VA P.D. 10-99 Income Tax 2010-06-10

How did Virginia's move to January 22, 2010 federal conformity affect the domestic production deduction and earned-income credit for tax year 2010?

Short answer: For tax year 2010, Virginia advanced its Internal Revenue Code conformity date to January 22, 2010 but kept two specific differences. Virginia allowed only two-thirds of the federal IRC § 199 domestic production deduction, preserving the equivalent of a 6% qualifying-income deduction rather than the federal 9%. It also did not conform to the federal earned-income-tax-credit increase in IRC § 32(b)(3).

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This page answers the general question as of 2010. Ezel answers yours, under current Virginia tax law, with citations.

Disclaimer: This is a Virginia Department of Taxation bulletin providing general historical guidance for tax year 2010, not a taxpayer-specific ruling. Its January 22, 2010 conformity date, deduction fraction, federal-law references, and filing treatment are period-specific and have since changed. Use the law, forms, and Department guidance for the tax year being filed. This summary is informational only and is not legal or tax advice.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

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Subject

Important Information Regarding Virginia Fixed Date Conformity

Plain-English summary

Virginia advanced its fixed Internal Revenue Code conformity date from December 31, 2008 to January 22, 2010, but retained two differences for tax year 2010. The bulletin supplemented Tax Bulletin 10-4 and addressed only changes affecting 2010 returns.

First, Virginia did not allow the full 9% federal domestic production deduction under IRC § 199. Instead, it allowed two-thirds of the federal deduction, equivalent to the 6% qualifying-income deduction used for 2007 through 2009.

Second, Virginia did not conform for 2010 to the federal increase in the earned income tax credit under IRC § 32(b)(3). The bulletin said that provision would be reviewed in the next annual conformity process.

What this means for you

This bulletin applies to historical tax year 2010 treatment, not current returns.
Federal deductions did not automatically flow through when Virginia expressly deconformed.
For IRC § 199, the Virginia deduction was two-thirds of the federal amount for 2010.
The federal earned-income-credit increase did not apply for Virginia purposes under this bulletin.
Tax Bulletin 10-4 remained the referenced source for changes affecting tax year 2009.

Common questions

What was Virginia's new conformity date?

January 22, 2010.

Did Virginia allow the full federal domestic production deduction?

No. It allowed two-thirds of the federal deduction for 2010.

Did Virginia adopt the increased federal earned-income credit?

No, not for tax year 2010 under this bulletin.

Citations and references

House Bill 30, 2010 Va. Acts ch. 874.
IRC §§ 199 and 32(b)(3).
Virginia Tax Bulletin 10-4, P.D. 10-24.

Source

Landing page: Virginia Laws, Rules & Decisions
Tax Bulletin: P.D. 10-99

Original ruling text

TAX BULLETIN
Virginia Department of Taxation

June 10, 2010

IMPORTANT INFORMATION REGARDING

VIRGINIA FIXED-DATE CONFORMITY

ADDITIONAL INFORMATION REGARDING THE ADVANCEMENT OF VIRGINIA’S DATE OF CONFORMITY TO JANUARY 22, 2010

Under legislation (House Bill 30; Chapter 874 of the 2010 Acts of Assembly) approved by the 2010 General Assembly, Virginia’s fixed-date of conformity to the terms of the Internal Revenue Code will advance from December 31, 2008, to January 22, 2010. This notice is intended to supplement Tax Bulletin 10-4 (Public Document 10-24, 3/30/2010) and to provide taxpayers with additional information regarding the changes made by this legislation.

This notice only addresses changes affecting taxable year 2010. For information about changes affecting taxable year 2009, refer to Tax Bulletin 10-4.

Domestic Production Deduction

The federal domestic production deduction is equal to 3% of qualified production activities income of the taxpayer in tax years 2005 and 2006, 6% in 2007 through 2009, and 9% in 2010 and thereafter. If taxable income is less than this amount, then the federal deduction is equal to taxable income. Additionally, the federal deduction is limited to 50% of the W-2 wages paid by the taxpayer for that taxable year. Virginia conformed to this provision in 2005.

Virginia will deconform from the domestic production deduction allowed under IRC § 199 for taxable years 2010 and thereafter. Instead of allowing this deduction to flow through, Virginia will allow a deduction equal to two-thirds of the federal deduction. This is equivalent to allowing a deduction of 6% of the qualifying income as has been the practice in the last three taxable years (2007 through 2009).

Other Changes Affecting Taxable Year 2010

For taxable years beginning on or after January 1, 2010, House Bill 30 deconforms from the increase in the federal earned income tax credit under IRC § 32(b)(3). This specific provision will be reviewed in conjunction with the annual process of determining conformity to other federal changes affecting Taxable Year 2010.

Further Information

For further information regarding how to reconcile this legislation on the 2009 Virginia income tax return, please see Tax Bulletin 10-4, which is available in the Tax Policy Library on our website at http://www.tax.virginia.gov . If you have any additional questions, contact us at (804) 367-8031 for individual income tax questions or (804) 367-8037 for corporate income tax questions.

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