the Virginia Administrative Code.)

C. Interest on refunds.

1. Generally. The payment of interest on refunds of tax overpayments shall be controlled by the provisions of § 58.1-1833 of the Code of Virginia.

2. Withholding and estimated tax. Tax withheld by an employer pursuant to the provisions of § 58.1-460 et seq. of the Code of Virginia and any amount paid as estimated tax is deemed to be paid when the income tax return for the taxable year is filed or on the due date of the return, whichever is later.

3. Net operating loss and net capital loss. Any overpayment of tax attributable to the carry-back to a preceding taxable year of any net operating loss or net capital loss shall be deemed to be made on the day on which the return for the year in which the loss occurred was filed, or the last day prescribed by law for such filing, whichever is later. (See also 23VAC10-20-200 and 23VAC10-110-320.)

Statutory Authority

§§ 58.1-203 and 58.1-309 of the Code of Virginia.

Historical Notes

Derived from VR630-2-309; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-70. (Repealed.)

Historical Notes

Derived from VR630-2-311; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); repealed, Virginia Register Volume 33, Issue 6, eff. February 1, 2017.

23VAC10-110-80. Net operating losses; definitions.

The following words and terms, when used in this regulation, shall have the following meanings, unless the context clearly indicates otherwise:

"Carryback year" means any year preceding the loss year in which a deduction for a federal net operating loss is claimed pursuant to IRC § 172(b) for federal income tax purposes.

"Carryforward year" means any year subsequent to the loss year in which a deduction for a federal net operating loss is claimed pursuant to IRC § 172(b) for federal income tax purposes.

"Federal net operating loss" means an amount equal to the amount defined by IRC § 172(c).

"Loss year" means the taxable year to which the net operating loss is attributable.

"Net operating loss absorbed" means the amount of federal net operating loss as defined by IRC § 172(c) that is either used to offset modified federal taxable income in a carryback year or included in the computation of federal adjusted gross income in a carryforward year. In a carryback year, it is the amount necessary to reduce modified federal taxable income to zero, but not below zero. (See IRC § 172(b)(2).)

"Recomputed federal adjusted gross income" means the federal adjusted gross income as last determined for the carryback year, less the amount of net operating loss absorbed as defined above.

"Virginia modification" means the modifications specified in §§ 58.1-322 B and 58.1-322 C of the Code of Virginia that relate to federal adjusted gross income, the modifications to federal itemized deductions specified in § 58.1-322 D 1.a, the additional deduction of $400 specified in § 58.1-322 D 2, the beneficiary modifications specified in § 58.1-322 E, and the transitional modifications specified in § 58.1-322 F of the Code of Virginia.

Statutory Authority

§§ 58.1-203 and 58.1-311 of the Code of Virginia.

Historical Notes

Derived from VR630-2-311.1 § 1, eff. taxable years beginning on and after January 1, 1985.

23VAC10-110-81. Net operating losses; generally.

There is no express statutory authority in the Code of Virginia for a separate Virginia net operating loss. Since under § 58.1-322 of the Code of Virginia the starting point on a Virginia individual income tax return is federal adjusted gross income, and the federal carryback or carryforward of a federal net operating loss is reflected in federal adjusted gross income, Virginia taxable income is indirectly affected by federal net operating losses to the extent that they are reflected in federal adjusted gross income.

Statutory Authority

§§ 58.1-203 and 58.1-311 of the Code of Virginia.

Historical Notes

Derived from VR630-2-311.1 § 2, eff. taxable years beginning on and after January 1, 1985.

23VAC10-110-82. Net operating losses; Virginia modifications in the loss year.

A. Generally. Each item that is a component of the federal net operating loss must be examined to see if a Virginia modification is required to be made to that item. To the extent that a Virginia modification is required, the net amount of such modifications shall become associated with the federal net operating loss. (See 23VAC10-110-83.)

In addition to the modifications enumerated under 23VAC10-110-80, a modification shall be made to any other item that is a component of the federal net operating loss that Virginia law treats dissimilarly.

B. Zero bracket amount. There is no provision in the Code of Virginia for the allowance of a deduction for an amount equal to the federal zero bracket amount. In cases where taxpayers for federal purposes do not itemize deductions, all or part of the federal zero bracket amount may be included in the amount of federal net operating loss. To the extent that any amount of the federal zero bracket amount is included in the federal net operating loss, a positive Virginia modification is required. (See example 3.)

C. Other modifications required.

1. A positive modification is required for the items enumerated in § 58.1-322 B of the Code of Virginia-Additions to federal adjusted gross income. Also see 23VAC10-110-141.

2. A negative modification is required for the items enumerated in § 58.1-322 C of the Code of Virginia-Subtractions from federal adjusted gross income. Also see 23VAC10-110-142.

3. A positive modification is required for the state tax deduction specified in § 58.1-322 D 1 a of the Code of Virginia, and a negative modification is required for the additional charitable mileage deduction allowed by this same section. Also see 23VAC10-110-143 1 b.

4. A negative modification is required for the additional deduction of $400 specified in § 58.1-322 D 2 of the Code of Virginia. Also see 23VAC10-110-143 3.

Statutory Authority

§§ 58.1-203 and 58.1-311 of the Code of Virginia.

Historical Notes

Derived from VR630-2-311.1 § 3, eff. taxable years beginning on and after January 1, 1985.

23VAC10-110-83. Net operating losses; treatment of the Virginia modifications in the loss year.

A. Modifications follow loss. The addition, subtraction and itemized deduction or deduction for zero bracket amount modifications shall be combined. The net result of these loss year modifications will follow the federal loss to the year in which the loss is utilized. It will be applied in the same proportion as the amount of loss that is absorbed. Thus, if the federal net operating loss is fully utilized in a carryback or carryforward year, the entire net amount of Virginia modifications will be applied to such year. If, however, the federal net operating loss is partially utilized in each of several years, the net Virginia modifications will be applied in the same ratio to the several years. For example, if 50% of a 1984 federal net operating loss is carried back to 1981, then 50% of the 1984 net Virginia modifications will also be carried back to 1981.

B. When Virginia modifications exceed net operating loss. However, if in the loss year the positive Virginia modifications are greater than the federal net operating loss, Virginia negative modifications, plus the amount of Virginia personal exemptions and deductions, then Virginia taxable income for the loss year will be greater than zero. Under these circumstances, the net positive Virginia modification shall be limited to the amount of the federal net operating loss. For example, if the 1984 federal net operating loss is ($9,000), Virginia additions are $18,000, and Virginia subtractions are ($5,000), then 1984 Virginia taxable income is $2,100 (assuming the taxpayer is single, under age 65 and claims the Virginia standard deduction). The net modification ($18,000 - $5,000 = $13,000) will be limited to the amount of federal net operating loss, i.e. $9,000. Therefore, if $6,000 of the federal net operating loss is carried back to 1981 then $6,000 of the net positive Virginia modification will also be carried back to 1981.

C. Worksheet and examples. The following worksheet or a facsimile thereof must be used and attached to the return to compute the amount of net Virginia modification in the loss year and the portion of this modification to be used in each of the carryback and/or carryforward years.

Example 1.

In 1984, John and Mary Taxpayer suffered a federal net operating loss of $26,560, which they carried back to 1981. The amount of the 1984 net operating loss absorbed in 1981 was $9,296. They had $520 of Virginia income tax (withholding on wages) included in the federal net operating loss.

Their 1984 Virginia income tax return contained the following Virginia modifications:

The worksheet to compute the net Virginia modification from the loss year should be completed as follows:

Example 2.

Same as Example 1, except that $390 of the $520 1984 (loss year) Virginia income tax claimed as an itemized deduction was from estimated income tax payments based on anticipated investment income. First the amount of State tax included in the net operating loss must be computed. On the Federal Schedule A, Form 1045, line 8(a), the nonbusiness deductions equal $15,350 and the nonbusiness income line 8(b) equals $9,850. For federal purposes, in computing the net operating loss, only $390 of the State tax deduction claimed on federal Form 1040, Schedule A, is included in the non-business deductions on the federal Form 1045, Schedule A. Since only 64.2% (9850)/(15350) of the non-business deductions are included in the net operating loss, only $250 ($390 X 64.2%) of the non-business portion of the State tax deduction is included in the net operating loss. The $130 of State tax that is a business deduction (from withholding on wages) is included in the net operating loss also. Therefore, a total of $380 ($250 + $130) of State tax is included in the net operating loss.

Example 3.

John and Mary Taxpayer suffered a federal net operating loss of $26,560 in 1984, which they carried back to 1981. The amount of the 1984 net operating loss absorbed in 1981 was $9,296. They did not itemize deductions in 1984. Because their non-business income exceeded their non-business deductions the entire federal zero bracket amount was included in the net operating loss.

Statutory Authority

§§ 58.1-203 and 58.1-311 of the Code of Virginia.

Historical Notes

Derived from VR630-2-311.1 § 4, eff. taxable years beginning on and after January 1, 1985.

23VAC10-110-84. Net operating loss carrybacks and carryovers.

A. Generally. For Virginia purposes a net operating loss deduction is allowed only to the extent that it is allowed in computing federal adjusted gross income. Therefore, it must be carried back or carried forward to the same year as for federal income tax purposes.

B. Exception. There shall be no carryback of any net operating loss to any taxable years beginning prior to January 1, 1972. In the case of a net operating loss that for federal income tax purposes that is carried back to any taxable year prior to January 1, 1972, the amount of such loss is to be carried forward for Virginia purposes and used to offset taxable income in successive tax years subsequent to 1972 until the amount of federal loss is offset.

Statutory Authority

§§ 58.1-203 and 58.1-311 of the Code of Virginia.

Historical Notes

Derived from VR630-2-311.1 § 5, eff. taxable years beginning on and after January 1, 1985.

23VAC10-110-85. Net operating losses; filing status.

A. Generally. Taxpayers shall use the same filing status for Virginia purposes as they do for federal purposes. In cases where the taxpayers use a different filing status for federal purposes in the loss year than in the carryback or carryforward year, the federal provisions of Treasury Reg. § 1.172-7 shall be applicable.

B. When taxpayers elect a different Virginia filing status. Taxpayers may elect a different Virginia filing status in the loss year than they elected in the carryback or carryforward year. Section 58.1-341 of the Code of Virginia allows Virginia taxpayers who file a joint federal income tax return to file either a joint Virginia income tax return, separate Virginia income tax returns or to file separately on a combined return. (See 23VAC10-110-240 C.)

1. When taxpayers elect on their Virginia return to file married, filing jointly in the loss year and to file separately or to file married filing separately on a combined return in the carryback or carryforward year, the loss and all Virginia loss year modifications shall first be claimed by the spouse who would have been entitled to claim the loss if separate returns or married filing separately on a combined return had been chosen in the loss year. If the amount of loss exceeds the income of that spouse, then the taxpayers may exercise their election of changing their filing status to married filing jointly in the carryback or carryforward year.

2. When taxpayers elect to file separate Virginia returns or elect to file separately on a combined return in the loss year and file married, filing jointly in the carryback or carryforward year, the loss and all Virginia loss year modifications attributable to both spouses for the loss year shall follow the loss to the carryback or carryforward year return.

Statutory Authority

§§ 58.1-203 and 58.1-311 of the Code of Virginia.

Historical Notes

Derived from VR630-2-311.1 § 6, eff. taxable years beginning on and after January 1, 1985.

23VAC10-110-86. Net operating losses; preparation of the carryback year or carryforward year return.

