General Overview

The Virginia House Finance Committee requested that Virginia Tax convene a working group to study market-based sourcing. Specifically, the working group was required to:

  • Study the desirability and feasibility of Virginia changing its method of sourcing a corporation’s sales, other than sales of tangible personal property, from cost of performance to market-based sourcing.
  • Study the desirability and feasibility of adopting a bifurcated approach to sourcing a corporation’s sales. Under this method, all companies would be required to use market-based sourcing unless they exceed certain thresholds related to, but not limited to, property and payroll. Any companies exceeding such thresholds would be allowed to elect whether to source all sales, other than sales of tangible personal property, using market-based sourcing.
  • Provide recommendations regarding the implementation of any of the above changes to Virginia’s statutory method of apportionment.
  • Draft a bill based on the Virginia Tax’s recommendations for potential consideration by the General Assembly.

The working group was required to submit a report regarding this study to the Virginia House Finance Committee prior to the December 7, 2015 prefiling deadline for legislation for the 2016 General Assembly session. 

This study was requested by the Virginia House Finance Committee because a number of bills regarding market-based sourcing have been introduced during recent General Assembly sessions, but had not been enacted. The most recent of these bills, 2015 House Bill 2233, formed the basis for this study.

Working Group

Aside from Virginia Tax, the working group included representatives from telecommunications providers, data centers, cyber technology entities, other technology service providers, and other similar industries. The working group was also required to include participation from out-of-state businesses with a significant portion of sales in Virginia, and other principal stakeholders.

June 4th Working Group Meeting

On June 4, 2015, Virginia Tax held a meeting with the market-based sourcing study working group to discuss various aspects regarding the study. Virginia Tax completed a presentation regarding the study that included an:

  • Overview regarding the purpose of the meeting and the study the working group is required to complete (Mark Haskins);
  • Explanation of apportionment in Virginia and the cost of performance method (John Josephs);
  • Overview of market-based sourcing, the nationwide trend toward market-based sourcing, market-based sourcing legislation that has been considered by the Virginia General Assembly, and policy changes that would be required if Virginia adopts market-based sourcing (Matt Huntley);
  • Explanation of the fiscal estimates conducted for purposes of the 2010 JLARC study on market-based sourcing and market-based sourcing legislation that has been considered by the Virginia General Assembly (Kristin Collins);
  • Explanation of the Virginia Tax’s methodology for the working group estimate, data limitations, and the potential revenue impact of adopting market-based sourcing (Aisha Yededji);
  • Overview of the bifurcated methods Virginia Tax is considering analyzing for purposes of the study (Mark Haskins); and
  • Overview of the outline and work plan for the study (Mark Haskins).

After completing its presentation, Virginia Tax provided time for the working group to ask questions and to discuss issues related to the study.

June 4 Meeting Information

Please find information regarding the June 4 working group meeting at the links below:

Working Group Comments Regarding the Study

Introductory Comments

Links Regarding Similar Studies