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Virginia Governor Signs Budget Containing COVID-19 Tax Relief

NORVAD – 13: Governor Northam’s New SALTy Provisions Recently Signed into Virginia Law during COVID-19

On May 21, 2020, Governor Ralph Northam signed Virginia’s Budget (“Budget”)  for the 2020-2022 biennium, which affects income, sales and use, and excises taxes. The law contains new provisions for COVID-19 tax relief, a sales tax exemption for certain research and development centers, and a deduction for ABLE account contributions. Sunset dates are extended for new sales tax exemptions and tax credits. The below 13 bullets highlight the new law:

  • Electronic filing-estates and trusts – The annual income tax returns and payments for estates and trusts must be filed electronically beginning the tax year 2020.
  • ABLE account contribution deduction – Achieving a Better Life Experience Act accounts (“ABLE accounts”) are bank accounts that allow people with special needs to save money without jeopardizing their disability benefits.  A deduction for each account is limited to $2,000,  under certain circumstances.
  • General Rule – Intangible holding company add-back – An intangible holding company (“IHC”) is comprised of either a limited liability company (“LLC”) or a limited partnership (“LP”). An IHC owns the majority of equity and voting stock in another company, which allows it to control the company’s policies and management decisions.
  • Exceptions to General Rule – IHC add-back provisions for related members – In prior years, there was an exception for income held back, from related parties, that was subject to a tax based on or measured by net income or capital imposed by Virginia, another state, or a foreign government.  Now, this exception for a related members will may be limited depending on facts and circumstances.
  • Internet service provider sales tax exemption – Internet service providers that receive Virginia sales and use tax exemptions for the production, distribution, and other equipment used to provide internet access services must now request a refund request from the Virginia Tax Commissioner to receive the exemption.
  • Accelerated sales and use tax payments – Beginning with the tax payments for 2021, any dealer or direct payment permit holder with taxable sales and purchases of $10 million or higher for the 12 months beginning July 1, and ending June 30 of the prior taxable year, is required to make a payment equal to 90% of the sales and use tax liability from last June.
  • For questions or additional assistance in interpreting these changes, please contact a member of Withum’s State and Local Tax Team.
  • Discounts and allowances – The compensation allowed above will be suspended for any dealer required to remit sales and use tax via EFT. For dealers not required to remit sales tax via  EFT, the compensation will be limited to the following percentages of the first 3% of the sales and use tax levied: monthly taxable sales $0 to $62,500 – 1.6%; monthly taxable sales $62,501 to $208,000 – 1.2%; and monthly taxable sales $208,001 and above – 0.8%.
  • Sales tax exemption – Federally funded research and development costs are exempt from the Virginia retail sales and use tax on purchases of tangible personal property as long as the U.S. Department of Energy sponsors the research and development.
  • Sunset dates for income tax credits and sales and use tax exemptions –  Any new sales tax exemption or tax credit enacted by the General Assembly after the 2019 regular legislative session, but before the 2024 regular legislative session, will have a sunset date no later than June 30, 2025.
  • Limitation-land preservation tax credit – Virginia allows you or your business to purchase land preservation tax credits “”(“LPCs”””) from Virginia landowners who have made charitable donations of land or easements for conservation purposes. For taxable years beginning on and after January 1, 2017, but before January 1, 2020, the credits claimed by each taxpayer, must not exceed $20,000, including amounts carried over from prior taxable years.
  • Neighborhood assistance tax credit – The Neighborhood Assistance Program (“NAP”) assists low-income individuals by encouraging businesses, trusts, and individuals to make donations to approved 501(c) (3) organizations. Under the new law, at least 50% of the persons served by the NAP must be to low-income persons or eligible students with disabilities to receive the credit. Additionally, 50% or more of the revenues are required to be used to provide services to low-income persons or eligible students with disabilities.
  • Admissions tax – The County of Stafford may impose a tax on entertainment venue admissions for an entertainment venue that is licensed to do business in the county for the first time on or after July 1, 2015. The entertainment venue must use at least 75 acres of land for its operations, and the property must be purchased or leased by the entertainment venue owner on or after June 1, 2015. The tax cannot exceed 10% of the cost of admission to the venue.
  • Cigarette tax, tobacco products tax, and tax on liquid nicotine – The rates of the tobacco products tax in effect on June 30, 2020, will be doubled beginning July 1, 2020, for taxable sales or purchases occurring on or after that date. The budget bill also imposes a tax on liquid nicotine at the rate of $0.066 per milliliter, beginning July 1, 2020.

Author: Jeffrey Clayman, CPA, JD, LLM | jclayman@withum.com

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