A. Carryback year return. The amended Virginia return for the carryback year shall start with the recomputed federal adjusted gross income. The net modifications from the NET OPERATING LOSS MODIFICATION WORKSHEET shall be entered on the line for "other" additions to federal adjusted gross income if positive or shall be entered on the line for "other" subtractions from federal adjusted gross income if negative. This net modification for the loss year shall be combined with the modifications as originally claimed for the carryback year, the recomputed federal adjusted gross income, personal exemption amount and deduction amount to compute Virginia taxable income in the carryback year. Since the computation of the Virginia standard deduction and the amount of Virginia credit for taxpayers age 62 and over are both based upon the amount of federal adjusted gross income, these amounts must be recomputed in the carryback year to reflect the recomputed federal adjusted gross income.

The following forms and their supporting schedules must be included with the amended return.

1. NET OPERATING LOSS MODIFICATION WORKSHEET or facsimile.

2. Copy of the Virginia return for the loss year.

3. Copy of the Federal Form 1045 or 1040X.

B. Carryforward year return. Since the net operating loss deduction is a component of federal adjusted gross income in the carryforward year, there is no need to recompute federal adjusted gross income for Virginia purposes. The net modification from the NET OPERATING LOSS MODIFICATION WORKSHEET shall be entered on the line for "other" additions to federal adjusted gross income if positive, or shall be entered on the line for "other" subtractions from federal adjusted gross income if negative. This net modification for the loss year shall be combined with the modifications of the carryforward year, federal adjusted gross income, personal exemption amount and deduction amount to compute Virginia taxable income in the carryforward year.

The following statements must be included with the carryforward year return.

1. NET OPERATING LOSS MODIFICATION WORKSHEET or facsimile.

2. Copy of the Virginia return for the loss year.

Statutory Authority

§§ 58.1-203 and 58.1-311 of the Code of Virginia.

Historical Notes

Derived from VR630-2-311.1 § 7, eff. taxable years beginning on and after January 1, 1985.

23VAC10-110-87. Net operating losses; when and where to file; interest.

A. When to file. The provisions of § 58.1-1823 of the Code of Virginia set forth the statute of limitations for filing amended returns claiming a refund that reflect the carryback of a federal net operating loss. Generally, the amended carryback year return must be filed within the statutory period for filing the loss year return. (See 23VAC10-20-180.)

B. Where to file. The amended return for the carryback year is to be filed in accordance with the requirements of 23VAC10-110-260.

C. Interest. Any overpayment of tax resulting from the carryback of a net operating loss will be deemed to have been made on the day on which the return for the loss year was filed or the due date of the loss year return (including extensions), whichever is later. (See 23VAC10-20-200 E.)

Statutory Authority

§§ 58.1-203 and 58.1-311 of the Code of Virginia.

Historical Notes

Derived from VR630-2-311.1 § 8, eff. taxable years beginning on and after January 1, 1985.

23VAC10-110-90. Limitations on assessments.

A. Generally. Except as otherwise provided, the department must assess any tax deficiency within three years from the date the tax was due and payable. See § 58.1-104 of the Code of Virginia.

B. Exceptions. The three-year statute of limitations for assessment shall not be applicable to the situations set forth in subdivisions 1 through 8 of this section.

1. Failure to file a return. When any individual fails to file a return as required by law, an assessment may be made at any time.

2. False or fraudulent return. If any individual files a false or fraudulent return with intent to evade the tax legally due, an assessment may be made at any time.

3. Failure to report change in federal income. When any individual fails to report a change or correction which increases his federal taxable income as required by 23VAC10-110-70, fails to report a change or correction in federal taxable income which is treated as a deficiency for federal purposes, or fails to file an amended return as required by law, the tax may be assessed at any time.

4. Waiver. When the department and the taxpayer have, before the expiration of the statute of limitations, agreed to extend the period for assessing the tax beyond the expiration date of such statute of limitations, the tax may be assessed at any time prior to the substituted expiration date provided for in such agreement. Subsequent agreements further extending the period of assessment may be executed prior to the expiration date of the previous agreement. Any agreement waiving and extending the statutory assessment period must be in writing and must clearly specify the date to which the assessment period has been extended. Any such extension will also extend the period in which a taxpayer may file an amended return claiming a refund. See §§ 58.1-101, 58.1-1823 of the Code of Virginia.

5. Report of change or correction in federal income. When any taxpayer reports a change or correction or files an amended return pursuant to an increase in federal taxable income pursuant to 23VAC10-110-70, or reports a change or correction in federal taxable income which is treated as a deficiency for federal purposes, an assessment may be made at any time within one year after such report, correction, or amended return is filed. Any additional tax assessed pursuant to this provision may not exceed the amount of additional Virginia tax due as a result of the federal change or correction. However, an assessment for additional amounts due which are not attributable to the federal change or correction may be made provided such assessment is made within the otherwise applicable statute of limitations. Further, if any other provision of law allows the assessment of tax during a period which exceeds the one-year statute of limitations contained in this subsection, e.g., filing of a false or fraudulent return, such other provision shall prevail.

6. Carry-back deficiencies. Any deficiency which is attributable to the carry-back of a net operating loss or net capital loss may be assessed at any time within the statute of limitations within which an assessment may be made for the taxable year in which the loss occurred. For example, if a taxpayer incurs a net operating loss in taxable year 1983 and a portion of the loss is carried back to taxable year 1980 resulting in a refund for taxable year 1980, and a subsequent audit reduces or eliminates the loss which was carried back to 1980, assessment relative to such deficiency may be assessed within the statute of limitations applicable to taxable year 1983.

7. Recovery of erroneous refund.

a. Generally. An erroneous refund of tax shall be considered an underpayment of tax on the date the refund is made. An assessment for recovery of the erroneous refund may be made within two years of the date such refund is made except that recovery may be made within five years if any part of the refund was the result of fraud or misrepresentation of a material fact.

b. Erroneous refund defined. As used in this regulation, the term "erroneous refund" means the issuance of refund to which a taxpayer is not entitled. Where a taxpayer provides complete and current information and an erroneous refund results from a departmental error, such as a clerical error, the department is limited to recovery within the two year statute of limitations.

However, the department may make an assessment for recovery of the amount erroneously refunded within five years from the date of the refund if the issuance of the erroneous refund results from a misrepresentation of a material fact by the taxpayer, including inadvertent taxpayer errors, e.g., the omission of information or the incorrect listing of information which has a direct bearing on the computation of Virginia taxable income or tax liability.

8. Request for prompt assessment. When a return is required to be filed for a decedent during the period of administration of such decedent's estate, the executor, administrator, or other person representing the estate may request in writing (after the filing of the decedent's return) that the department issue a prompt assessment for any deficiency arising from such return. Upon such request, the department shall issue any applicable assessment within 18 months of the request. Nothing in this subsection shall be construed as extending the period of limitations for assessment beyond three years from the date the return was filed or limiting the assessment period where otherwise provided by law.

C. Retention of records. Every individual who is required to file an income tax return must maintain records to substantiate the information provided therein. Such records must include that information sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown in any tax return, including a copy of the complementary federal income tax return and supporting schedules for the given taxable year. (See 23VAC10-20-90 for additional record retention requirements.)

Statutory Authority

§§ 58.1-203 and 58.1-312 of the Code of Virginia.

Historical Notes

Derived from VR630-2-312; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-100. (Repealed.)

Historical Notes

Derived from VR630-2-313; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-110-110. Transitional modifications to Virginia taxable income.

A. Employee annuity plans. Any amount contributed by an individual to an employee annuity plan prior to January 1, 1972, which at the time of contribution was subject to Virginia income tax, may be subtracted from FAGI in computing Virginia taxable income during the taxable year in which the benefit is received by the individual or his beneficiary. The subtraction shall be equal to the cost basis of the contributions prior to January 1, 1972, and shall be allowed only to the extent that the benefits are included in FAGI in the year of recovery, and to the extent that the benefits have previously been taxed in Virginia.

B. Nondepreciable property. If any individual sells or exchanges nondepreciable property in a taxable year beginning on or after January 1, 1972, which was received by such individual prior to January 1, 1972, and the basis of such property is greater for state purposes than for federal purposes, the excess may be subtracted from FAGI to the extent included therein in determining Virginia taxable income. If the state basis is less than the federal basis, no adjustment is required. This situation typically arises in the case of inherited nondepreciable property.

Statutory Authority

§§ 58.1-203 and 58.1-315 of the Code of Virginia.

Historical Notes

Derived from VR630-2-315; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-120. (Repealed.)

Historical Notes

Derived from VR630-2-320; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-110-130. Exemptions and exclusions.

A. Part-year residents. The Virginia adjusted gross income of a part-year resident is computed only with respect to income derived during the resident's period of residence in Virginia determined in the manner prescribed in 23VAC10-110-40 B.

B. Nonresidents. The Virginia adjusted gross income of a nonresident is computed as though such person had been a resident of Virginia during the full taxable year.

C. Military personnel.

1. Military pay. Armed forces personnel who are not domiciliary residents of Virginia and who maintain no place of abode within the Commonwealth are not subject to Virginia income tax on compensation received from armed forces service. However, a member of the armed forces who is a domiciliary resident of Virginia is subject to tax on such income in the same manner as any other resident.

2. Other income. Pursuant to the Soldiers' and Sailors' Relief Act (50 USC § 574), compensation for military or naval service of any person residing in Virginia solely by reason of compliance with military or naval orders is not subject to income taxation in Virginia, unless such person is a domiciliary resident of the Commonwealth. Similarly, military personnel who are domiciliary residents of Virginia do not attain a domicile elsewhere solely by virtue of their presence outside of the state in compliance with military or naval orders. Therefore, a Virginia resident who enters military service is subject to Virginia income tax on all of the resident's taxable income, regardless of where the resident is stationed.

However, members of the armed forces who derive income from Virginia sources, excluding compensation for military or naval service, are subject to Virginia tax on such income in the same manner as any nonresident. For example, the compensation derived by an armed forces member from a part-time job is subject to Virginia income tax on such compensation. Similarly, a member of the armed forces may subject himself to taxation in Virginia by acquiring a new legal domicile herein.

3. Spouse of armed forces member. The residency status of a spouse of a member of the armed forces, who is not a member of the armed forces, shall be determined without regard to this section.

D. See § 58.15 of the Code of Virginia for provisions defining rates of interest and methods to determine interest and additions to tax. See also 23VAC10-110-30 B 3 for Domicile Generally. See also 23VAC10-110-190 B for allocation of deductions and exemptions between resident and nonresident spouses.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-2-321; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); amended, Virginia Register Volume 40, Issue 24, eff. September 28, 2024.

23VAC10-110-140. (Repealed.)

Historical Notes

Derived from VR630-2-322 § 1, eff. January 21, 1987; amended, eff. February 1, 1987; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-110-141. Virginia taxable income; additions.

To the extent excluded from FAGI, the items enumerated below shall be added to FAGI in computing Virginia taxable income. (For the ACRS addition, see 23VAC10-110-150.)

1. Interest on obligations of other states and certain obligations of the United States.

a. Obligations of other states. Interest on obligations of any state other than Virginia or on the obligations of a political subdivision of such other state or interest or dividends on obligations or securities of any authority, commission or instrumentality thereof which are exempt from federal but not state income tax must be added to FAGI. The amount to be added shall be reduced by the expenses not deducted in computing federal adjusted gross income.

b. Certain obligations of the United States. Interest on obligations or securities of the United States or any commission, authority or instrumentality thereof, which is exempt from federal income tax but which is not exempt (under federal law) from state income tax must be added to FAGI. The amount to be added shall be reduced by expenses not deducted in computing FAGI.

c. Expenses deductible in computing the addition are those which by virtue of IRC § 265 (which prohibits the deduction of expenses allocable to or interest on indebtedness incurred or continued to purchase or carry on obligations exempt from federal income tax) are not deductible for federal purposes.

