Tax Type
Individual Income Tax
Description
Net Operating Loss carryback; Virginia modifications
Topic
Taxable Income
Date Issued
12-05-1990
December 5, 1990
Dear ****
This is in reply to your letter of June 27, 1990, in which you request a ruling regarding the proper treatment of certain items on an amended Virginia individual income tax return when a federal net operating loss is carried back.
FACTS
In taxable year 1989, you had a federal net operating loss that you carried back to taxable year 1986. You also amended your Virginia individual income tax return for taxable year 1986 to reflect the federal carryback of the taxable year 1989 loss to taxable year 1986. In computing the Virginia modifications applicable to the federal net operating loss deduction, you failed to include a modification for state income taxes. The Department adjusted the amount of Virginia modifications reported on your amended Virginia return to include an amount equal to the state tax deduction claimed as an itemized deduction on your 1989 federal return.
You request a ruling that such a modification is unnecessary because the amount of federal net operating loss allowed did not include the state tax deduction claimed as an itemized deduction on your 1989 federal return.
RULING
There is no express statutory authority for a separate Virginia net operating loss. However, since under Va. Code § 58.1-322 the starting point in computing Virginia taxable income is federal adjusted gross income and the federal carryback or carryforward of a federal net operating loss is reflected in federal adjusted gross income, Virginia taxable income is affected by a federal net operating loss to the extent that it is reflected in federal adjusted gross income. The modifications that are required when utilizing a federal net operating loss deduction on a Virginia individual income tax return are set forth under Virginia Regulation (VR) 630-2-311.1.
In part, § 3 of VR 630-2-311.1 provides:
- Each item that is a component of the federal net operating loss must be examined to see if a Virginia modification is required to be made to that item. (Emphasis added.)
Therefore, regardless of whether an item is defined by the regulation as a "Virginia modification," if the item is not a component of the federal net operating loss, no modification is required.
Based upon the information that you have provided, the state tax deduction claimed as an itemized deduction on your 1989 federal return was not a component of the federal net operating loss deduction. Accordingly, no Virginia modification is necessary. Your amended Virginia return for taxable year 1986 will be adjusted accordingly.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner