Wednesday, March 31, 2010

Tax Conformity Included in State Budget

It's been a long road for tax conformity this year, and it's not quite over.

The 2010–2012 state budget was amended to include several changes to tax conformity.

If the budget is passed, these changes will amend and reenact § 58.1-301 of the Code of Virginia. The proposal advances the fixed date of conformity with the Internal Revenue Code (IRC) from December 31, 2008 to January 22, 2010, with the following exceptions (new exceptions italicized):
  • Special depreciation allowances under §§ 168(k), 168(l), 168 (m), 1400L and 1400N of the IRC
  • Carry-back of net operating losses (NOLs) for five years under § 172(b)(1)(H) of the IRC
  • Original issue discount on applicable high yield discount obligations under § 163 (e)(5)(F) of the IRC
  • Cancellation of debt income deferral under § 108(i) of the IRC
    • Allows for cancellation of debt income deferral for debt refinancings in TY 2009 only, but spreads deferral of three years
  • Amount of the deduction allowed for domestic production activities under § 199 of the IRC for tax years beginning on or after January 1, 2010 through a phase-out of the deduction as follows:
    • Two-thirds of the federal deduction for tax year 2010
    • One-third of the federal deduction for tax years 2011 and 2012
    • One-sixth of the federal deduction for tax year 2013
    • No deduction in 2014 and beyond
  • Earned Income Tax Credit (§ 32(b)(3)) for tax years beginning on or after January 1, 2010 — i.e. allowed for 2009
  • Deduction for qualified motor vehicle sales taxes under § 164(a)(6) for tax years beginning on or after January 1, 2010 — i.e. allowed for 2009
Thus far, 20 states have already deconformed with § 199, so Virginia would not be alone if this provision is passed. Additionally, conforming through January 22, 2010, allows taxpayers to take advantage of tax deductions on their 2009 returns for contributions to Haiti made in the early part of 2010.

Gov. Bob McDonnell has not yet signed the budget, which means conformity is not finalized. Stay tuned to for updates. Also, check out the Virginia Department of Taxation's recent bulletin on tax conformity.


  1. What is status of Section 179 depreciation as of 04/26/2010?

  2. Since the American Reinvestment & Recovery Act made changes to Section 179, we are not in conformity with that section as of April 26, 2010. However, once the Governor signs the budget bill, Virginia will conform with Section 179.


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