Virginia Administrative Code
Title 23 - TAXATION
Agency 10 - DEPARTMENT OF TAXATION
Chapter 120 - Corporation Income Tax
Section 23VAC10-120-100 - Virginia taxable income; definitions; exceptions
Universal Citation: 3 VA Admin Code 10-120-100
Current through Register Vol. 41, No. 3, September 23, 2024
A. Federal taxable income. A Virginia income tax is imposed on all income from Virginia sources which is defined as federal taxable income with certain specified additions, subtractions and exemptions. For the purpose of determining Virginia taxable income, the term "federal taxable income" means all income from whatever source derived and however named on which a federal income tax is imposed.
B. For most corporations "federal taxable income" for Virginia income tax purposes will be the amount shown on the line of federal form 1120 designated "taxable income" (after net operating loss deduction and special deductions). However, there are some exceptions, including, but not limited to, the following:
1. Regulated investment companies file
federal form 1120 but do not follow normal corporate rules for computing the
tax. Separate taxes are imposed on investment company taxable income and on
capital gains. The federal taxable income of a regulated investment company for
Virginia purposes is the sum of:
(i)
"investment company taxable income" defined in IRC § 852(b) and
(ii) the amount of capital gains defined in
IRC § 852(b).
2.
Real estate investment trusts file federal form 1120 but do not follow normal
corporate rules for computing the tax. Separate taxes are imposed on "real
estate investment trust taxable income," capital gains, "income from
foreclosure property" and "income from prohibited transactions."
The federal taxable income of a real estate investment trust for Virginia income tax purposes is the sum of:
(i) "real estate investment trust income" as
defined in IRC § 857(b)(2);
(ii) "capital gains" as defined in IRC §
857(b)(3);
(iii) "income from
foreclosure property" as defined in IRC § 857(b)(4); and
(iv) "income from prohibited transaction" as
defined in IRC § 857(b)(6).
3. Organizations exempt from federal tax
under subchapter F of the Internal Revenue Code which have unrelated business
income are required to file Federal Form 990-T. For such organizations, federal
taxable income means "unrelated business taxable income" as defined in IRC
§ 512.
4. Corporations
organized under the laws of a foreign country and doing business within the
U.S. pay the regular corporate tax on net income effectively connected with the
conduct of a trade or business within the U.S. and, in the absence of a treaty
between the U.S. and the foreign country, a separate tax of 30% on the gross
income from dividends, interest and certain other income from U.S. sources. For
Virginia purposes the federal taxable income of such foreign corporations is
either the taxable income under the terms of any applicable treaty, or the sum
of:
(i) the gross income defined in IRC
§ 881, and
(ii) the net income
defined in IRC § 882.
5. Net operating loss deductions.
(i) Corporations incurring a net operating
loss are allowed under federal law to carry such loss back to specified years
and over to specified subsequent years. Virginia law has no provision for a net
operating loss deduction (NOLD). Therefore, an NOLD is allowable for Virginia
purposes only to the extent that the NOLD is allowed as a deduction in
computing federal taxable income.
(ii) When a net operating loss is carried
back to a prior year, the NOLD is treated as a change in federal taxable income
for the year to which the loss is carried. The corporation may file an amended
Virginia return claiming a refund due to the NOLD. A copy of federal form 1139,
1120X or similar form must be attached to the amended Virginia return. See
§§ 58.1-823 (amended returns), 58.1-1823 (interest on overpayments
attributable to an NOLD), 58,1-403 (special rules for railway companies), and
58.1-442 (special rules for consolidated and combined Virginia returns) of the
Code of Virginia.
(iii) The
Virginia additions and subtractions of the loss year follow the loss to the
year the NOLD is claimed. For example, if 50% of the 1983 federal net operating
loss is carried back to 1980, then 50% of the 1983 Virginia additions and
subtractions will also be carried back to 1980.
(iv) Under federal law an NOLD may be used
only to reduce federal taxable income. An NOLD may not create or increase a
federal net operating loss. Because an NOLD cannot reduce federal taxable
income below zero, it is possible that a corporation with substantial Virginia
additions will owe Virginia income tax even though its federal taxable income
is reduced to zero by an NOLD.
(v)
Members of an affiliated group of corporations which file a consolidated
federal return and separate or combined Virginia returns must compute federal
taxable income and the NOLD as if each corporations had filed a separate
federal return for all affected years. If the group files a Virginia
consolidated return which does not include all of the corporations included in
the federal consolidated return then the federal taxable income and NOLD group
shall not be applied in computing the separate federal taxable income in this
situation. See regulation
23VAC10-120-320 et seq.
6. Certain corporations may be
required to redetermine Virginia taxable income to properly reflect the
business done in Virginia. (§ 58.1-446 of the Code of Virginia.)
Statutory Authority
§§ 58.1-203 and 58.1-402 of the Code of Virginia.
Disclaimer: These regulations may not be the most recent version. Virginia may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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