Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 110 - INDIVIDUAL INCOME TAX › Section 23VAC10-110-142 - Virginia taxable income; subtractions

Current through Register Vol. 40, No. 24, July 15, 2024
To the extent included in FAGI, the items enumerated below
				  shall be subtracted from FAGI in determining Virginia taxable income. If an
				  item was partially excluded or deducted in determining FAGI, it shall be
				  subtracted from FAGI only to the extent included therein. If an item has
				  already been excluded from Virginia taxable income, it shall not be subtracted
				  again pursuant to this section.
1.
				Interest or dividends on obligations of the United States or Virginia.
a. "Obligation" means a debt obligation or
				security issued by the United States or any authority, commission or
				instrumentality of the United States or by the Commonwealth of Virginia or any
				of its political subdivisions, which obligation or security is issued in the
				exercise of the borrowing power of the United States or Virginia and is backed
				by the full faith and credit of the United States or Virginia.
b. Guarantees by the United States or
				Virginia of obligations of private individuals or corporations are merely
				contingent obligations of the United States or Virginia even though the
				guarantees may be backed by the full faith and credit of the United States or
				Virginia. The obligation does not become an obligation of the United States or
				Virginia because of the guarantee and interest and dividends paid on such
				guaranteed obligations do not qualify for the subtraction unless specifically
				exempted by statute.
c. Specific
				statutory exemptions exist for certain securities issued by particular federal
				or Virginia agencies or political subdivisions. If a federal or Virginia
				statute exempts from state taxation the interest or dividends on specific
				securities of a particular agency or political subdivision then such interest
				or dividends qualify for the subtraction.
d. Repurchase agreements are usually
				obligations issued by financial institutions which are secured by U.S.
				obligations exempt from Virginia income taxation under subdivisions 1 a and c
				of this section. In such cases the interest paid by the financial institutions
				to purchasers of repurchase agreements does not qualify for the subtraction.
				Repurchase agreements issued following current commercial practice will
				invariably be regarded as obligations of the issuing financial institution.
				However, if the purchaser is regarded as the true owner of the underlying
				exempt obligation, the interest will qualify for the subtraction even though
				collected by the seller and distributed to the purchaser. Any claim of such
				ownership must be substantiated by a taxpayer claiming a subtraction.
e. Interest received from regulated
				investment companies. Interest on exempt obligations received by a regulated
				investment company and passed through to the stockholders in qualifying
				distributions, as defined in IRC § 852, will retain its exempt status in
				the hands of the shareholders. If a shareholder receives a distribution which
				includes interest from both exempt and non-exempt obligations, all
				distributions will be deemed taxable unless the shareholder can substantiate
				the exempt portion of the distributions. Any individual requiring advice as to
				the taxable status of distributions from any regulated investment company
				should contact such company. Due to the turnover in investments held by such
				companies and the commingling of interest from exempt and non-exempt
				obligations, the Department cannot render such advice.
f. Expenses. The subtraction for interest on
				exempt obligations must be reduced by any expenses attributable to such
				interest and by interest or indebtedness incurred or continued to purchase or
				carry exempt obligations pursuant to IRC § 265.