On Feb. 23, 2018, the Virginia General Assembly adopted Virginia Governor Ralph Northam’s recommendations to House Bill 154, allowing the bill to become law, and updating Virginia’s income tax conformity to the IRC in response to recent federal reform.
Virginia is a “static conformity” state, conforming to the IRC as of Dec. 31, 2016. House Bill 154 advances conformity to the IRC as of Feb. 9, 2018. Although the new conformity date is after federal tax reform was enacted, the legislation decouples from most of the new federal provisions. However, new provisions the commonwealth will conform to include:
- treatment of certain individuals performing services in the Sinai Peninsula of Egypt
- relief for 2016 disaster areas
- any other provision of the Act that affects the computation of federal adjusted gross income of individuals or federal taxable income of corporations for taxable years beginning after Dec. 31, 2016, and before Jan. 1, 2018.
Additionally, the commonwealth decouples from any provisions of the Bipartisan Budget Act of 2018, enacted Feb. 9, 2018, that affect any taxable year other than a taxable year beginning after Dec. 31, 2016, and before Jan. 1, 2018.
The commonwealth will not conform to any other provisions of federal reform, including the temporary reduction in the medical expense deduction threshold, which was reduced to 7.5 percent from 10 percent for 2017 and 2018.
West Virginia, also a static conformity state, recently enacted two bills addressing corporate and personal income tax conformity. On Feb. 21, 2018, West Virginia Governor Jim Justice signed House Bill 4135, conforming the state’s corporate net income tax code to the IRC as of Dec. 31, 2017, adopting all amendments made to the IRC between Dec. 31, 2016, and Jan. 1, 2018. Passed the same day, House Bill 4146 provides similar conformity to amendments made to the IRC before Jan. 1, 2018 for personal income tax purposes. However, House Bill 4146 preserves the personal exemption. Noteworthy, unlike Virginia or Idaho’s recent conformity update, the West Virginia conformity legislation is much broader.
Virginia’s conformity will become effective immediately as some of the provisions could impact taxpayers’ 2017 taxes. It is likely that the commonwealth will continue to study the impact of tax reform and further address conformity for the 2018 year at a later date.
For more information on state conformity, please read our blog, Federal tax reform and the states: Conformity is key. For more information on federal and state tax reform, please see RSM’s Tax Reform Resource Center.