Virginia Offers Opportunity for Manufacturers (with a Catch)
During the 2009 Session, the Virginia General Assembly passed legislation (HB 2437) that modifies the corporate apportionment formula by allowing manufacturing companies to use a single factor apportionment based on sales to determine their Virginia taxable income. The modification is phased-in as follows:
- for taxable years beginning on or after July 1, 2011, but before July 1, 2013, qualifying corporations may elect to use a triple-weighted sales factor;
- for taxable years beginning on or after July 1, 2013, but before July 1, 2014, qualifying corporations may elect to use a quadruple-weighted sales factor;
- for taxable years beginning on or after July 1, 2014, and thereafter, qualifying corporations may elect to use the single sales factor method to apportion Virginia taxable income.
What's The Catch?
Well, there are a few.
First, once a corporation elects to use this method, it may not change for three taxable years.
Second, the legislation also applies certain employment and wage requirements. A taxpayer making this election is required to certify that the average weekly wages of its full-time employees was greater than the lower of the state or local average weekly wages for the taxpayer’s industry.
In addition, corporations must maintain a base year level of employment in the Commonwealth for the first three taxable years after electing to use a single factor apportionment based on sales. If a corporation does not satisfy these criteria, Virginia will assess the corporation the difference between taxes calculated under the standard apportionment in which sales are double-weighted and sales-only apportionment, and a ten percent penalty would be assessed; and interest would accrue.
The Department of Taxation is developing guidelines to carry out the provisions of this legislation, including rules regarding a method for determining the number of full-time employees of a manufacturing company in cases such as a merger, acquisition, spin-off, or other change in corporate structure.
Go to Virginia's website to review HB2437, the Workplan and Draft Guidelines.Public Comments Requested
Virginia is accepting public comments on the Draft Guidelines through December 5, 2011.
- Can your business take advantage of this apportionment election?
- Should your business take advantage of this apportionment election?
- Should your business submit comments on the draft guidelines?
- If your company makes the apportionment election, will it meet the employment requirements for the next three years?
Contact me for assistance in answering these questions for your company.
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
You can reach Brian at firstname.lastname@example.org.
Because state and local taxes are deceptively simple and endlessly complicated.