Example: Taxpayer has $2,500 in interest income from obligations of State X and $500 in interest from obligations of Virginia. None of this $3,000 in interest is subject to federal income tax. "A" incurs $300 in expenses related to this interest income which, by virtue of IRC § 265 was not deductible in computing FAGI. The amount of interest income to be added to FAGI in computing Virginia taxable income is computed as follows:

The total nondeductible interest expenses are proportioned between interest taxable in Virginia (State X) and that not subject to Virginia tax (Va.) to determine the portion of these expenses which may be deducted in computing the interest addition.

If the interest is on an obligation created by a compact or agreement to which this state is a party, such interest shall not be added to FAGI in computing Virginia taxable income.

d. Regulated investment companies. Interest on any obligations taxable under subdivisions 1 a or 1 b of this section which is received by a regulated investment company and passed through to the shareholders in qualifying distributions as defined in IRC § 852 shall be taxable in the hands of the shareholders and must be added to FAGI (to the extent excluded therefrom) in computing the shareholder's Virginia taxable income.

2. Interest eligible for federal interest exclusion.

a. To the extent excluded from FAGI pursuant to the provisions of IRC § 128 and accompanying Treasury Regulations, interest income must be added to FAGI in computing Virginia taxable income. Interest income which is not includable in Virginia taxable income, i.e., interest on obligations of the U.S. or Virginia as defined in 23VAC10-110-142, is not required to be added to FAGI even if it is excluded by virtue of the net interest exclusion under IRC § 128.

b. The amount of the net interest exclusion to be added to FAGI in computing Virginia taxable income shall be proportionally reduced by the expenses not deducted in computing FAGI. Expenses deductible in computing the addition are those which by virtue of IRC § 265, which prohibits the deduction of expenses allocable to or interest on indebtedness incurred or continued to purchase or carry on obligations exempt from federal income tax, are included in federal adjusted gross income.

3. Lump sum distributions. Individuals who elect to use the 10-year averaging method for computation of the tax on a lump sum distribution from a qualified employee's trust shall add to FAGI: (i) 40% of the capital gain part and all of the ordinary income part of such distribution where the election is made to use the 10-year averaging method for the capital gain portion as well as the ordinary income portion; or (ii) all of the ordinary income portion where the 10-year averaging method is not used for the capital gain portion. The amount to be added is reduced by the minimum distribution allowance and any amount excludable for federal income tax purposes. The amount excludable for federal income tax purposes includes the death benefit exclusion and federal estate tax, if applicable. The minimum distribution allowance for state purposes is the allowance computed for federal purposes and may not exceed the taxable (40%) portion of the capital gain (if such gains are included in the 10-year averaging election) plus the ordinary income portion of the distribution. Where a distribution consists of both capital gain and ordinary income but the 10-year averaging method is not elected for the capital gain portion, the death benefits and federal estate tax exclusion must be allocated to the capital gain and ordinary income portion respectively based upon the percentage of the total taxable distribution represented by each.

Example: A qualifying lump sum distribution consists of $40,000 in ordinary income and $10,000 in capital gain. The taxpayer elects to use the 10-year averaging method only for ordinary income. The death benefit exclusion is $3,000, the minimum distribution allowance is $5,000 and federal estate taxes are $8,000. The amount of the distribution to be added to FAGI in computing Virginia taxable income is computed as follows:

Therefore, the amount of the lump sum distribution to be added is $27,200, calculated by subtracting the proportional share of excludable amounts (death benefit exclusion, minimum distribution allowance and estate taxes) attributable to the ordinary income portion from the ordinary income.

The effect is to add to FAGI that portion of a lump sum distribution which is excludable from FAGI by virtue of the special 10-year averaging method of computing the tax, less the minimum distribution allowance and death benefits exclusion.

A qualified employee's trust is one from which lump sum distributions qualify for treatment under the 10- year averaging method plan pursuant to IRC § 402. (For computation of the standard deduction as it relates to lump sum distributions, see subdivision 1 b of 23VAC10-110-143.)

4. Two-earner married couple deduction. The amount deducted from federal adjusted gross income pursuant to the provisions of IRC § 221 shall be added to FAGI in computing Virginia taxable income. IRC § 221 allows a deduction in the computation of FAGI for a percentage of the earned income of the lower earning spouse in the case of married persons filing joint federal income tax returns, both of whom have earned income. The amount of the addition shall be equal to the amount deducted in computing FAGI. Where a husband and wife elect to compute their Virginia tax liabilities separately, the federal deduction must be added to the income of the spouse whose earned income was used in computing the deduction for federal income tax purposes.

Example 1: H and W, a husband and wife with no dependents, filed a joint federal income tax return in taxable year 1982 and qualified for a two-earner married couple deduction of $500. The deduction was based upon the income of H, the lower earning spouse, pursuant to IRC § 221. H and W file a joint Virginia return, have FAGI of $28,000, and do not itemize their deductions.

Their Virginia taxable income is computed as follows:

Therefore, their Virginia taxable income is $25,300 and their Virginia tax liability is $1,234.75.

Example 2: Assume the same facts as Example 1, except that H and W elect to file separately on a combined Virginia return. H's income is $10,000; W's income is $18,000. Their Virginia tax liabilities are computed as follows:

Therefore H's Virginia taxable income is $9,900 and his tax liability is $364.38, W's Virginia taxable income is $15,400 with a tax liability of $665.36, and H and W's total Virginia tax liability is $1,034.74. H must add the two-earner deduction since the federal deduction was based upon his earned income.

Statutory Authority

§§ 58.1-203 and 58.1-322 of the Code of Virginia.

Historical Notes

Derived from VR630-2-322 § 2, eff. January 21, 1987; amended, eff. February 1, 1987.

23VAC10-110-142. Virginia taxable income; subtractions.

A. To the extent included in FAGI, the items enumerated below shall be subtracted from FAGI in determining Virginia taxable income. If an item was partially excluded or deducted in determining FAGI, it shall be subtracted from FAGI only to the extent included therein. If an item has already been excluded from Virginia taxable income, it shall not be subtracted again pursuant to this section.

1. Interest or dividends on obligations of the United States or Virginia.

a. "Obligation" means a debt obligation or security issued by the United States or any authority, commission, or instrumentality of the United States or by the Commonwealth of Virginia or any of its political subdivisions, which obligation or security is issued in the exercise of the borrowing power of the United States or Virginia and is backed by the full faith and credit of the United States or Virginia.

b. Guarantees by the United States or Virginia of obligations of private individuals or corporations are merely contingent obligations of the United States or Virginia even though the guarantees may be backed by the full faith and credit of the United States or Virginia. The obligation does not become an obligation of the United States or Virginia because of the guarantee and interest and dividends paid on such guaranteed obligations do not qualify for the subtraction unless specifically exempted by statute.

c. Specific statutory exemptions exist for certain securities issued by particular federal or Virginia agencies or political subdivisions. If a federal or Virginia statute exempts from state taxation the interest or dividends on specific securities of a particular agency or political subdivision, then such interest or dividends qualify for the subtraction.

d. Repurchase agreements are usually obligations issued by financial institutions that are secured by U.S. obligations exempt from Virginia income taxation under subdivisions 1 a and c of this section. In such cases, the interest paid by the financial institutions to purchasers of repurchase agreements does not qualify for the subtraction. Repurchase agreements issued following current commercial practice will invariably be regarded as obligations of the issuing financial institution. However, if the purchaser is regarded as the true owner of the underlying exempt obligation, the interest will qualify for the subtraction even though collected by the seller and distributed to the purchaser. Any claim of such ownership must be substantiated by a taxpayer claiming a subtraction.

e. Interest received from regulated investment companies. Interest on exempt obligations received by a regulated investment company and passed through to the stockholders in qualifying distributions, as defined in IRC § 852, will retain its exempt status in the hands of the shareholders. If a shareholder receives a distribution that includes interest from both exempt and non-exempt obligations, all distributions will be deemed taxable unless the shareholder can substantiate the exempt portion of the distributions. Any individual requiring advice as to the taxable status of distributions from any regulated investment company should contact such company. Due to the turnover in investments held by such companies and the commingling of interest from exempt and non-exempt obligations, the department cannot render such advice.

f. Expenses. The subtraction for interest on exempt obligations must be reduced by any expenses attributable to such interest and by interest or indebtedness incurred or continued to purchase or carry exempt obligations pursuant to IRC § 265.

2. Interest or dividends from pass-through entities.

a. Under federal law, certain income received by a partnership, estate, trust, or regulated investment company (pass-through entity) and distributed to a partner, beneficiary, or shareholder (recipient) retains the same character in the hands of the recipient. If a pass-through entity receives interest or dividends on U.S. or Virginia obligations that is distributed to the recipients in a manner that the distributions retain their character in the hands of the recipients under federal law, then such interest or dividends may be subtracted by the recipients in computing Virginia taxable income.

b. A pass-through entity may invest in several types of securities, some of which are U.S. or Virginia obligations. When taxable income is commingled with exempt income, all income is presumed taxable unless the portion of income that is exempt from Virginia income tax can be determined with reasonable certainty and substantiated. The determination must be made for each distribution to each shareholder. For example, if distributions are made monthly, then the determination must be made monthly. As a practical matter, only pass-through entities that invest exclusively in U.S. or Virginia obligations or that have extremely stable investment portfolios will be likely to make such determinations.

c. Examples:

(1) ABC Fund, a regulated investment company, invests exclusively in U.S. Treasury notes and bills, which are exempt from state taxation under 31 USC § 3124. All distributions are considered to be interest on U.S. obligations and may be subtracted by the recipient.

(2) Va. Fund, a regulated investment company, invests exclusively in obligations of Virginia and its political subdivisions. Distributions are considered to be interest on Virginia obligations and qualify for the subtraction to the extent that such distributions are included in the recipient's federal taxable income.

(3) XYZ Fund, a regulated investment company, invests in a variety of securities, including obligations of the U.S., Virginia, other states, corporations, and financial institutions (repurchase agreements). Due to the commingling of taxable and exempt income, the turnover in XYZ Fund's investments and the fluctuation in a shareholder's investment in XYZ Fund, all distributions are considered taxable income and do not qualify for the subtraction unless XYZ Fund determines the portion of distributions that is interest and dividends from U.S. and Virginia obligations for each distribution to each shareholder. Note that any portion of XYZ Fund's distributions that is excluded from federal taxable income as interest on obligations of other states must be added to Virginia taxable income.

3. Social Security and Railroad Retirement benefits. The amount of any Social Security benefits received under Title II of the Social Security Act (Old Age and Survivors Disability Insurance) and any other benefits included in FAGI solely by virtue of IRC § 86 shall be subtracted from FAGI in computing Virginia taxable income. "Other benefits" under IRC § 86 includes Tier 1 Railroad Retirement benefits and workers' compensation to the extent that it reduces OASDI benefits. Tier 2 Railroad Retirement benefits shall be subtracted from FAGI in computing Virginia taxable income by virtue of the Railroad Retirement Act.

B. See § 58.1-322.02 of the Code of Virginia for provisions defining computation of subtractions in figuring Virginia taxable income.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-2-322 § 3, eff. January 21, 1987; amended, eff. February 1, 1987; amended, Virginia Register Volume 40, Issue 24, eff. September 28, 2024.

23VAC10-110-143. Virginia taxable income; deductions.

A. For provisions defining the computation of deductions from Virginia taxable income see § 58.1-322.03 of the Code of Virginia.

B. For the purposes of computing the amount of reduction required to federal itemized deductions for income taxes imposed by Virginia or any other taxing jurisdiction, the term "any other taxing jurisdiction" includes any other state, any locality, and any foreign country.

C. For the purposes of the Virginia standard deduction, the term "earned income" shall mean wages, salaries or professional fees, and other amounts received as compensation for professional services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by the taxpayer to a corporation that represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. This rule applies to dependents younger than 19 years of age and full-time students who are eligible to be claimed on their parent's return.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-2-322 § 2, eff. January 21, 1987; amended, eff. February 1, 1987; amended, Virginia Register Volume 40, Issue 24, eff. September 28, 2024.

