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Multistate Tax Alert: Virginia Issues Amended Draft Guidelines on Single Sales Factor Election for Manufacturers

Public comments are due by October 31, 2012


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Overview

On August 30, 2012, the Virginia Department of Taxation (“DOT”) issued amended draft guidelines with respect to the manufacturer’s election to use single-sales factor apportionment for corporate income tax purposes. The election, codified at Va. Code Ann. § 58.1-422, allows qualifying manufacturers to use a modified apportionment factor for tax years beginning after July 1, 2011.1 In September 2011 the DOT issued the first draft guidelines addressing implementation of the manufacturer’s election. On March 30, 2012, Governor McDonnell signed House Bill (“H.B.”) 460,2 which amended § 58.1-422. In order to incorporate the changes contained in H.B. 460 and address items raised in discussions with affected manufacturers and other interested parties, the DOT has reissued the guidelines in draft form (the “amended draft guidelines”) for further comment. The DOT is accepting comments from the public on the amended draft guidelines until October 31, 2012, and intends to finalize the guidelines by December 31, 2012.

The primary changes in the amended draft guidelines incorporate the changes resulting from H.B. 460. Notably, H.B. 460 eliminates the 10% penalty imposed under the prior version of the law upon taxpayers who elect the single-sales factor method, but fail to meet the requirements of the election, and removes the requirement that manufacturers maintain 100% of the number of employees from the base (year of election) year. The law has been revised to make the retained employment threshold equal to at least 90% of the employees from the first year the election is made. In addition to the changes pursuant to H.B. 460, the amended draft guidelines also provide added details on who qualifies as a “qualified employee.”

Please download the attached Alert to read a summary of the applicable law and the amended draft guidelines. To receive these alerts and stay connected, please sign up for our weekly newsletter State Tax Matters.


1 House Bill 2437, Chapter 821 of the 2009 Acts of the Assembly.
2 Chapter 427 of the 2012 Acts of the Assembly.

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