On May 27, 2020 Virginia enacted a biennial budget bill containing various corporate and personal income tax provisions. Here is a summary of six key changes that’ll impact corporate and individual taxpayers.
1. Intangible Holding Company Addback Exceptions
Since 2013, if a company paid a fee to a related party to use an intangible asset (e.g., a patent), that fee had to be added back to the taxable income of the company when calculating Virginia tax unless:
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The fee was subject to Virginia income tax
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The fee was subject to tax in another state
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The fee was subject to tax in another country or
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The entity to which the fee was paid derives at least one-third of its gross revenues from licensing to unrelated parties
There were some questions of interpretation about how to calculate the fees not subject to addback. The legislation clarifies that only that portion of the fee that is actually taxed by Virginia, another state, or a foreign government is exempt from being added back. It also made it clear that in order for the one-third gross receipts exclusion to apply, the fee charged by the affiliate to the taxpayer must be comparable to the fee charged to a non-affiliated entity.
2. Historic Preservation Tax Credit
For tax years after 2016, the historic rehabilitation tax credit amount that may be claimed by each taxpayer, including amounts carried over from prior taxable years, cannot exceed $5 million for any tax year.
3. Land Preservation Tax Credit
For tax years after 2016 and before 2020, the land preservation tax credit amount that may be claimed by each taxpayer, including amounts carried over from prior tax years, cannot exceed $20,000.
4. Neighborhood Assistance Act Tax Credit
In order to be eligible to receive an allocation of Neighborhood Assistance Act credits, a neighborhood organization must meet the following criteria:
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50% of individuals served by the neighborhood organization must be low-income individuals or eligible students with disabilities and
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50% of the organization’s revenues must be used to provide services to low-income individuals or eligible students with disabilities
5. Deduction for ABLE Act Contributions
For tax years after 2015, taxpayers are allowed a deduction from Virginia adjusted gross income for the amount contributed during the taxable year to an ABLE savings trust account entered into with the Virginia College Savings Plan. The amount deducted on any personal income tax return in any taxable year is limited to $2,000 per ABLE savings trust account. No deduction will be permitted if the contributions are also deducted on the contributor's federal income tax return. If the contribution to an ABLE savings trust account exceeds $2,000, the remainder may be carried forward and subtracted in future taxable years until the ABLE savings trust contribution has been fully deducted. However, if the contributor is age 70 or older, he or she may deduct the entire amount contributed to an ABLE account.
6. Sunset Dates for Credits
The sunset date on any existing tax credit may not be extended beyond June 30, 2025. Any new credit enacted after the 2019 regular legislative session but prior to the 2024 regular legislative session must have a sunset date not later than June 30, 2025. This requirement does not apply to credits with sunset dates after June 30, 2022, enacted or advanced during the 2016 session of the General Assembly.
Need Help?
You can read all the details of the budget here. Contact us online or call 800.899.4623.
