United States

Virginia provides income tax benefits for expanding businesses

TAX ALERT  | 

On April 9, 2018, Virginia Governor Ralph Northam signed Senate Bill 883, allowing eligible companies to exclude property and payroll from the numerator of the income tax apportionment factor when expanding in qualified localities. Eligible companies may also exclude sales in the commonwealth during the taxable year. 

Eligible companies are those that had no property or payroll in Virginia prior to its investment in a qualified locality, and from Jan. 1, 2018 through Dec. 31, 2024, create at least 50 jobs paying at least 150 percent of the minimum wage in a qualified locality. For companies investing at least $5 million in new capital investment in a qualified locality, only 10 jobs paying at least 150 percent of the minimum wage in a qualified locality need to be created. The income tax apportionment modifications are allowed for the year in which the company makes the required investment, and for the following six years. 

Qualified localities include the following:  (a) the Counties of Alleghany, Bland, Buchanan, Carroll, Craig, Dickenson, Giles, Grayson, Lee, Russell, Scott, Smyth, Tazewell, Washington, Wise, and Wythe and the Cities of Bristol, Galax, and Norton; (b) the Counties of Amelia, Appomattox, Buckingham, Charlotte, Cumberland, Halifax, Henry, Lunenburg, Mecklenburg, Nottoway, Patrick, Pittsylvania, and Prince Edward and the Cities of Danville and Martinsville; (c) the Counties of Accomack, Caroline, Essex, Gloucester, King and Queen, King William, Lancaster, Mathews, Middlesex, Northampton, Northumberland, Richmond, and Westmoreland; and (d) the Counties of Brunswick and Dinwiddie and the City of Petersburg. A "qualified locality" also includes certain real property, owned or partly owned by such localities outside of their territorial boundaries.

Eligible companies must be a traded-sector company, which is a company that derives more than 50 percent of its revenue from sources outside of Virginia. Companies must also obtain an annual certification from the Virginia Economic Development Partnership Authority to confirm that the company will provide a positive fiscal impact for the state. 

The law provides similar modifications for industries that use different apportionment formulas, such as manufacturing and retail companies, financial companies, motor carriers and railway companies, construction companies and enterprise data center operations.

In addition, the legislation authorizes grants and loans of up to $2,000 per job, per year, from the state’s Commonwealth’s Development Opportunity Fund, and also permits qualified localities to provide matching grants. 

Takeaways

Like many other states in the southeast and across the country, Virginia is seeking to entice new investment. The recently enacted legislation offers a useful array of benefits; the income tax apportionment modifications should serve to reduce state income tax for eligible businesses, while grants can provide a more direct offset to the cost of these investments in people and property.

Businesses seeking to build out new operations in Virginia should review these recently enacted incentives and speak to their tax advisors to explore the potential value of the tax incentives and grants.  

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