April 5, 2022
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessment issued to ***** (the “Taxpayer”) for the taxable year ended December 31, 2018. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer filed a Virginia resident income tax return for the 2018 taxable year claiming a subtraction for long-term capital gain derived from her investment in ***** (the “Company”). Under review, the Department denied the subtraction because the Taxpayer had not provided evidence that the gain from the sale of stock was attributable to an investment in a qualified business. The Taxpayer appealed, contending she was eligible to claim the subtraction.
DETERMINATION
Virginia Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia. For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Chapter 3 of Title 58.1 of the Code of Virginia.
Virginia Code § 58.1-322.02 24 provides for a subtraction for any income taxed as a long-term capital gain for federal income tax purposes. The following restrictions apply:
To qualify for a subtraction . . . , such income shall be attributable to an investment in a “qualified business,” as defined in 58.1- 339.4, or in any other technology business approved by the Secretary of Technology, provided that the business has its principal office or facility in the Commonwealth and less than $3 million in annual revenues in the fiscal year prior to the investment. To qualify for a subtraction . . . , the investment shall be made between the dates of April 1, 2010, and June 30, 2020. No taxpayer who has claimed a tax credit for an investment in a “qualified business” under 58.1-339.4 shall be eligible for the subtraction under this subdivision for an investment in the same business.
The Department disallowed the subtraction because the Taxpayer was unable to provide documentation proving that the Company satisfied the statutory requirements. The Company is a global Fortune 500 company based in California with billions of dollars in annual revenue. Even if the Company would otherwise meet the definition of a “qualified business,” the Company did not meet the requirements that its principal office or facility be in Virginia and that it have less than $3 million in annual revenues in the fiscal year prior to the Taxpayer’s investment. Accordingly, the Department properly disallowed the subtraction.
The Taxpayer will receive an updated bill that will include accrued interest to date. The Taxpayer should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collection actions.
The Code of Virginia sections 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 determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3875.X