By Kay F. Gotshall, CPA, Tax Senior Manager
Conforming to federal tax code is a legislative win for Virginia taxpayers and practitioners
Many states based their income tax laws on Federal tax laws. Conforming to federal tax code helps individual states in a variety of ways including reducing compliance burdens for taxpayers and conserving state government resources as federal tax code provides more detailed and comprehensive provisions.
Background of Virginia tax conformity
In Virginia, a fixed-date Internal Revenue Code (IRC) conformity approach had been in place since 2003. Every year, passing federal tax conformity legislation in the General Assembly was an important issue for Virginia taxpayers because it updated Virginia tax laws to either conform or de-conform to the IRC. Failure to pass conformity early in the legislative session caused severe disruption, inefficiencies and delays in filing returns as well as receiving timely refunds.
Taxpayers, tax practitioners, and the Virginia Department of Taxation (Department) continually provided input on the need to move away from the fixed-date approach. As a result, on April 12, 2023, the General Assembly passed unanimously and Governor Glenn Youngkin signed S.B. 1405 which changes Virginia’s fixed-date conformity to rolling conformity to Federal IRC tax laws.
Virginia rolling conformity overview and exceptions
Virginia adopts rolling IRC conformity as federal laws are passed beginning on or after January 1, 2023. The last Virginia conformity bill passed in March 2023 which advanced the Virginia conformity date with federal tax law to December 31, 2022. Although Virginia will conform to a majority of the federal tax laws passed when they are enacted, there are some exceptions Virginia will not automatically conform to. Those exceptions include:
- Any changes in a single act of Congress with an impact of more than $15 million on revenues in the year in which the amendment was enacted or any of the next four years (the $15 million is adjusted for inflation after January 2024)
- All amendments in a year with a cumulative projected impact of more than $75 million in the year in which the amendments were enacted or any of the next four years
*Neither of these exceptions apply to extensions of federal tax law that Virginia has previously conformed to, what are commonly known as federal extenders.
Guidance on Virginia’s new rolling conformity is likely to be issued by the Department. We will continue to keep you updated as new information is provided. Questions on this or other tax compliance matters? Contact your Keiter Opportunity Advisor.
Virginia deconformity information:
About the Author
Kay F. Gotshall, CPA, Tax Senior Manager
Kay serves several of Keiter’s larger corporate clients with their FAS 109 tax provision and returns. Currently, Kay leads the Keiter multi-state tax team, which is primarily responsible for a majority of the multi-state tax filings prepared by the firm. In addition, the Keiter multi-state tax team provides income, as well as, sales and use audit and research support services. Kay works on a wide variety of industries, since most of her clients are multi-state. Some of the specific industries she serves include services, broker-dealers, manufacturing, and construction. Furthermore she consults with a variety of clients on filing requirements for multi states and foreign company ownership and operations.
More Insights from Kay F. GotshallThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
