By: Ryan Beethoven-Wilson, CPA
The final phase of apportionment changes in Virginia is upon us for manufacturers and retailers. As a reminder, manufacturers have the ability to elect a phase-in of single sales apportionment over three total taxable years. Retailers on the other hand, are now required to use the phase-in of single sales apportionment.
For example, if a calendar-year manufacturer has elected the phase-in of single sales factor apportionment, the manufacturer will be able to apportion income using a single-sales factor on its 2015 Virginia return. The election is made by filing a Virginia return using a triple-weighted sales factor for 2013 and by filing a return using a quadruple-weighted sales factor for 2014. Again, the determining factor is when the taxpayer's tax year begins.
For manufacturers to be eligible to use the phase-in of single sales apportionment, certain employment thresholds must be met each year. Those thresholds are 1) the average weekly wage of the company’s full-time employees must be equal to or greater than the local average weekly wage, and 2) the average number of the company’s full-time and full-time equivalent employees must be at least 90% of the average number of employees during the base year (the first year the election is made). If a company had previously elected the phase-in and no longer meets either of these thresholds, then the company should return to apportioning income using the standard double-weighted sales factor. If a company has already filed a previous year return using the elected single sales factor phase-in, and did not in fact meet the employment thresholds, then an amended return may be in order to remit a “recapture” tax. This situation should be discussed with a tax advisor as facts and circumstances will differ for each taxpayer.
On the other hand, retailers are required to apportion income using quadruple-weighted sales for tax years beginning after July 1, 2014, and will be able to apportion income using a single-sales factor in tax years beginning after July 1, 2015.
Links to the original articles and further information on Virginia's apportionment changes can be found here:
The instructions for Virginia Forms 500A and 502A are also a good place to turn for guidance. As always, please contact your Keiter representative with any questions or for further assistance or 804.747.0000 | email@example.com.