Virginia's Response to Bonus Depreciation

Virginia's Response to Bonus Depreciation

STT, 3/5/03

Virginia Gov. Mark Warner (D) has signed legislation (HB 2455) that "selectively deconforms" the state tax code from provisions of the Internal Revenue Code and advances fixed-date conformity from December 31, 2001, to December 31, 2002. Introduced by House Finance Committee Chair Harry Parrish (R), HB 2455 passed the House 98 to 1 and the Senate 39 to 0. Del. Albert Pollard (D) voted against the bill, while Del. Robert Bell (R) and Sen. Harry Blevins (R) did not vote in their respective chambers. (For the full text of HB 2455, see Doc 2003-2123 (1 original page) or 2003 STT 18-20.) The commonwealth will not comply with federal income tax legislation on the special 30 percent bonus depreciation and the five-year net operating loss carryback. The Department of Taxation estimated that HB 2455 would increase general fund revenues by $8.93 million in fiscal 2003 and $2.36 million in fiscal 2004, but would reduce them by $4.4 million in fiscal 2005.

The "Job Creation and Worker Assistance Act of 2002," enacted by Congress last year, contained both the bonus depreciation and the five-year net operating loss carryback. The tax department said Virginia income taxpayers "would not suffer an economic loss" if the state did not comply with these provisions. The department indicated that on the bonus depreciation question, there would be "an adjustment based on the difference between their federal depreciation and their recomputed depreciation for Virginia purposes." On the net operating loss carryback, the department recommended that taxpayers "carry back their losses for 2 years and then carry the remaining loss forward," similar to the practices of many corporations.

RIA, 2/20/03

Virginia Advances IRC Conformity Date Allowing Newly-Enacted Federal Tax Relief Except Bonus Depreciation and 5-year NOL Carryback

Virginia has enacted emergency legislation (H2455) that advances the Internal Revenue Code conformity date from December 31, 2001 to December 31, 2002. This change is effective for tax years beginning on and after January 1, 2001, and thus allows Virginia taxpayers to take immediate advantage of federal tax changes such as the Victims of Terrorism Tax Relief Act of 2001, the Job Creation and Worker Assistance Act of 2002, and the deduction for educator expenses. However, the special 30% bonus depreciation and the 5-year net operating loss carryback enacted under the JCWA are not included in this change.

( L. 2003, H2455 (c. 2), eff. as stated; Virginia Tax Bulletin 03-01, 2/18/2003 ; Virginia Tax Bulletin 03-02, 2/18/2003 .)

STT, 2/5/03

The Virginia Senate and House have passed bills -- the Senate approved SB 1049 and both houses have passed HB 2455 -- that would selectively "deconform" Virginia's tax code from the Internal Revenue Code on bonus depreciation and net operating losses.

On January 27, the Virginia Senate approved 39 to 0 legislation (SB 1049) that would selectively "deconform" Virginia's tax code from the Internal Revenue Code. The bill is expected to earn passage in the House and the signature of Gov. Mark Warner (D).

Sponsored by Sen. Emmett Hanger (R), the bill would advance the date of conformity to the IRC from December 31, 2001, to December 31, 2002. SB 1049 specifies, however, that the commonwealth would not conform to the federal code in two areas: the special 30 percent bonus depreciation and the five-year net operating loss carryback for certain losses under the Job Creation and Workers Assistance Act of 2002. The House is expected to pass the bill.
A similar bill, HB 2455, sponsored by House Finance Committee Chair Harry Parrish (R), was approved 98 to 1 in the House on January 23 and 39 to 0 in the Senate on January 30. Del. Albert Pollard (D) was the only negative vote on HB 2455 in the House. Del. Robert Bell (R) did not vote. (For the full text of HB 2455, see Doc 2003-2123 (1 original page) [PDF] or 2003 STT 18-20 .)

The idea for such legislation was conceived by Warner and the Department of Taxation. The department advises taxpayers who claim the bonus depreciation on their federal income tax returns to calculate the depreciation for each qualifying asset on their Virginia returns "under the federal depreciation rules that existed prior to the enactment of the bonus depreciation provision." It said such taxpayers should then make "an adjustment based on the differences between their federal depreciation and their recomputed depreciation for Virginia purposes." (For coverage of Warner's budget proposal, including a recommendation to decouple on depreciation, see State Tax Notes, Dec 30, 2002, p. 902; 2002 STT 247-20 ; or Doc 2002-27958 (2 original pages) [PDF].)

Because conformity would be moved to December 31, 2002, Virginia taxpayers would receive benefits from the Victims of Terrorism Relief Act of 2001. The act provides income tax and estate tax relief to the victims and families of the Oklahoma City bombing on April 19, 1995, and the September 11, 2001, terrorist attacks.

The tax department has estimated that SB 1049 would increase general fund revenues in fiscal 2003 by $8.93 million and $2.36 million in fiscal 2004 but would reduce the fund by $4.4 million in fiscal 2005.