The Virginia Department of Taxation recently released guidelines regarding the Commonwealth’s modification to the corporate income tax apportionment formula for manufacturing companies.
In Virginia, a “manufacturing company” includes corporations within or without Virginia that engage in activities involving the production of software. Software companies involved in the licensing of software products may be able to modify their Virginia income tax apportionment formula to create tax savings. The tax savings effect should especially benefit those companies that have the majority of their activities in Virginia while conducting sales to customers in multiple states.
Currently, multistate manufacturing companies are allowed to apportion income using the three-factor apportionment formula consisting of double-weighted sales, payroll, and property. Companies may also elect to use a modified apportionment method based on sales. For modified apportionment, the single sales factor method is being phased in over a three-year period, and qualifying companies currently[MC1] use a triple-weighted sales factor[mc2] . For taxable years beginning on or after July 1, 2013, until July 1, 2014, qualifying corporations will use a quadruple-weighted sales factor. Thereafter, qualifying corporations will use the single sales factor method to apportion Virginia taxable income.
If you have any questions regarding the Virginia corporate income tax apportionment for software companies, feel free to contact Michael Cho at email@example.com or 202.480.2709.
Berkeley Research Group, LLC is not a CPA firm and does not provide audit, attest, or public accounting services. BRG is not a law firm and does not provide legal advice.
The views expressed in this article are those of the authors and do not necessarily reflect the position or policy of Berkeley Research Group, LLC.
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