Bulletin Number
VTB 86-9
Tax Type
Corporation Income Tax
Individual Income Tax
Set-Off Debt Collection Act
Description
1986 Legislative Changes: Income Tax
Topic
Reports
Date Issued
06-01-1986
Virginia Tax Bulletin
Virginia Department of Taxation
86-9
DATE: June 1, 1986
SUBJECT: Income Tax - 1986 Legislative Changes
The 1986 General Assembly enacted several law which have an impact on individual and corporate income taxes. Brief summaries of the enacted legislation are provided below:
ALL TAXES
Interest on Erroneous Refunds
House Bill 725 (Chapter 39), amends § 58.1-1812 of the Virginia Code to prohibit the Department of Taxation from assessing penalty and interest on the recovery of certain erroneous refunds, effective July 1, 1986. An "erroneous refund" is defined as any refund of tax resulting solely from an error by the Department of Taxation which results in the taxpayer receiving a refund to which the taxpayer is not entitled. Therefore, refunds issued by the Department which are erroneous due to taxpayer error, as for example, by transposing numbers, incorrectly transferring information from returns, or using the wrong tax form would not be included in the definition of "erroneous refund".
INDIVIDUAL AND CORPORATION INCOME TAXES
Neighborhood Assistance Act Tax Credit
Senate Bill 50 (Chapter 407), amends § 63.1-323 of the Virginia Code to extend the tax credit provisions of the Neighborhood Assistance Act of 1981 (which was set to expire on June 30, 1986) until June 30, 1990. This bill also amends § 63.1-324 of the Virginia Code to clarify that the Neighborhood Assistance Act credit is equal to 50% of the total amount invested by a business firm during its taxable year, and that such credit may not exceed $175,000 per taxable year, effective for taxable years beginning on and after January 1, 1986. The credit is provided to business firms which invest in impoverished areas or impoverished people of the state by providing financial assistance, labor, material, technical advice, job training, counseling, emergency assistance, medical care or activities that aid in the reduction of crime.
INDIVIDUAL INCOME TAX ONLY
1. Foster Child Deduction
House Bill 370 (Chapter 515), amends § 58.1-322 of the Virginia Code to provide an additional $1,000 deduction for each child residing in a taxpayer's home for the entire taxable year under permanent foster care placement, as defined in Chapter 10 of Title 63.1, provided the taxpayer can also-claim the child as a dependent under IRC § 151, effective for taxable years beginning on and after January 1, 1986. "Dependent" is defined in IRC § 152 as an individual who for the taxable year of the taxpayer received over half of his support from the taxpayer, has as his principal place of abode the home of the taxpayer, and is a member of taxpayer's household. Revenue Ruling 77-280 further clarifies that in order to claim a foster child as a dependent, for IRC § 151 purposes, taxpayer must receive no public or private financial support for the care of such foster child. Therefore, in order to qualify for this additional $1,000 deduction, a taxpayer must meet all of the requirements stated above. However, those taxpayers who do qualify for this additional $1,000 deduction will still be entitled to claim the $600 Virginia personal exemption for a total benefit of $1,600 per child.
2. Public Employee Retirement Benefits
House Bill 735 (Chapter 474) amends 5§ 8.1-322 of the Virginia Code to provide that benefits paid by retirement plans organized by public institutions of higher education under § 51-111.28 of the Virginia Code (including the Teachers Insurance and Annuity Association - College Retirement Equities Fund, TIAA-CREF), are excludable from the income tax in proportion to the amount of contributions made to such plans while the recipient was employed by a state supported institution of higher education in Virginia, effective for taxable years beginning on and after January 1, 1986. Therefore, those benefits paid by such retirement plans which are allocable to contributions made while the recipient was not employed by a state supported institution of higher education in Virginia do not qualify for this exclusion.
OTHER CHANGES
1. Set-Off Debt Collection
House Bill 179 (Chapter 322), amends §§ 58.1-520, 58.1-521 and 58.1-521 of the Virginia Code, effective July 1, 1986, as follows: (1) to clarify that the State Comptroller must only provide the Department of Taxation with a list of state agencies and courts eligible to participate in the set-off program, (2) to require that the Executive Secretary of the Supreme Court and Virginia's circuit and district courts participate in the set-off program, (3) to clarify the date by which a claimant agency must notify the Department of Taxation of its intent to set-off a debtor's refund, and (4) in instances where a claimant agency provides written notification to a debtor of its intent to effect set-off, to permit the claimant agency to furnish the Department of Taxation with evidence of such notification rather than a copy of the notification.
2. Corporations Only
House Bill 608 (Chapter 529) amends § 13.1-912 of the Virginia Code relating to nonstock corporations to allow such corporations to dissolve without first having obtained a final tax certificate from the Tax Commissioner, effective July 1, 1986.
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