23VAC10-110-144. (Repealed.)

Historical Notes

Derived from VR630-2-322 § 5, eff. January 21, 1987; amended, eff. February 1, 1987; repealed, Virginia Register Volume 40, Issue 24, eff. September 28, 2024.

23VAC10-110-145. Subtraction for income attributable to an investment in a Virginia venture capital account.

A. To the extent included in federal adjusted gross income, any income, including investment services partnership interest income, attributable to an investment made in a Virginia venture capital account on or after January 1, 2018, but before December 31, 2023, shall be subtracted from federal adjusted gross income in determining Virginia taxable income. If such income was partially excluded or deducted in determining federal adjusted gross income, it shall be subtracted from federal adjusted gross income only to the extent included therein. If such income has already been excluded from Virginia taxable income, it shall not be subtracted again pursuant to this section.

B. The following words and terms when used for purposes of this section shall have the following meanings, unless the context clearly indicates otherwise:

"Affiliated" means a direct or indirect ownership interest of at least 80% in an entity. An indirect ownership interest includes direct ownership interests held by a taxpayer's family members or an entity affiliated with such taxpayer or family members, or any combination of these.

"Department" means the Virginia Department of Taxation.

"Family member" means, when applied with respect to an individual taxpayer, (i) spouse, (ii) children, (iii) grandchildren, (iv) parents, (v) spouse's parents, and (vi) grandparents.

"Investment services partnership interest income" means income from an investment partnership treated as carried interest income for federal income tax purposes.

"Professional experience" means full-time employment involving venture capital investment.

"Qualified portfolio company" means the same as that term is defined in subdivision 27 of § 58.1-322.02 of the Code of Virginia.

"Substantially equivalent experience" means an undergraduate degree from an accredited college or university in economics, finance, or a similar field of study or a combination of professional experience totaling less than four years, professional training, and undergraduate education from an accredited college or university in economics, finance, or a similar field of study demonstrating competency in venture capital investing.

"Virginia venture capital account" means the same as that term is defined in subdivision 27 of § 58.1-322.02 of the Code of Virginia.

C. The subtraction may not be claimed for an investment in a company that is owned or operated by a family member or an affiliate of the individual. The subtraction may not be claimed for an investment that was used to claim the subtraction for certain long-term capital gains allowed pursuant to subdivision 24 of § 58.1-322.02 of the Code of Virginia, or the qualified equity and subordinated debt investments tax credit allowed pursuant to § 58.1-339.4 of the Code of Virginia.

D. 1. Every investment fund desiring to be certified by the department as a Virginia venture capital account for purposes of this subtraction must first register with the department by submitting an application indicating that it intends to invest at least 50% of the capital committed to its fund in qualified portfolio companies and currently employs at least one investor who has at least four years of professional experience in venture capital investment or substantially equivalent experience.

2. Each investment fund must include with its registration application documentation of the investor's work experience, training, and education adequately demonstrating that such individual meets the professional experience or substantially equivalent experience requirement. Such documentation may include proof of employment, certifications, and transcripts.

3. The registration application required by this subsection must be submitted before or at the time the application required by subsection E of this section is submitted.

4. Once the department determines that an investment fund intends to invest at least 50% of the capital committed to its fund in qualified portfolio companies, has at least one investor who has at least four years of professional experience in venture capital investment or substantially equivalent experience, and has submitted the required attachments, it will provide certification to the investment fund stating that the registration application has been approved. Such certification shall be valid only for the calendar year for which it was issued. An investment fund may reapply for certification each calendar year.

E. 1. An investment fund that has invested at least 50% of the capital committed to its fund in qualified portfolio companies may then submit an application for certification as a Virginia venture capital account.

2. Each investment fund must include with its application documentation that it has invested at least 50% of the capital committed to its fund in qualified portfolio companies.

3. To receive certification for this subtraction, each investment fund may be required to submit certain information regarding its investors as required by the department.

4. Once the department determines that an investment fund has actually invested at least 50% of the capital committed to its fund in qualified portfolio companies and has submitted the required attachments, it will provide certification to the investment fund stating that it is a Virginia venture capital account for purposes of this subtraction. Such certification shall be valid only for the calendar year for which it was issued.

F. The applications in subsections D and E of this section and any necessary attachments must be made on the form prescribed by the department, postmarked no later than January 31 of the calendar year following the calendar year in which the investment fund is applying for certification as a Virginia venture capital account.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 34, Issue 26, eff. November 3, 2018.

23VAC10-110-150. (Repealed.)

Historical Notes

Derived from VR630-2-323; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); derived from VR630-2-323.1 §§ 1 to 8; adopted February 22, 1989; amended, eff. July 5, 1989, retroactive in effect for taxable years beginning on and after January 1, 1988; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-110-170. Husband and wife.

A. Generally. Where a husband and wife file separate federal income tax returns, their Virginia taxable incomes must be separately determined either by filing separate Virginia returns or by electing to file separately on a combined Virginia return. Where a husband and wife file a joint federal income tax return, they may elect to either: (1) file a joint Virginia return and compute their Virginia taxable income jointly; or (2) compute their Virginia taxable incomes separately on a combined return. Where only one spouse has income, either joint or separate returns may be filed; where both spouses have income they may file either jointly or separately on a combined return. If neither spouse files a federal return, they may elect to compute their Virginia taxable income either jointly or separately.

B. Husband and wife filing separately.

1. Generally. A husband and wife may elect to file separate Virginia returns or file separately on a combined return even though they file a joint return for federal purposes. When such an election is made, the rules set forth in subsections 2 through 7, following, must be used.

2. Income. Items of income must be allocated to the spouse who earned the income or to whose property the income is attributable.

3. Business deductions. Deductions from FAGI with respect to trade, business, income production or employment which are allowable in computing Virginia taxable income shall be allocated to the spouse whose trade, business income, or employment generated such deduction.

4. Nonbusiness deductions. Nonbusiness deductions are those allowable in computing Virginia taxable income which do not arise from the conduct of a trade or business, the production of income, or employment. Nonbusiness deductions may be allocated between the husband and wife as they mutually agree. For the allocation of deductions in the case of a married couple, both of whom are not residents, see 23VAC10-110-190.

5. Standard deduction. Where a husband and wife must use the Virginia standard deduction rather than itemizing deductions in computing Virginia taxable income, such deduction may be allocated between spouses as they mutually agree.

6. Personal exemptions. The personal exemptions allowed for federal purposes may be allocated between husband and wife as they mutually agree with the result that the deduction attributable to such exemption may be similarly allocated. However, the personal exemption allowed an individual and the additional exemptions for blind taxpayers and taxpayers 65 years and older must be allocated to the taxpayer to whom they relate.

7. Failure to agree on allocations. Where a husband and wife fail to agree on the allocation of deductions or exemptions as provided in subsections 4, 5, and 6 above, such allocations will correspond to federal treatment of the items involved.

Statutory Authority

§§ 58.1-203 and 58.1-324 of the Code of Virginia.

Historical Notes

Derived from VR630-2-324; adopted September 19, 1989; amended, eff. January 1, 1985, with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-180. Taxable income of nonresidents.

A. Generally. The Virginia taxable income of a nonresident individual, partner,shareholder or beneficiary is Virginia taxable income computed as a resident multiplied by the ratio of net income, gain, loss and deductions from Virginia sources to net income, gain, loss and deductions from all sources.

B. Net income, gain, loss and deductions. As used in this regulation, "net income, gain, loss and deductions" includes income, gain, loss and deductions attributable to (i) the ownership of any interest in real or tangible personal property; (ii) the conduct of a business, trade, profession or occupation; (iii) wages, salary, and tips; and (iv) income from intangible personal property employed by an individual in a business, trade, profession or occupation. Net income, gain, loss and deductions includes interest income, dividends (less the exclusion allowed by IRC § 116), business income and loss, capital gains or losses (subject to the 60% long-term capital gains provisions of IRC § 1202), supplemental gains and losses, pensions and annuities (to the extent subject to federal taxation), rents, royalties, income from partnerships, estates, trusts, and S corporations, farm income and loss, unemployment compensation (to the extent) subject to federal taxation), interest on obligations of states other than Virginia, lump sum distributions, and other income such as gambling winnings, prizes and lottery winnings. "Net income, gain, loss and deductions from Virginia sources" means that attributable to property within Virginia, or to the conduct of a trade, business, occupation or profession within Virginia. Net income, gain, loss and deductions from Virginia sources includes salary, tips or wages earned in Virginia, gain on the sale of property located in Virginia, income or loss from a partnership, estate, trust, or S corporation doing business in Virginia, and income from intangible personal property employed by an individual in a business, trade, profession, or occupation carried on in Virginia.

EXAMPLE 1: Taxpayers A and B, a married couple filing a joint return, are residents of State X. Their income and deductions for taxable year 1984 consists of the following:

A and B are entitled to claim four personal exemptions and their FAGI is $125,000. Their nonresident Virginia taxable income is computed as follows:

Step 1: Income computed as a resident.

Step 2: Ratio of net income gain, loss and deductions from all sources to Virginia sources

Step 3: Computation of Virginia taxable income.

EXAMPLE 2: Taxpayer D, a single individual, is a resident of State Y. His income and deductions for taxable year 1984 consist of the following:

D is age 66 and is entitled to claim one exemption in addition to the additional $400 exemption for taxpayers age 65 and over. D's FAGI for 1984 is $115,000 and Virginia taxable income is computed as follows:

Step 1: Income computed as a resident.

Step 2: Ratio of net income gain, loss and deductions from all sources to Virginia sources

Step 3: Computation of Virginia taxable income.

Since the ratio of net income gain, loss and deductions from all sources to Virginia sources is less than 0 due to the Virginia source loss, D has no Virginia taxable income.

EXAMPLE 3: H and W, a married couple filing a joint return are residents of State W. Their income and deductions for taxable year 1984 consisting of the following:

H and W are entitled to claim six exemptions and the FAGI for 1984 is $14,000. Their Virginia taxable income is computed as follows:

Step 1: Income computed as a resident

Step 2: Ratio of net income gain, loss, and deductions from all sources to Virginia sources.

Step 3: Computation of Virginia taxable income.

C. Nonresident shareholders in S corporations. A nonresident individual who is a shareholder in an electing small business corporation (S corporation) must include in Virginia taxable income his share of the taxable income of such corporation. Such nonresident shareholder shall deduct from Virginia taxable income, his share of the net operating loss of an S corporation. The amount to be included or deducted shall be that which is attributable to a business, trade, profession or occupation carried on in this state.

Statutory Authority

§§ 58.1-203 and 58.1-325 of the Code of Virginia.

Historical Notes

Derived from VR630-2-325 §§ 1–3; adopted September 19, 1984; revised January 1, 1985; amended, eff. January 21, 1987.

23VAC10-110-190. Nonresident spouse.

A. Generally. Where one spouse is a resident of Virginia and the other is a nonresident, they must either: (1) compute their Virginia taxable income jointly on a joint return; or (2) compute their Virginia taxable incomes separately on separate returns.

B. Separate filing. In the case of a married couple, one of whom is a nonresident of Virginia filing separately, each spouse must account separately for items of income deductions, and exemptions. Where such items cannot be accounted for separately, deductions and personal exemptions must be proportionally allocated between each spouse based upon the income attributable to each. The following example illustrates this concept.

Example: H and W are a married couple. H is a resident of Virginia and W is a resident of State X. H and W elect to file separate returns and may claim a total of 6 exemptions. Income attributable to H is $40,000 and income to W is $20,000. Nonbusiness deductions total $15,000. In computing his Virginia taxable income, H is entitled to claim to $10,000 of the deductions and 4 personal exemptions (his own and 3 others) computed by determining the ratio of his income to total income (40,000/60,000).

