23 Va. Admin. Code § 10-120-84

Current through Register Vol. 40, No. 22, June 17, 2024

Section 23VAC10-120-84 - Telecommunications companies; corporation income tax

A. Generally. With the exception of the differences set forth in these regulations, a telecommunications company shall compute its Virginia taxable income and corporation income tax in accordance with the requirements applicable to corporations generally.

B. Business entirely within Virginia.

1. Generally. For purposes of determining if the entire business of a telecommunications company is conducted within Virginia, the provisions of § 58.1-405 of the Code of Virginia and 23VAC10-120-120 shall be applicable.

2. Computation of income tax. If under the provisions of subdivision 1 of this section, it is determined that the entire business of a telecommunications company is conducted within Virginia, the tax imposed by § 58.1-400 of the Code of Virginia shall be upon the entire Virginia taxable income.

C. Allocation and apportionment.

1. Generally. The Virginia taxable income of a telecommunications company which is subject to taxation both within and without Virginia, as defined in § 58.1-405 of the Code of Virginia and 23VAC10-120-120, shall be allocated and apportioned its Virginia taxable income as provided in §§ 58.1-407 through 58.1-416 of the Code of Virginia and regulations adopted pursuant to these sections and subject to the special requirements set forth below.

2. When sales are deemed to be made in Virginia. In determining when a sale, other than a sale of tangible personal property, occurs in Virginia, the location of the income producing activity must be determined. (§ 58.1-416 of the Code of Virginia and 23VAC10-120-230.)

For purposes of this chapter, the income producing activity is presumed to occur in Virginia for any services or charges billed to a Virginia service address, except that with respect to charges for interstate communications services, more income producing activity will be presumed to occur in Virginia than in any other state if both:

a. Communications either originate or terminate within Virginia; and

b. The charge for the communication is billed to a service address within Virginia.

3. Computation of income tax. The corporation income tax of a telecommunications company subject to taxation both within and without Virginia shall be computed in the same manner as any other corporation subject to taxation both within and without Virginia.

D. Net operating loss modifications. In addition to the modifications applicable to corporations generally, telecommunications companies are required to make the following modifications to federal taxable income in the computation of Virginia taxable income:

1. Addition for net operating loss deduction. If federal taxable income for any taxable year has been reduced by a net operating loss deduction (NOLD) attributable to a net operating loss incurred in a taxable year beginning before January 1, 1989, then such NOLD must be added to federal taxable income.

2. Subtraction for net operating loss deduction. Because federal law required a NOLD to be carried back to the earliest year in which there is income to be offset, a telecommunications company incurring a net operating loss in a taxable year beginning on or after January 1, 1989, might be required to carry such loss back to taxable years beginning before January 1, 1989. Since a telecommunications company was not subject to Virginia income tax for years beginning before January 1, 1989, it would receive no Virginia benefit from such carryback, and the NOLD for other taxable years would be reduced or eliminated by the required federal carryback.

In this situation, telecommunications companies must add back the NOLD actually allowed on their federal returns for taxable years beginning before January 1, 1989, which is attributable to a loss occurring in a taxable year beginning on or after January 1, 1989. A new NOLD is computed for Virginia purposes following the federal law and regulations except that no such loss is carried back to a taxable year beginning before January 1, 1989.

EXAMPLE 1: XYZ Co. is a telecommunications company reporting on a calendar year basis. For the years 1986 - 1992 XYZ Co. had no additions or subtractions to federal taxable income except for an adjustment for net operating loss deductions. The income of XYZ is as follows:

Federal taxable 1985 1986 1987 1988 1989

income before

NOLD 50,000 50,000 25,000 (150,000) 75,000

NOLD (50,000) (50,000) (25,000) - (25,000)

Federal taxable

income -0- -0- -0- -0- 50,000

Virginia NOL

adjustment 25,000

Virginia taxable

income (Virginia income tax not imposed) 75,000

Under federal law the 1988 net operating loss is first carried back to offset 1985, 1986 and 1987 income. There would be $25,000 of the NOL remaining to be carried forward and deducted on XYZ Co.'s 1989 federal return. Because the loss occurred in a taxable year beginning before January 1, 1989, the NOLD on the 1989 return must be added to federal taxable income to determine Virginia taxable income.

EXAMPLE 2: Same facts as Example 1 except that the loss occurred in 1990. The income of XYZ Co. is as follows:

Federal taxable 1987 1988 1989 1990 1991

income before

NOLD 25,000 25,000 75,000 (100,000) 75,000

NOLD (25,000) (25,000) (50,000) - -0¢

Federal taxable

income -0- -0- 25,000 -0- 75,000

Virginia NOL +50,000

adjustment (Virginia income) (75,000) (25,000)

Virginia taxable

income (Tax not imposed) -0- -0- 50,000

Under federal law the 1990 net operating loss is first carried back to offset 1987 and 1988 income, The remaining $50,000 NOL is carried back to the 1989 federal return.

Because the loss occurred in a taxable year beginning on and after January 1, 1989, the entire NOL will be available to offset Virginia income reported in taxable years beginning on and after January 1, 1989. The federal NOLD of $50,000 is first added to the 1989 federal taxable income and then a new Virginia NOL carryback is computed and subtracted. The federal laws and regulations are followed except that no NOL shall be carried back further than 1989. The result is that the carryback to 1989 is $75,000 instead of $50,000and there is still $25,000 of the NOL left to carryover to the 1991 return.

3. In addition to the above modifications, since the carryback of a NOLD results in a change in federal taxable income, the minimum tax and corporate income tax must be recomputed to determine which tax is applicable to the telecommunications company. See 23VAC10-120-82 B.

23 Va. Admin. Code § 10-120-84

Derived from VR630-3-400.1 § 5, eff. January 3, 1990.

Statutory Authority

§§ 58.1-203 and 58.1-400.1 of the Code of Virginia.