March 8, 2016
Re: Ruling Request: Corporate Income Tax
Dear *****:
This will reply to your letter in which you request a ruling concerning net operating loss deductions (NOLDs).
FACTS
For the 2013 taxable year, a corporation (the "Taxpayer") reported a net operating loss (NOL) on its federal income tax return. The Taxpayer had a fixed date conformity addition (FDCA) that created taxable income on the Virginia return. The federal NOLD was carried back, but the loss was not carried back for Virginia income tax purposes.
For 2014, the Taxpayer reported no federal taxable income and a fixed dated conformity subtraction (FDCS), resulting in negative income on the Virginia return. The Taxpayer requests a ruling as to whether the excess FDCS can be carried forward.
RULING
Generally, Virginia income tax law does not address the NOLD. Nonetheless, Va. Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia have the same meaning as provided in the Internal Revenue Code (IRC), with certain exceptions, unless a different meaning is clearly required. Because Virginia starts its computation of corporate income tax with federal taxable income (FTI), the Department allows an NOLD to the extent it is allowable in computing FTI as calculated for Virginia income tax purposes.
Title 23 of the Virginia Administrative Code (VAC) 10-120 325 provides the methodology that a corporation must use to calculate the NOLD carrybacks and carryforwards for purposes corporate income tax. Under this regulation, a Virginia NOLD modification must be determined for the taxable year in which an NOL occurred. This Virginia NOLD modification must be carried back and forward in the same manner as the NOLD.
Fixed date conformity additions and subtractions are not considered to be Virginia modifications. Rather, these exceptions identified in Va. Code § 58.1-301 are added to or subtracted from FTI as computed under the IRC in order to determine a corporation's FTI for Virginia income tax purposes. A corporation's Virginia FTI is calculated by starting with FTI as reported on the federal income tax return, adding the FDCA, and then subtracting any FDCS. The formula for determining Virginia FTI would be as follows:
FTI + FDCA — FDCS = Virginia FTI
For Virginia income tax purposes, a corporation will have an NOL only if the formula results in a number that is less than zero. If FDCA exceeds the total of a loss reported on a federal return plus FDCS, the corporation will not have an NOL for Virginia income tax purposes. Conversely, if FDCS exceeds FTI plus FDCA, the taxpayer will have NOL for Virginia even if it does not report an NOL on its federal return. Such an NOL can be carried back and forward in accordance with the rules established under IRC § 172, except for the five year carryback allowed under IRC § 172(b)(1)(H). See Va. Code § 58.1-301 B 2.
Under the facts presented, the Taxpayer's FDCS exceeds the total of FTI and FDCA. As such, the Virginia FTI would be negative resulting in an NOL for the 2014 taxable year. Under Virginia policy, the 2014 NOL could be carried back and then forward as an NOLD pursuant to Virginia's conformity to IRC § 172. Further, any Virginia NOLD modification would be carried back and forward in the same manner as the NOLD.
The Code of Virginia sections and regulations cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6168882207.o