Statutory Authority

§§ 58.1-203 and 58.1-326 of the Code of Virginia.

Historical Notes

Derived from VR630-2-326; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-200. (Repealed.)

Historical Notes

Derived from VR630-2-330; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); adopted March 16, 1983 as Regulation 2.58-151.014:2; renumbered VR630-2-331, adopted September 19, 1984, effective January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-110-220. Credit for income taxes paid to another state; generally.

A credit for income tax paid to another state may be allowed to residents and nonresidents who are liable for Virginia income tax, subject to certain limitations and restrictions set forth below. The credit provided by this section is applicable only to income tax paid to another state and does not apply to taxes paid to any foreign country. This credit is further inapplicable to taxes imposed by any city, county, regional or other local taxing jurisdiction regardless of the fact that such local tax may be collected by a state.

1. Taxable year. The credit for residents and nonresidents is allowable only with respect to income tax liability to another state incurred within the same taxable year as the liability is incurred to Virginia. For example, some states tax employee contributions to certain retirement plans at the time of contribution despite the fact that such amounts are not includible in federal adjusted gross income until withdrawn. Therefore an individual who is a nonresident of Virginia at the time he makes a contribution may be required to pay tax to his state of residence on such contribution. If the individual is a Virginia resident at the time the contributions are withdrawn and includible in FAGI, he will be liable to Virginia for tax on the amount withdrawn during the taxable year of withdrawal. In this instance, no credit may be claimed for tax paid to the former state of residence unless such tax liability was incurred within the same taxable year as the liability to Virginia.

2. Nonrefundable credit. The credit allowed to residents and nonresidents may not exceed the individual's Virginia tax liability, i.e., the credit is nonrefundable, and no excess may be carried forward or back to other taxable years.

Statutory Authority

§§ 58.1-203 and 58.1-332 of the Code of Virginia.

Historical Notes

Derived from VR630-2-332 § 1; adopted September 19, 1984; revised, eff. January 1, 1985; amended, eff. January 21, 1987.

23VAC10-110-221. Credit for income taxes paid to another state; residents.

A. Generally. Any resident of Virginia who has become liable for and paid income tax to another state may be eligible for a credit against his Virginia income tax liability for all or a portion of the liability to the other state, subject to the qualifications set forth in subsections B through D of this section.

B. Qualifying income.

1. Generally. Only an income tax paid to another state on earned or business income from sources outside of Virginia qualifies for the credit.

2. Earned income. For purposes of this credit, the term "earned income" shall mean wages, salaries, or professional fees and other amounts received as compensation for professional services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. Earned income does not include interest or dividend income, capital gains, income from investments, or similar types of passive income.

3. Business income. For purposes of this credit, the term "business income" shall mean income derived from an activity which constitutes a "business" for federal income tax purposes for which a federal Schedule C, E, or F must be filed. For example a sole proprietorship, provided that if the business incurred a loss such loss would be allowable under federal law. Thus income from hobbies and other activities not engaged in primarily for profit is not business income even though a Schedule C, E, or F may be filed for such activities.

C. Nature of tax imposed by other state. The credit may be claimed with respect to an income tax liability incurred on non-Virginia source income to another state. A credit may not be claimed by an individual for tax imposed by another state on a distributing entity e.g., an estate, regulated investment company, a partnership or a trust in which the individual is a beneficiary or shareholder.

1. S corporation. Effective for taxable years beginning of the Code of Virginia, the amount of state income tax paid by an electing small business corporation (S corporation), paid to a state that does not recognize the federal S election, shall be attributable to the individual shareholders. The amount of tax paid, to such state shall be allocated to each shareholder in proportion to his share of ownership of the S corporation stock.

D. Limitations.

1. Amount. The amount of this tax credit is limited to the lesser of: (i) the tax actually paid to another state on non-Virginia source income; or (ii) the amount of tax actually paid to another state which is equivalent to the proportion of income taxable in such state to Virginia taxable income (computed prior to the credit). The following examples illustrate this concept.

EXAMPLE 1: Taxpayer A, a Virginia resident, has taxable income of $25,000 derived from the operation of a sole proprietorship business in State W, upon which tax is paid to State W in the amount of $1,750. A's Virginia taxable income is $50,000, resulting in a tax liability, before computation of the credit, of $2,655. A may claim a credit for tax paid to State W of $1,327.50 computed as follows:

Ratio (above) x Va. tax liability = 2,655 x 50% = $1,327.50

Since the amount computed proportionally is less than the tax actually paid to State W, the credit is limited to $1,327.50.

EXAMPLE 2: Taxpayer B, a Virginia resident, has taxable income of $18,000 from wages earned in State Z, upon which tax is paid to State Z of $630. B's Virginia taxable income is $20,000 resulting in a Virginia tax liability, before computing this credit, of $930. B may claim a credit for tax paid to State Z of $630, computed as follows:

Ratio (above) x Va. tax liability = $930 x 90% = $837

Since the tax actually paid to State Z is less than the amount computed proportionally, B is entitled to a credit for the full amount of tax paid to State Z.

EXAMPLE 3: XYZ Corporation is a corporation incorporated under the laws of Virginia. It has elected S corporation status under the provisions of IRC § 1372. XYZ Corporation does business in Virginia and State X; therefore, it has both Virginia source income and State X source income. Since State X does not recognize the federal S election, XYZ Corporation apportions its state income as required by State X to determine the amount of income tax it owes to State X. Because Virginia recognizes the federal S election, XYZ Corporation pays no corporate income tax to Virginia.

Taxpayers A, B and C, all Virginia residents, own all of the shares of stock in XYZ Corporation. They own 45, 30 and 25 shares of stock in XYZ Corporation respectively. Their share of the income on which the State X income tax is computed and their share of the credit for income tax paid to another state, is computed as follows:

2. Nonresident credit granted by other state. No credit is allowable to a resident for any tax paid to another state if such state allows the taxpayer a credit against his tax liability for tax paid to Virginia and such credit is similar to that afforded to nonresidents by Virginia.

NOTE: As of September 19, 1984, Virginia residents may not claim a credit against Virginia income tax for tax paid to Arizona, California, District of Columbia, Maryland, New Mexico or West Virginia since these states allow Virginia residents a nonresident credit for tax paid to Virginia.

Statutory Authority

§§ 58.1-203 and 58.1-332 of the Code of Virginia.

Historical Notes

Derived from VR630-2-332 § 2; adopted September 19, 1984; revised, eff. January 1, 1985; amended, eff. January 21, 1987.

23VAC10-110-222. Credit for income taxes paid in another state; nonresidents.

A. Generally. Any nonresident of Virginia who has become liable to his state of residence for income tax upon his Virginia taxable income may be eligible for a credit against Virginia income tax liability for all or a portion of such liability, subject to the qualifications set forth in subsections B through D of this section.

(NOTE: As of September 19, 1984, only residents of Arizona, California, District of Columbia, Maryland, New Mexico and West Virginia may claim this credit.)

B. Qualifying income. Tax payable to another state on income from Virginia sources which is subject to Virginia income tax may be creditable in whole or in part, against an individual's Virginia income tax liability.

C. Credit amount. The amount of credit allowed is computed by determining the ratio of Virginia taxable income to taxable income in the taxpayer's state of residence multiplied by the tax paid to such other state. The following examples illustrate the computation of this credit.

(NOTE: All of the following examples assume that State X is either Arizona, California, D.C., Maryland, New Mexico, or West Virginia.)

EXAMPLE 1: Taxpayer A, a resident of State X is a single individual who does not itemize deductions. A has income from all sources (in this case, equal to FAGI) of $20,000, taxable in State X to which A is liable for $800 in tax. $15,000 of this income is derived from Virginia sources and is taxable in this state. The credit allowed is computed as follows:

Virginia tax liability on $13,050 = $530.81

Credit allowed = $522 and A would be liable to Virginia for $8.81 in tax.

EXAMPLE 2: Assume the same facts as Example 1 except that $10,000 in income is derived from Virginia sources and a tax liability of $1,000 is incurred to State X. The credit allowed is computed as follows:

Va. taxable income computed as a resident = $17,400

Nonresident taxable income =

Virginia tax liability on $8,700 = $304.88

Credit allowed = $304.88 (Credit is limited to Virginia tax liability.)

EXAMPLE 3: Taxpayer J, a resident of State X has total income (in this case, equal to FAGI) of $50,000, $30,000 of which is 40% of a long- term capital gain from the sale of property located in Virginia. J is single and has $5,000 in itemized deductions. State X disallows the federal 60% deduction for long-term capital gains, thus J's taxable income in State X is $95,000 (50,000 + additional 45,000 on capital gain) and is liable to State X for tax of $3,800. The Virginia credit allowed is computed as follows:

Virginia tax liability on $26,640 = $1,311.80

Credit allowed = $1,065.60 and A would be liable to Virginia for $246.20 in tax.

D. Limitations. No credit shall be allowed to nonresidents unless their state of residence:

1. Grants Virginia residents a credit for tax liability to such state which is substantially similar to that granted by Virginia to nonresidents. For purposes of this section a "substantially similar" credit is a credit to Virginia residents for Virginia tax liability on income from sources within such other taxing jurisdiction. If another state grants a credit which is limited to certain types of income, e.g., only earned income, the nonresident credit may be granted only upon review by the Tax Commissioner; or

2. Imposes a tax on the Virginia source income of its residents and exempts Virginia residents from taxation. The fact that the laws of another state do not impose an income tax on Virginia residents does not constitute an exemption under the meaning of this subsection. This subsection allows a credit only where a nonresident taxpayer's state of residence imposes a net income tax similar to that imposed by Virginia and exempts Virginia residents from such tax.

Statutory Authority

§§ 58.1-203 and 58.1-332 of the Code of Virginia.

Historical Notes

Derived from VR630-2-332 § 3; adopted September 19, 1984; revised, eff. January 1, 1985; amended, eff. January 21, 1987.

23VAC10-110-225. Qualified Equity and Subordinated Debt Investments Tax Credit; Definitions.

The following words and terms when used in this regulation shall have the following meanings, unless the context clearly indicates otherwise:

"Affiliated" means a direct or indirect ownership interest of at least 80% in an entity. An indirect ownership interest includes, but is not limited to, direct ownership interests held by a taxpayer's family members or an entity affiliated with such taxpayer or family members, or any combination of these.

"Equity" means common stock or preferred stock, regardless of class or series, of a corporation; a partnership interest in a limited partnership; or a membership interest in a limited liability company, any of which is not required, or subject to an option on the part of the taxpayer, to be redeemed by the issuer within five years from the date of issuance.

"Family member" means, when applied with respect to an individual taxpayer, (i) spouse, (ii) children, (iii) grandchildren, (iv) parents, (v) spouse's parents, and (vi) grandparents.

"Primarily engaged in business in the Commonwealth" means 50% or more of the entity's gross receipts are derived from sources within Virginia.

"Qualified business" means a business which (i) has annual gross revenues of no more than $5 million in its most recently completed taxable year, (ii) is commercially domiciled in the Commonwealth, (iii) is primarily engaged in business or does substantially all of its production in the Commonwealth, and (iv) is not primarily engaged, or is not primarily organized to engage, in any of the following types of businesses:

1. Banks;

2. Savings and loan institutions;

3. Credit or finance;

4. Financial, broker or investment;

5. Businesses organized for the primary purpose of rendering professional services as defined in Chapter 7 (§ 13.1-542 et seq.) of Title 13.1 of the Code of Virginia;

6. Accounting;

7. Government, charitable, religious or trade institutions or organizations;

8. Conventional coal, oil and gas, and mineral exploration;

9. Insurance;

10. Real estate design or engineering;

11. Construction or construction contracting;

12. Business consulting or business brokering;

13. Residential housing, real estate brokerage, sale or leasing businesses, or real estate development; or

14. Any business that is in violation of the law, and such others as the Department of Taxation may designate.

A business in its first taxable year of operation will be deemed to have annual gross revenues of no more than $5 million and be primarily engaged in business and do substantially all of its production in the Commonwealth if the commercial domicile pursuant to 23VAC10-120-140 of such business is within the Commonwealth.

