Last month the Virginia General Assembly (GA) wrapped up its legislative work, which included a multitude of changes to Virginia tax law.
Historic Rehabilitation Tax Credit
Since 2017, there has been in place a $5 million limitation on the amount of Historic Rehabilitation Tax Credits (HRTCs) that a taxpayer may claim each year. This limitation was set to expire on January 1, 2019, but House Bill (HB) 2705 eliminated the sunset and made the limitation permanent.
Under current law, a trust created by a non-Virginia domiciliary can still be subject to income tax in Virginia if the trust is administered by a Virginia trustee. By passing HB 2526, the GA amended Va. Code § 58.1-302 and the definition of “resident estate or trust” to make this no longer the case.
Effective July 1, 2019, the definition will include:
- The estate of a decedent who at his death was domiciled in the Commonwealth.
- A trust created by will of a decedent who at his death was domiciled in the Commonwealth.
- A trust created by or consisting of property of a person domiciled in the Commonwealth.
Therefore, moving forward, trusts created by an individual domiciled outside of Virginia but having a Virginia trustee will only be taxed on the income received from a Virginia source, if any.
Tax Cuts and Jobs Act Conformity
Virginia now generally conforms to the Tax Cuts and Jobs Act (TCJA) passed by Congress in December 2017 and the Bipartisan Budget Act of 2018 (BBA18). Most of the provisions in HB2529/SB1372 are retrospective and apply for taxable years beginning on January 1, 2018.
For tax years 2019-2025, the GA increased the state standard deduction for individuals from $3,000 to $4,500, and for married filing jointly filers from $6,000 to $9,000.
To address State and Local Tax (SALT) deduction cap concerns, Virginia will permit taxpayers who meet the $10,000 cap to deduct any excess federally disallowed amount from their Virginia income taxes.
The legislation permits corporate and personal income taxpayers to subtract 20% of business interest that is disallowed as a deduction under Internal Revenue Code (IRC) § 163(j).
The bill also expands a subtraction for Subpart F income to include income derived under IRC § 951A, the Global Intangible Low-Taxed Income (GILTI). This subtraction is allowed “to the extent included in and not otherwise subtracted from federal taxable income”—net GILTI inclusion after offsetting with any deduction allowed, including IRC § 250 relating to GILTI and foreign-derived intangible income (FDII).
Finally, Virginia does not conform to the following:
- Special bonus depreciation allowance for certain property under IRC §§ 168(k) (100% expensing of qualified property), 168(l), 168(m), 1400L, and 1400N
- Five-year carryback period for certain net operating losses under IRC § 172(b)(1)(H)
- Deductions related to the original issue discount on applicable high-yield discount obligations under IRC §163(e)(5)(F)
- Exclusions relating to cancellation of debt income under IRC § 108(i)
- The overall limitation on itemized deductions for certain taxpayers for tax years beginning on or after January 1, 2019 (Therefore, Virginia reinstates the Pease phase-out, which places a limitation on itemized deductions for high-dollar earners.)
Economic Nexus Standard for Remote Sellers
Following the Supreme Court’s decision in South Dakota v. Wayfair, the GA passed HB 1722/SB 1083, establishing an economic nexus standard for remote sellers, those without a physical presence in Virginia, and marketplace facilitators to collect and remit sales and use tax.
If the remote seller or marketplace facilitator is doing enough business in the Commonwealth, then it must register, collect, and remit retail sales and use tax. To meet the nexus standard, and for the responsibility to collect and remit to be applicable, the seller and marketplace facilitator, in the previous or current calendar year, must either:
- Receive more than $100,000 in annual gross revenue from sales in Virginia; or
- Engage in at least 200 separate retail sales transactions in Virginia.
Sales made by commonly controlled persons must be aggregated to determine whether nexus is present. If the seller or marketplace facilitator fails to meet either standard, there is insufficient nexus with the Commonwealth, and they do not have to collect and remit sales and use tax to the state.
If you have any questions about the General Assembly’s actions or would like more information regarding how these provisions could affect you or your business, please give Woods Rogers’ Tax Team a call.