SB 692 — Income tax, state; pass-through entities, elective tax.

SESSION ENROLLED VIRGINIA ACTS OF ASSEMBLY ––-- 2022 SESSION CHAPTER E689 An Act to amend and reenact §§ 58.1-332, 58.1-390.1, and 58.1-390.2 of the Code of Virginia and to pass-throughamend entities.iniathe Code of Virginia by adding a section numbered 58.1-390.3, relating to income taxatRon;taxation;

Opass-through [Sentities. 692] L Approved L Be it enacted by the General Assembly of Virginia:

E[S 1.692] Approved April 11, 2022 Be it enacted by the General Assembly of Virginia:

That1. §§ 58.1-332, 58.1-390.1, and 58.1-390.2 of the Code of Virginia are amended and reenactDd and§ 58.1-332.

CreditsThat for§§ taxes58.1-332, paid58.1-390.1, otherand states.a58.1-390.2 of the Code of Virginia are amended and reenacted and that the Code of Virginia is amended by adding a section numbered 58.1-390.3 as follows:

§ 58.1-332.

Credits for taxes paid other states.

Whenever a Virginia resident has become liable to another state for income tax on any earned or business income or any gain on the sale of a capital asset (within the meaning of § 1221 of the Internal Revenue Code), not including an asset used in a trade or business, to the extent that such gain is included in federal adjusted gross income, for the taxable year, derived from sources outside thethes Commonwealth and subject to taxation under this chapter, the amount of such tax payable by him shall, upon proof of such payment, be credited on the taxpayer's return with the income tax so paid toBtheto the other state.

9However, no franchise tax, license tax, excise tax, unincorporated business tax, occupation tax or any tax characterized as such by the taxing jurisdiction, although applied to earned or business inEome,income, shall qualify for a credit under this section, nor shall any tax which, if characterized as an income tax or a commuter tax, would be illegal and unauthorized under such other state's controlling or enabling legislation qualify for a credit under this section.

(i) such proportion of the income tax otherwise payable by him under this chapter as his income upon which the tax imposed by the other state was computed bears to his Virginia taxable income upon which the tax imposed by this Commonwealth was computed or (ii) the income tax otherwise payable under this chapter in the event that the income upon which the tax imposed by the other state is computed is less than the Virginia taxable income upon which the tax imposed by this Commonwealth is computed and all income derivediaderived from sources outside the Commonwealth and subject to taxation under this chapter is earned income or business income reported on federal form Schedule C from a single state contiguous to Virginia.

Whenever a nonresident individual of this Commonwealth has become liable to the state where he resides for income tax upon his Virginia taxable income for the taxable year, derived from Virginia sources and subject to taxation under this chapter, the amount of such tax payable under this chapter shall be credited with such proportion of the tax so payable by him to the state where he resides, upon proof of such payment, as his income subject to taxation under this chapter bears to his entire income upon which the tax so payable to such other state was imposed.

businessC. corporation (S corporation) shall be deemed to have been paid by its individual shareholders in proportion to their ownership of the stock of such corporation.

1.

For purposes of this section, the amount of any state income tax paid by an electing small business corporation (S corporation) shall be deemed to have been paid by its individual shareholders in proportion to their ownership of the stock of such corporation.

The following words and terms, when used in this article, shall have the following meanings unless the"Owner"the meanscontext anyclearly individualindicates orotherwise: entity who is treated as a partner, member, or shareholder of a pass-through entity for federal income tax purposes.

of"Owner" 2 "Pass-through entity" means any entity,individual including a limited partnership, a limited liability partnership, a general partnership, a limited liability company, a professional limited liability company, a business trust, or aentity Subchapterwho S corporation, that is recognizedtreated as a separatepartner, entitymember, for federal income tax purposes, in which the partners, members, or shareholdersshareholder report their share of thea income,pass-through gains, losses, deductions, and credits from the entity onfor their federal income tax returnspurposes. or make the election and pay the tax levied pursuant to § 58.1-390.3.

"Pass-through entity" means any entity, including a limited partnership, a limited liability partnership, a general partnership, a limited liability company, a professional limited liability company, a business of 2 trust, or a Subchapter S corporation, that is recognized as a separate entity for federal income tax purposes, in which the partners, members, or shareholders report their share of the income, gains, losses, deductions, and credits from the entity on their federal income tax returns or make the election and pay the tax levied pursuant to § 58.1-390.3.

If any qualifying pass-through entity makes an election pursuant to this section, the Department shall assess and collect tax, interest, and penalties as if such tax is a corporate income tax imposed pursuant to the provisions of Article 10 (§ 58.1-58.1-400 400 et seq.).