"Qualified investment" means a cash investment in a qualified business in the form of equity or subordinated debt. An investment shall not be qualified, however, if the taxpayer who holds such investment, or any of such taxpayer's family members, or any entity affiliated with such taxpayer, receives or has received compensation, as defined in § 58.1-302 of the Code of Virginia, from the qualified business in exchange for services provided to such business as an employee, officer, director, manager, consultant, independent contractor or otherwise in connection with or within one year before or after the date of such investment. For purposes hereof, reimbursement of reasonable expenses incurred shall not be deemed to be compensation. A qualified investment shall not include existing investments or instruments that have been purchased, transferred, or otherwise obtained without providing new capital to a qualified business.

A subordinated debt instrument that is convertible into equity would qualify if (i) the subordinated debt would otherwise meet the definition under this section, (ii) the equity would otherwise meet the definition under this section, and (iii) the subordinated debt does not include a provision by which the issuer may compel the conversion into equity before the end of the required holding period of the subordinated debt.

An investment which would otherwise qualify for this credit will not be allowed if 50% or more of the proceeds resulting from the investment are used within one year of the cash investment to retire or reduce debt or equity of a qualified business that was incurred prior to the investment.

"Subordinated debt" means indebtedness of a corporation, general or limited partnership, or limited liability company that (i) by its terms requires no repayment of principal for the first three years after issuance; (ii) is not guaranteed by any other person or entity or secured by any assets of the issuer or any other person or entity; and (iii) is subordinated to all indebtedness and obligations of the issuer to national or state-chartered banking or savings and loan institutions. Except as provided for under 23VAC10-110-229, any transaction that results in the extinguishment or reduces outstanding principal of a subordinated debt instrument used to qualify for this credit shall be deemed as a repayment of principal. Such transactions, include, but are not limited to:

1. Reacquisition, retirement, or cancellation of a qualified investment;

2. Refunding or refinancing of a qualified investment by new issues of debt; or

3. Exchange of a qualified investment for common or preferred stock.

"Substantially all of its production in the Commonwealth" means 80% or more of the entity's expenses are incurred within Virginia.

Statutory Authority

§§ 58.1-203 and 58.1-339.4 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 18, Issue 11, eff. March 13, 2002.

23VAC10-110-226. Qualified Equity and Subordinated Debt Investments Tax Credit; general credit provisions.

A. For taxable years beginning on or after January 1, 2001, a taxpayer shall be allowed a credit against the taxes imposed by Articles 2 (Individual Income Tax; § 58.1-320 et seq.) and 6 (Taxation for Estates and Trusts; § 58.1-360 et seq.) of Chapter 3 of Title 58.1 of the Code of Virginia in an amount equal to 50% of such taxpayer's qualified investments made during such taxable year.

B. The aggregate amount of the credit that may be used by any taxpayer per taxable year shall not exceed the lesser of (i) the tax imposed for such taxable year or (ii) $50,000. The credit is not refundable and may not be carried back. Any credit, or portion thereof, not usable for the taxable year in which the credit was earned may be, to the extent allowable, carried over for the next 15 succeeding taxable years or until the total amount of the tax credit earned has been taken, whichever occurs first.

C. The total amount of tax credits available for the Commonwealth's fiscal year shall not exceed $5 million. In the event that the total eligible credit requests exceed the Commonwealth's annual fiscal limitation, each taxpayer shall be granted a pro rata amount as determined by the Department of Taxation. The amount of such prorated credit shall be determined by multiplying a fraction, the numerator of which shall be the credit requested by the eligible taxpayer for such year, and the denominator of which shall be the total credits requested by all eligible taxpayers for such taxable year, by the Commonwealth's annual fiscal limitation of $5 million.

D. The amount of any credit attributable to a qualified investment by a partnership, electing small business corporation (S corporation), or limited liability company shall be allocated to the individual partners, shareholders, or members, as they may determine.

The limitation in clause B (ii) of this section shall be construed to allow individual partners, shareholders, or members to each claim annual credits of $50,000.

Statutory Authority

§§ 58.1-203 and 58.1-339.4 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 18, Issue 11, eff. March 13, 2002.

23VAC10-110-227. Qualified Equity and Subordinated Debt Investments Tax Credit; qualified business application procedure.

A. Every eligible entity desiring to be designated as a qualified business for purposes of this tax credit must make an application on the Application for Designation as a Qualified Business for the Qualified Equity and Subordinated Debt Investments Tax Credit to the Department of Taxation. Such application must be made prior to the issuance of any equity or subordinated debt; otherwise, the issuance shall not qualify for the tax credit, except as provided in subsection B of this section.

1. A qualified business application must be made at least 90 days prior to the issuance of any equity or subordinated debt to ensure that the Department of Taxation's determination regarding the entity's qualification will be made prior to the issuance date.

2. A qualified business application may be made less than 90 days prior to the issuance of any equity or subordinated debt; however, the Department of Taxation cannot ensure that its determination regarding the entity's qualification will be made prior to the issuance date.

B. A qualified business application will not be accepted after the issuance date of any equity or subordinated debt, except in the following instances:

1. Issuances of equity or subordinated debt made between January 1, 2001, and before September 1, 2001, the qualified business application is made by October 1, 2001;

2. Issuances of equity or subordinated debt made on or after September 1, 2001, and before January 1, 2002, the qualified business application is made prior to the issuance date as described in subdivisions A 1 and 2 of this section. (For example, issuances made on September 1, 2001 and before January 1, 2002, will require a qualified business application no later than June 1, 2001, to ensure that the Department of Taxation's determination will be made prior to the issuance date); and

3. Issuances of equity or subordinated debt made on or after January 1, 2002, but within three months of the end of the most recently completed taxable year of the qualified business, the application is made by the first business day of the fourth month following the end of the most recently completed taxable year.

C. The entity seeking designation as a qualified business shall make application by completing and submitting the Application for Designation as a Qualified Business for the Qualified Equity and Subordinated Debt Investments Tax Credit to the Department of Taxation.

D. If the Department of Taxation determines the entity is a qualified business, the Department of Taxation shall issue a certification to the entity stating the same. Such designation shall be valid only for the calendar year of issuance.

E. Upon issuance of equity or subordinated debt to taxpayers, the qualified business shall issue a statement to each taxpayer for attachment to the taxpayer's tax credit application. Such statement shall contain the following information:

1. The qualified business certification granted by the Department of Taxation;

2. The type of investment at issue (i.e., equity or subordinated debt) and the amount; and

3. That the investment at issue meets the definition of a qualified investment for purposes of this credit.

a. If the investment at issue is equity, the statement must also indicate that such issuance is an original issuance which provides new capital to the qualified business, and that it is not required or subject to an option on the part of the taxpayer to be redeemed by the issuer within five years from the date of issuance.

b. If the investment at issue is subordinated debt, the statement must also indicate that such issuance is an original issuance which provides new capital to the qualified business, and that (i) by its terms requires no repayment of principal for the first three years after issuance; (ii) is not guaranteed by any other person or entity, or secured by any assets of the issuer or any other person or entity; and (iii) is subordinated to all indebtedness and obligations of the issuer to national or state-chartered banking or savings and loan institutions.

Statutory Authority

§§ 58.1-203 and 58.1-339.4 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 18, Issue 11, eff. March 13, 2002.

23VAC10-110-228. Qualified Equity and Subordinated Debt Investments Tax Credit; tax credit application procedure.

A. Eligible taxpayers who qualify for the equity and subordinated debt investment tax credit must make an application on the Taxpayer Application for the Qualified Equity and Subordinated Debt Investments Tax Credit to the Department of Taxation. For any taxable year that ends after January 1, and on or before December 31 of a calendar year, eligible taxpayers must submit an application and supporting documentation requesting the tax credit no later than April 1 of the subsequent calendar year. Subject to the provisions of 23VAC10-110-227, for example, eligible taxpayers that have taxable years ending after December 31, 2000, and before January 1, 2002, an application and supporting documentation requesting the tax credit must be submitted no later than April 1, 2002.

B. Applications must be made on the form prescribed by the Department of Taxation, postmarked no later than the date specified in this section, and delivered to an address prescribed by the Department of Taxation.

C. Each taxpayer shall timely supply all information the Department of Taxation deems necessary to properly determine the allowable credit amount. Such information shall include, but shall not be limited to, the following:

1. A copy of the statement issued by the qualified business pursuant to 23VAC10-110-227 D.

2. The taxable year during which the qualified investment was made.

3. The name, address, federal identification number, and Virginia account number of the taxpayer.

4. A certification by the taxpayer, under penalty of perjury, that the qualified investment meets all conditions outlined in § 58.1-339.4 of the Code of Virginia and these regulations.

5. In the case of a partnership, electing small business corporation (S corporation), or limited liability company, the application shall include the name, address, and social security number of each of its individual partners, shareholders, or members, and a statement as to how any allowable credit shall be distributed to each of its individual partners, shareholders, or members. Notification of the allowable credit amount shall be sent to the entity, and a copy of such notification shall be attached to each individual taxpayer's Virginia income tax return on which the credit is claimed.

D. The Department of Taxation shall review all applications for completeness and notify taxpayers of any questions, omissions, errors, or concerns, no later than June 1. Taxpayers must fully respond to any such notices no later than the two-week period ending no later than June 15.

E. All eligible taxpayers shall be notified by June 30 as to the amount of applicable tax credit that may be claimed for the taxable year for which the request was made.

1. In the case of a partnership, electing small business corporation (S corporation), or limited liability company, notification of the allowable credit amount shall be sent to the entity, and a copy of such notification shall be included with each individual taxpayer's Virginia income tax return on which the credit is claimed.

2. Each S corporation, partnership and limited liability company shall provide a schedule listing the name, address, social security number, and allocable credit amount for each of its individual shareholders, partners or members to the Department of Taxation within 60 days of the Department of Taxation's notice certifying the amount of allowable credit.

F. Eligible taxpayers who will not receive the final certification of their credits prior to the due date of their individual state income tax returns must either file the appropriate return extension request or file their income tax return by the due date, and then amend their return after receiving a credit certification. Amended returns to claim the tax credit must be filed within the applicable statute of limitations.

Statutory Authority

§§ 58.1-203 and 58.1-339.4 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 18, Issue 11, eff. March 13, 2002.

23VAC10-110-229. Qualified Equity and Subordinated Debt Investments Tax Credit; required equity and subordinated debt investment holding period.

A. Equity received in connection with a qualified business investment must be held by the taxpayer for at least five full calendar years following the calendar year for which a tax credit for a qualified investment is earned except in any of the following instances: (i) the liquidation of the qualified business issuing such equity; (ii) the merger, consolidation or other acquisition of such business with or by a party not affiliated with such business; or (iii) the death of the taxpayer.

B. The five-calendar year holding period is to be distinguished from the redemption period (five years from the date of issuance) during which an equity investment cannot be required, or be subject to an option on the part of the taxpayer, to be redeemed by the issuer. The redemption period requirement must be met in order to qualify an equity investment for credit eligibility. The five-calendar year holding period must be met in order to avoid recapture of the credit.

C. A subordinated debt instrument received in connection with a qualified business investment must be held by the taxpayer for at least three years after the date of issuance except in any of the following instances: (i) the liquidation of the qualified business issuing such subordinated debt; (ii) the merger, consolidation or other acquisition of such business with or by a party not affiliated with such business; or (iii) the death of the taxpayer.

