2016 Session

Budget Amendments - SB30 (Member Request)

Chief Patron: Saslaw
Co-Patron(s): Favola
Corporate Income Tax - Exception for Certain Entities (language only)

Item 3-5.14 #2s

Item 3-5.14 #2s

Adjustments and Modifications to Tax Collections
Taxation, Department of


Page 451, after line 25, insert:


For any corporation and its wholly owned subsidiaries that sell information over the Internet that could be distributed in either electronic or physical form to customers a majority of whom are located outside of Virginia, and for the taxable year ending December 31, 2015, (i) employed more than 4,000 fulltime equivalent employees, (ii) had a sales factor apportionment fraction under § 58.1-414 greater than 80 percent as a result of the application of § 58.1-416, and (iii) paid taxes on income in greater than 30 states, then, for all tax years ending after January 1, 2016, the corporation's apportionment shall be determined by treating the corporation as a manufacturing company defined in Virginia Code § 58.1-422 that is engaged in the selling of property that constitutes tangible personal property described in § 58.1-415 without reference to § 58.1-416.".


(This amendment would, for a select group of taxpayers, create an exception with respect to how income is apportioned to Virginia for corporate income tax purposes. In effect, the amendment would provide a small number of corporate taxpayers a permanent reduction in corporate tax liability. In Virginia, multistate corporations are generally required to use a three-factor formula of property, payroll and double-weighted sales. In the case of corporations providing intangible goods, including "information," the sales factor is determined based on where the greater proportion of income-producing activity is performed ("cost of performance"). In 2009, the General Assembly modified the corporate apportionment formula to allow manufacturing companies to use a single factor apportionment based on sales alone to determine their Virginia taxable income ("single sales factor"). This amendment would treat some taxpayers that meet a narrow set of criteria as manufacturers and permit them to use the single sales factor apportionment method instead of the standard three-factor method with cost of performance. And with the majority of sales being to customers outside of Virginia, the effect is that these taxpayers would apportion less income to Virginia thereby lowering their tax liability. The change would reduce general fund revenue by an unknown but potentially significant amount beginning in FY 2017.)