Source: https://www.grantthornton.com/library/alerts/tax/2019/SALT/U-Z/VA-adopts-remote-seller-economic-nexus-standards-04-11.aspx
Timestamp: 2019-04-24 02:53:46+00:00

Document:
Virginia recently enacted legislation advancing the Commonwealth’s conformity with the Internal Revenue Code (IRC) to the version in effect as of Dec. 31, 2018.1 In a separate measure, it adopted economic nexus standards for certain remote sellers and marketplace facilitators.2 Specifically, effective July 1, 2019, retailers with no physical presence are required to collect and remit sales taxes if they generate more than $100,000 of sales or complete at least 200 separate transactions in Virginia. Additionally, certain marketplace facilitators are required to collect and remit tax on behalf of third-party sellers.
Virginia’s conformity legislation Virginia employs static conformity to the IRC and has advanced its conformity date to Dec. 31, 2018.3 Previously, Virginia conformed as of Feb. 9, 2018, but explicitly decoupled from most provisions included in the Tax Cuts and Jobs Act (TCJA) as well as H.R. 1892, commonly referred to as the Bipartisan Budget Act of 2018.4 For taxable years beginning on or after Jan. 1, 2018, the Commonwealth’s income tax structure generally reflects the changes adopted by federal tax reform. However, Virginia decouples from several IRC provisions.
IRC Sec. 172 – Net Operating Losses Virginia continues to decouple from the federal carryback of certain net operating losses (NOLs) for five years under IRC Sec. 172(b)(1)(H), but otherwise conforms to the prospective NOL limitations imposed under the TCJA.7 The federal provisions limit the deductibility of NOLs generated on or after Jan. 1, 2018, to 80% of taxable income and eliminate the previously available two-year carryback, while allowing an unlimited carryforward period.
IRC Sec. 951A – Global Intangible Low-Taxed Income (GILTI) For taxable years beginning on or after Jan. 1, 2018, Virginia allows for a subtraction of GILTI included for federal income tax purposes under IRC Sec. 951A in computing Virginia taxable income.9 Specifically, Virginia expanded the existing corporate income tax subtraction for Subpart F income to allow for this deduction.
Commentary The primary intent of the conformity legislation was ostensibly to adopt the changes included in federal tax reform. However, as noted above, Virginia decouples from the treatment of GILTI and continues to decouple from several provisions with which it has historically lacked conformity. Due to the inclusion of GILTI in computing federal taxable income, corporate taxpayers should be aware that foreign source income often is included in state taxable income. Due to Virginia’s broad exclusion for Subpart F income and foreign source income, that typically has not been the case in the Commonwealth. The Virginia decoupling provision regarding GILTI is intended to prevent the deduction of the gross GILTI amount along with the IRC Sec. 250 GILTI deduction which otherwise would result in “double-dipping,” allowing taxpayers two beneficial deductions instead of the intended single deduction.
With this legislation, Virginia becomes the first state to partially decouple from IRC Sec. 163(j) through the adoption of a subtraction that will provide a slight offset to the interest deduction limitation. Many taxpayers are likely to struggle with the state corporation income tax impact of IRC Sec. 163(j), both from a financial and compliance perspective, particularly in states like Virginia that allow separate reporting and require the addback of certain related-party interest expenses. As a result, it is imperative that guidance in this area be issued to the public in the coming months.
With the adoption of its economic nexus standards for purposes of the sales and use tax, Virginia joins numerous states that have adopted legislation including marketplace facilitator provisions in the wake of the U.S. Supreme Court’s Wayfair decision. The newly adopted remote seller nexus provisions vary among states and taxpayers should be cognizant of the differences. Many states, Virginia included, have opted to replicate the thresholds in South Dakota’s legislation which were endorsed by Wayfair. Although South Dakota’s legislation has been deemed constitutional in its threshold determinations, there are no clear guidelines indicating when a threshold could be considered unconstitutional. In addition, marketplace provisions still vary greatly across states in terms of effective dates, definitions, and collection requirements. Multistate taxpayers should be aware of these differences and account for inconsistencies across jurisdictions in order to guarantee accurate compliance in this evolving area.
1 Ch. 17 (H.B. 2529) and Ch. 18 (S.B. 1372), Laws 2019. Both bills are identical and were enacted on Feb. 15, 2019.
2 Ch, 815 (H.B. 1722) and Ch. 816 (S.B. 1083), Laws 2019. Both bills are identical and were enacted on March 26, 2019.
3 VA. CODE ANN. § 58.1-301.B.
4 P.L. 115-97, P.L. 115-123. For a discussion of the TCJA, see GT Alert: Tax Reform Law Transforming Business and Tax Planning.
5 VA. CODE ANN. §§ 58.1-322.03.15; 58.1-402.G.
6 VA. CODE ANN. § 58.1-301.B.1.
7 VA. CODE ANN. § 58.1-301.B.2.
8 VA. CODE ANN. § 58.1-301.B.
9 VA. CODE ANN. § 58.1-402.C.7.
10 VA. CODE ANN. § 58.1-301.B.3.
11 VA. CODE ANN. § 58.1-301.B.4.
12 VA. CODE ANN. § 58.1-322.03.1.b.
13 VA. CODE ANN. § 58.1-322.03.16.
14 VA. CODE ANN. § 58.1-301.B.5.
15 VA. CODE ANN. § 58.1-612.
16 VA. CODE ANN. § 58.1-612.C.10, .11. The legislative language allows for these thresholds to be changed to match federal thresholds, should any be prospectively established by Congress.
17 VA. CODE ANN. § 58.1-602.
18 VA. CODE ANN. § 58.1-612.1.C.
19 VA. CODE ANN. § 58.1-612.1.A.
22 VA. CODE ANN. § 58.1-612.1.D.1, .2.
23 VA. CODE ANN. § 58.1-612.1.D.3. If such waiver is granted, the tax is collectible from the marketplace seller. The Virginia Department of Taxation is directed to develop guidelines that establish: (a) the criteria for obtaining a waiver; (b) the process and procedure for a marketplace facilitator to apply for a waiver; and (c) the process for providing notice to an affected marketplace facilitator and marketplace seller of such a waiver.
24 VA. CODE ANN. § 58.1-612.F.
25 VA. CODE ANN. §§ 58.1-625.D.2; 58.1-635.D.
26 VA. CODE ANN. § 58.1-612.1.E.
27 VA. CODE ANN. § 58.1-612.1.F.

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