D. The holding period of a subordinated debt instrument received in connection with a qualified business investment that is convertible into equity may be effected by the date it is converted. If such subordinated debt is held for at least three years after the date of issuance, the holding period will be deemed to have been satisfied and equity resulting from a subsequent conversion would not be subject to any holding period. If such subordinated debt is converted within three years after the date of issuance, the equity must be held for at least five calendar years following the calendar year in which the subordinated debt was issued. Conversion of such subordinated debt within three years after the date of issuance would not be considered repayment of principal.

E. If the holding period requirement for the equity or subordinated debt is not met, the taxpayer shall immediately notify the Department of Taxation of such failure and forfeit all used and unused tax credits. The notice of failure to meet the statutory requirements shall specify the aggregated credits claimed to date. The notice shall be deemed a tax assessment, to which the Department of Taxation shall add a penalty equal to the amount of the forfeit credits. In addition thereto, interest on the tax assessment and penalty shall be assessed at the rate of 1.0% per month, compounded monthly, from the date the tax credits were claimed by the taxpayer.

F. Upon written request, the Department of Taxation shall have the discretion to abate any assessed penalty, in full or in part, if the taxpayer establishes reasonable cause for the failure to hold such equity or subordinated debt for the required holding period. The reason for any such abatement shall be preserved among the records of the Department of Taxation.

Statutory Authority

§§ 58.1-203 and 58.1-339.4 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 18, Issue 11, eff. March 13, 2002.

23VAC10-110-230. Accounting.

A. Accounting periods. An individual shall use the same taxable year for Virginia income tax purposes as is used for federal income tax purposes.

B. Change of accounting periods.

1. If an individual's taxable year is changed for federal income tax purposes, his taxable year for Virginia tax purposes shall be similarly changed.

2. If a change in an individual's taxable year results in a taxable period of less than twelve months, other than as the result of the taxpayer's death or termination of the taxable year under the provisions of § 58.1-313 of the Code of Virginia, such individual's Virginia taxable income shall be prorated as follows:

a. FAGI for the short taxable year (as computed prior to annualizing income for federal purposes) shall be adjusted by the additions, subtractions, and modifications set forth in 23VAC10-110-140 through 23VAC10-110-144 attributable to the short taxable year, with the exception of the standard deduction and personal exemptions which shall be prorated by multiplying such deduction and exemptions by the ratio of months in the short taxable year to 12 months. The result will be Virginia taxable income calculated as for a normal taxable year.

b. A tentative tax shall then be calculated based upon the annualized Virginia taxable income.

c. The actual tax shall be the tentative tax calculated pursuant to subdivision b above multiplied by the ratio of months in the short taxable year to 12 months.

The following example illustrates the computation of the tax:

Example 1: Taxpayer A, a single individual has FAGI for short taxable year 1983 of $20,000, claims one exemption, and utilizes the standard deduction. Taxpayer also has $1,000 in interest income from U.S. obligations which is exempt from federal but not state tax, and $2,000 of his FAGI represents interest on U.S. Treasury obligations. He changed his taxable year, pursuant to IRC § 442, to a 10 month period ending October 31, 1983. His Virginia tax for the short taxable year is computed as follows:

C. Accounting methods. Since Virginia taxable income is defined as FAGI with certain additions, subtractions and modifications, Virginia taxable income will always be based upon the same accounting methods as federal adjusted gross income. Therefore any adjustments to a taxpayer's method of accounting will be made to FAGI and any separate adjustments required in the computation of Virginia taxable income will reflect the method used in determining FAGI.

D. Change of accounting methods. If a taxpayer's method of accounting is changed for federal income tax purposes, his method of accounting for Virginia tax purposes must be similarly changed. Since Virginia taxable income is based upon FAGI, any accounting adjustments for federal purposes for any taxable year shall also apply to the computation of Virginia taxable income.

Statutory Authority

§§ 58.1-203 and 58.1-340 of the Code of Virginia.

Historical Notes

Derived from VR630-2-340; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-240. Returns.

A. Generally. Every individual who is required to file a Virginia income tax return as set forth in subsection B below must file such return: (1) on or before May 1 of the year following the close of the taxable year if the taxpayer uses a calendar year taxable year; or (2) on or before the 15th day of the fourth month following the close of the taxable year if the taxpayer uses a fiscal year or other noncalendar taxable year. For example, a taxpayer whose taxable year is from January 1, 1983, to December 31, 1983, must file a return for taxable year 1983 on or before May 1, 1984, while a taxpayer whose taxable year is from July 1, 1983 to June 30, 1984 must file a return for that taxable year on or before October 15, 1984. (See 23VAC10-20-30 for general filing requirements.)

B. Who must file a return. An individual income tax return must be filed on or before the date prescribed in subsection A above by the following persons:

1. Residents. Every resident individual who is required to file a federal income tax return for the taxable year must likewise file a Virginia return for such taxable year, unless such individual qualifies for the "$3,000 filing exception" described in 23VAC10-110-130. Every resident individual having Virginia taxable income for the taxable year as set forth in 23VAC10-110-140 through 23VAC10-110-144 must also file a Virginia return for such taxable year despite the fact that no federal return is required to be filed, unless subject to the filing exclusion as noted above. For example, a taxpayer may have FAGI below the amount for which a federal return is required to be filed, but Virginia adjusted gross income of $3,000 or more. In this instance, a Virginia return must be filed even though no federal return is required.

2. Nonresidents. Every nonresident having Virginia taxable income for a taxable year as set forth in 23VAC10-110-140 through 23VAC10-110-144 must file a Virginia return for such taxable year, unless the individual's taxable income computed as a resident meets the "$3,000 filing exception" described in 23VAC10-110-130.

C. Husband and wife.

1. Generally. Special rules as set forth below apply to the filing of a Virginia income tax return by a husband and wife. For purposes of this section, the term "husband and wife" shall include married individuals not legally separated from their spouses under a decree of divorce or separate maintenance. Individuals separated under an interlocutory decree of divorce retain their status as husband and wife until such decree becomes final. In determining whether two individuals are husband and wife for income tax purposes, the determination of marital status for federal income tax filing purposes will similarly control the determination of filing status for state income tax purposes.

2. Husband and wife filing separate federal returns. If a husband and wife file separate federal income tax returns for the taxable year, they shall similarly file separate Virginia income tax returns or shall file separately on a combined return for such taxable year. Where separate returns are filed by husband and wife, their Virginia income tax liabilities shall be separate.

3. Husband and wife filing joint federal return.

a. Generally. If a husband and wife file a joint federal income tax return for the taxable year, they may elect to file a joint Virginia return or they may elect to file separate Virginia returns. The election relating to the form of filing the return for any taxable year may be changed by the husband and wife within three years from the due date of the returns for such taxable year.

b. Election to file joint return. Where a husband and wife elect to file a joint Virginia income tax return, their tax liabilities shall be joint and several. "Joint and several" tax liability means that each party to the return is individually liable for its contents and the entire tax liability arising therefrom and further entails "a joint or several obligation." Therefore, the tax liability may attach to one spouse individually or to both spouses jointly.

c. Election to file separate returns. When a husband and wife elect to file separate Virginia income tax returns their Virginia tax liabilities shall be separate. Where a husband and wife elect to file separately on a combined return (commonly referred to as "filing status 4"), their liabilities shall be joint and several. Consequently, in the case of separate filing on a combined return, (i) if the total estimated tax and withholding tax payments by either spouse exceeds the tax for which that spouse is separately liable, the excess may be credited to the other spouse to offset his separate liability if his estimated tax and withholding tax payments are not sufficient to satisfy his liability; and (ii) if the total estimated tax and withholding tax payments by both spouses exceeds the total of their separate tax liabilities, the refund may be made payable to both spouses.

The following examples illustrate the operation of this concept:

Example 1: Husband (H) and Wife (W) file separately on a combined Virginia income tax return for taxable year 1983. H had $1,000 in tax withheld and has a tax liability of $700. W had $500 withheld and has a liability of $750. Under the provisions of (c)(i), the excess tax payments by H of $300 may be used to offset the $250 liability of W. The refund of $50 may be made payable to H and W.

Example 2: H and W file separately on a combined Virginia income tax return for taxable year 1983. Using the facts given in Example 1, the tax payments made by both spouses equal $1,500 while their total liability, computed separately, equals $1,450. Under the provisions of (c)(ii), the refund of the excess payment of $50 may be made payable to H and W.

4. Nonresident spouse. Where one spouse is a resident of Virginia and the other is a nonresident for the taxable year, they may elect to file separate returns or they may elect to file a joint return. If they elect to file separate returns, each spouse shall file the appropriate separate Virginia return and their liabilities shall be separate. If husband and wife elect to file a joint return, they may do so only if they agree to determine their Virginia tax liability as if both were residents. If a joint return is filed, the liability of the spouses shall be joint and several.

D. Decedents. The income tax return for any individual who is deceased during the taxable year or prior to the due date for the filing of the return for a taxable year must be made by the individual's executor, administrator, or other person charged with such individual's property. The person required to file the decedent's return may elect to file a separate return for the decedent or may file a joint return with the surviving spouse. Generally, any joint return for a decedent and surviving spouse must be made by the surviving spouse and the decedent's executor or administrator. However, the surviving spouse alone may file a joint return for himself and the decedent if such a joint return is permitted for federal income tax purposes, and subject to the limitations thereof, under the provisions of Treasury Regulation 1.6013-1.

E. Disabled individuals. No person shall be relieved of the requirement for filing an income tax return solely because he is a minor or disabled. The tax return for any such person who is unable to file a return shall be made by his guardian, committee, trustee, fiduciary or other person charged with the care of his person or property or by his duly authorized agent. A spouse may execute a return on behalf of a disabled spouse.

F. Dependents. No person is relieved of the liability for filing a Virginia income tax return solely because he may be claimed as a dependent on another's return. A dependent child may be subject to tax on his earnings even if a parent has a right to the earnings and may actually have received the money. In this instance, the child's income is not included on the parent's return.

G. Additional information.

1. Generally. Every individual required to file a return for the taxable year must complete the return and provide the information and/or documentation set forth in subdivisions a through e below.

a. Every individual must list his social security number on the return. In the case of a husband and wife filing, whether jointly or separately, both spouses must list their social security numbers.

b. Every individual who claims a credit against his Virginia tax liability for Virginia income tax withheld by his employer must attach to the return wage and tax statements for the taxable year.

c. Every individual must sign his return. In the case of a husband and wife filing jointly or filing separately on a combined return, both spouses must sign the return.

d. The department may require that any taxpayer submit a copy of any federal income tax form or schedule which is required for verification of the computation of Virginia tax liability.

e. Any individual who claims a credit for tax paid to another state must attach to his Virginia income tax return a copy of the return(s) filed with the state(s) for which the credit is claimed.

2. Failure to file complete return. Any taxpayer who files a return without complying with the requirements set forth in subdivisions a through e above may be subject to the penalties set forth in 23VAC10-110-300. If an incomplete return is filed and cannot be processed, such return will be returned to the taxpayer.

Statutory Authority

§§ 58.1-203 and 58.1-341 of the Code of Virginia.

Historical Notes

Derived from VR630-2-341; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-250. (Repealed.)

Historical Notes

Derived from VR630-2-342; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); repealed, Virginia Register Volume 40, Issue 24, eff. September 28, 2024.

23VAC10-110-260. (Repealed.)

Historical Notes

Derived from VR630-2-343; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-110-270. Extension of time for filing returns.

A. Generally. Except as set forth herein, no taxpayer shall receive any extension of time for filing his income tax return. As used in this section, the term "original due date" shall mean the date prescribed by law for the filing of the income tax return.

Any taxpayer who requests an extension of time for filing his return pursuant to this section can assume that the department has acquiesced to the request unless otherwise notified. Consequently, a taxpayer will not receive any confirmation that an extension has been accepted, but will be notified if such request is denied.

B. Federal extension granted. Any taxpayer who has been granted an extension of time for filing his federal income tax return for the taxable year, may receive an extension of time for filing the Virginia return for such taxable year provided the taxpayer files a tentative tax return (Form 760-E) and pays the tentative tax on or before the original due date of the return.

If additional federal extension(s) are granted, additional extensions of time for filing the Virginia return will similarly be granted provided the taxpayer requests a Virginia extension either by completing the appropriate portion of Form 760-E and returning it to the department or by letter to the department prior to expiration of the original extension. The period of time for filing the Virginia return will be extended to 15 days after the expiration of the federal extension or 6 months from the original due date of the return, whichever is earlier, provided the requirements of this section have been satisfied.

C. Extension for good cause. A taxpayer who has not requested or been granted an extension of time for filing his federal income tax return may request an extension of time for filing his Virginia return, provided he can demonstrate good cause for being unable to file the return on or before the appropriate due date. Such extension will be granted only if the taxpayer files a tentative tax return (Form 760-E) and pays the tentative tax on or before the original due date of the return.

In no instance will the time for filing the return be extended to a date in excess of 6 months from the original due date of the return. Any person who is granted an extension under the provisions of this subsection must attach a copy of the form or letter applying for the Virginia extension(s) to the face of the return when filed.

D. Tentative tax return.

1. Generally. Any person who requests an extension of time for the filing of his Virginia income tax return as provided in subsections (B) and (C) above must file a tentative tax return and pay a tentative tax on or before the original due date of the return.

2. Computation of tentative tax. The tentative tax is computed by estimating the taxpayer's Virginia taxable income and the tax thereon as though no extension had been requested. In computing the tentative tax due, credit should be taken for estimated tax payments made for the taxable year, Virginia income tax withheld during the taxable year, and any overpayment of tax for the prior taxable year which the taxpayer indicated should be applied to the current taxable year's liability.

3. Underestimation of tentative tax. Any taxpayer who underestimates the amount of tentative tax due shall be assessed interest on the amount of underpayment. The interest, computed at the rate prescribed in § 58.1-1821 of the Code of Virginia, (which is the current interest rate set forth in IRC § 6621) shall be assessed from the original due date of the return until the date of full payment of the tax due (after subtracting credits for income tax withheld and estimated tax payments or credit) for the taxable year.

4. Penalty for underpayment. If the amount of tentative tax paid is less than 90% of the actual tax due for the taxable year, penalty on the amount of underpayment shall be assessed. Such penalty, computed at the rate of ½% per calendar month (or fraction thereof) from the original due date of the return until the date of full payment of the actual tax due, shall be added to the tax due. Any penalty assessed shall be in addition to the interest on the underestimation as set forth in the preceding paragraph.

E. Person outside of the U.S.

1. Generally. Any person who is residing or traveling outside of the United States (with Puerto Rico defined for this purpose as part of the United States) on the due date for filing his Virginia income tax return for the taxable year shall be granted an automatic extension of time for filing his Virginia return. Persons qualifying for this extension are not required to make request for the extension nor file and pay any tentative tax. However, a statement must be attached to the taxpayer's return when filed certifying that the taxpayer was traveling or residing outside of the United States and Puerto Rico on the original due date of the return. Persons traveling or residing outside the United States and Puerto Rico on duty in military or naval service qualify for this automatic extension.

2. Extended due date. The time for filing a Virginia tax return by persons qualifying for the extension set forth in subsection E of this section shall be extended to the first day of the seventh month following the close of the taxable year. For example, the due date of the 1983 return of a calendar year taxpayer qualifying for the extension would be extended to July 1, 1984.

3. Additional extension for foreign Income exclusion.

a. Generally. Any person who qualifies for the automatic extension set forth in this section may apply for an additional extension of time if he expects to be able to exclude certain foreign income from his FAGI under the provisions of IRC § 911. Any taxpayer requesting such additional extension must apply in letter form to the department and attach a copy of his request for a similar federal extension. No additional extension for reason of the foreign income exclusion will be granted unless the taxpayer has requested a similar extension of time for filing his federal income tax return for the taxable year. A copy of the approved federal extension must be attached to the return when filed.

b. Extended due date. Any additional extension granted pursuant to this subsection shall extend the due date for filing the Virginia return for a period of 30 days after the taxpayer reasonably expects to qualify for the foreign income exclusion for federal tax purposes.

Statutory Authority

§§ 58.1-203 and 58.1-344 of the Code of Virginia.

Historical Notes

Derived from VR630-2-344; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-280. (Repealed.)

Historical Notes

Derived from VR630-2-345; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); repealed, Virginia Register Volume 40, Issue 24, eff. September 28, 2024.

23VAC10-110-290. (Repealed.)

Historical Notes

Derived from VR630-2-346 or VR630-2-347; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203); repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-110-310. When, where and how taxes payable and collectible.

A. Generally. Every person who is liable for the income tax must pay the full amount of tax shown on the face of the return on or before the due date of such return. The tax should be paid to the treasurer of the city or county with whose commissioner of revenue the return is filed. Payment should be made by attaching a check to the face of the return. If any check is not paid by the bank on which it is drawn, the individual who tenders the check shall be liable for payment of the tax as though the tax had not been tendered. In addition, such taxpayer may become liable for penalties and interest for late payment as set forth in subsection C.

B. Return prior to close of taxable year. An individual may file a return and make full payment of the tax due for any taxable year prior to the close of such taxable year provided he is able to file a complete return. An early return may not be filed by any person who has not received a statement of wages and earnings from his employer, if applicable.

C. Penalties and interest.

1. Generally. Whenever any individual fails to make full payment of his actual tax liability on or before the due date of the return, he shall be liable for a penalty of 5% of the unpaid balance of the tax. This penalty shall be added to such unpaid balance and the total shall become immediately due and payable. If the taxpayer also fails to file a timely return, the penalty provided in 23VAC10-110-300 will also apply.

2. Exception where additional tax assessed by commissioner of revenue. The penalty provided for by this section shall not apply to any additional tax assessed by the commissioner of revenue of the city or county in which the taxpayer's return is filed pursuant to the provisions of § 58.1-305 of the Code of Virginia provided the return was made in good faith. However, interest on any such underpayment shall accrue from the due date of the return until paid.

For additional penalty for tendering bad check see 23VAC10-20-50.

Statutory Authority

§§ 58.1-203 and 58.1-351 of the Code of Virginia.

Historical Notes

Derived from VR630-2-351; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

23VAC10-110-320. Individual refunds; crediting overpayment against estimated tax.

A. Refund of overpayments, generally. Any individual who overpays any tax, addition to the tax, interest or penalty imposed upon him shall be refunded the amount of such overpayment. A refund of overpayment shall be made for the following reasons: (i) excessive withholding; (ii) overestimating and overpaying estimated tax; (iii) taxpayer error; (iv) erroneous assessment of tax.

No refund for any overpayment of less than $1.00 shall be made except on written application of the taxpayer. The filing of a return does not constitute such a written application.

B. Credit of overpayment against past due income tax. Any individual who is entitled to a refund of individual income tax pursuant to this section, § 58.1-309 of the Code of Virginia, or an administrative appeal and who owes the state any amount of past due income tax may request that the amount of such refund be credited against such past due balance. (See also §§ 58.1-520 et seq. of the Code of Virginia, Setoff Debt Collection Act, and accompanying regulations regarding the setoff of a debtor's income tax refund against other outstanding liabilities.)

C. Credit against estimated tax liability.

1. Individuals. Any individual who files an income tax return indicating that his tax for the taxable year has been overpaid, either as a result of excessive withholding or overestimating and overpaying estimated tax, may designate that such overpayment be credited against his estimated tax liability for the next succeeding taxable year. Such designation must be made in the space provided on the return. Any overpayment so designated is subject to correction for error.

2. Husband and wife. Any overpayment by a husband or wife filing separate returns or separately on a combined return may be credited to the estimated tax liability for the next succeeding taxable year of either spouse at the election of the spouse to whom the overpayment is attributable. Similarly the spouse to whom such overpayment is attributable may elect to have the overpayment credited to the husband and wife's joint tax liability for the next succeeding taxable year.

D. Statute of limitations. No refund of any overpayment shall be made except upon discovery by the department or written application of the taxpayer within three years of the due date of the return for such taxable year or within sixty days from the final determination of any change or correction in the taxpayer's liability for federal income tax, whichever is later.

E. Refund not absolution of liability. The fact that an income tax refund for any taxable year is made to an individual does not relieve the individual of any liability which may exist for such taxable year. The department may make an assessment for any deficiency for a taxable year, within the applicable statutes of limitation, regardless of the fact that a refund may have been issued for such taxable year.

F. Interest on refunds. The payment of interest on refunds of overpayments shall be governed by the provisions of § 58.1-1833 of the Code of Virginia. Pursuant to § 58.1-1833 of the Code of Virginia, no interest shall accrue and be paid on the refund of a tax overpayment until sixty days after the payment of the tax or the due date of the return, whichever is later, and interest accrual shall end on a date determined by the department which will not precede the date of the refund check by more than 30 days. (See also 23VAC10-20-200 and 23VAC10-110-60.)

Statutory Authority

§§ 58.1-203 and 58.1-499 of the Code of Virginia.

Historical Notes

Derived from VR630-2-499; adopted September 19, 1984; revised eff. January 1, 1985 with retroactive effect according to Va. Code § 58-48.6 (recodified as Section 58.1-203).

Forms (23VAC10-110)

Virginia Consumers Use Tax Return for Individuals, Form CU-7 (eff. 9/1993)

Virginia Individual Resident Income Tax Return (Booklet - Instructions for Form 760 and 760S), Form 760 and 760S

Underpayment of Estimated Tax by Individuals, Estates and Trusts, Form 760 C

Virginia Tentative Tax Return an Application for Extension of Time to File Individual or Fiduciary Income Tax Return, Form 760E (eff. 8/1993)

Virginia Estimated Individual Income Tax Declaration and Forms for Individuals, Estates and Trusts (Booklet - Instructions for Form 760ES), Form 760ES

Underpayment of Estimated Tax by Farmers and Fishermen, Form 760F

Virginia Part-Year Resident Individual Income Tax Return (Booklet - Instructions for Form 760PY), Form 760PY

Short Individual Resident Income Tax Return (Booklet - Instructions for Form 760 and 760S), Form 760S

Virginia Nonresident Individual Income Tax Return (Booklet - Instructions for Form 763), Form 763

Virginia Special Nonresident Claim for Individual Income Tax Withheld, Form 763-S

Credit Computation Schedule, Schedule CR, Form 760

Schedule for Computing the Age Deduction for Taxpayers 62 and Over, Out-of-State Tax Credit or State of Residence and the Addition to Tax, Penalty and Interest, Schedule NPY, Forms 760PY and 763

Enterprise Zone Credit, Form 301 (eff. 9/1992)

Computation of ACRS Subtraction, Form 302 (eff. 8/1992)

Application for Designation as a Qualified Business for the Qualified Equity and Subordinated Debt Investments Tax Credit, Form QBA, 2601695, with instructions (eff. 1/2001)

Taxpayer Application for Qualified Equity and Subordinated Debt Investments Tax Credit, Form EDC, 2601154, with instructions (eff. 7/2000)

Instructions for Virginia Venture Capital Account Investment Fund Registration and Certification Forms (rev. 2/2018)

Venture Capital Account Investment Fund Registration Application, Form VEN-1 (rev. 1/2018)

Venture Capital Account Investment Fund Confirmation Application, Form VEN-2 (rev.1/2018)

Venture Capital Account Investment Fund Investor Information Report, Form VEN-3 (rev. 2/2018)