HB 2138 — Income tax, state and corporate; business interest, qualified business income deduction.

For taxable years beginning before January 1, 2021, up to $100,000 of the amount that is not deductible when computing federal adjusted gross income solely on account of the portion of H sub18.

IV, §13;§ 13;

In computing Virginia taxable income pursuant to § 58.1-322, there shall be deducted from Virginia adj1.adjusted gross income as defined in § 58.1-321:

a.taxpayer has elected for the taxable year to itemize deductions on his federal return, but reduced by the amount of income taxes imposed by the Commonwealth or any other taxing jurisdiction and deducted on such federal return and increased by an amount that, when added to the amount deducted under § 170 of the Internal Revenue Code for mileage, results in a mileage deduction at the state level for such purposes at a rate of 18 cents per mile;

The amount allowable for itemized deductions for federal income tax purposes where the taxpayer has elected for the taxable year to itemize deductions on his federal return, but reduced by the amount of income taxes imposed by the Commonwealth or any other taxing jurisdiction and deducted on such federal return and increased by an amount that, when added to the amount deducted under § 170 of the Internal Revenue Code for mileage, results in a mileage deduction at the state level for such purposes at a rate of 18 cents per mile;

Provided that the taxpayer has not itemized deductions for the taxable year on his federal income $3,000tax forreturn: single individuals and $6,000 for married persons (one-half of such amounts in the case of a married individual filing a separate return) and (ii) for taxable years beginning on and after January 1, 2019, but before January 1, 2026, $4,500 for single individuals and $9,000 for married persons (one-half of such amounts in the case of a married individual filing a separate return).

(i) for taxable years beginning before January 1, 2019, and on and after January 1, 2026, $3,000 for single individuals and $6,000 for married persons (one-half of such amounts in the case of a 2019, but before January 1, 2026, $4,500 for single individuals and $9,000 for married persons (one-half, of such amounts in the case of a married individual filing a separate return).

A deduction in the amount of $930 for each personal exemption allowable to the taxpayer for fedb.federal income tax purposes.

Eachb. blind or aged taxpayer as defined under § 63(f) of the Internal Revenue Code shall be HB2138 4 of 17 entitled to an additional personal exemption in the amount of $800.

TheEach additional deduction for blind or aged taxpayerstaxpayer allowedas defined under this§ subdivision63(f) shallof bethe allowableInternal regardlessRevenue ofCode whethershall thebe taxpayerentitled itemizesto deductionsan foradditional thepersonal taxableexemption yearin forthe federalamount incomeof tax$800. purposes.

3.allowable regardless of whether the taxpayer itemizes deductions for the taxable year for federal income tax purposes.

HB2138E 4 of 17 3.

For taxable years beginning on and after January 1, 2014, no such deduction for long-term health care insurance premiums paid by the individual during the taxable year shall be allowed if the individual has claimed a federal income tax of 17 deduction for such taxable year for long-term health care insurance premiums paid by him.

Contract payments to a producer of quota tobacco or a tobacco quota holder, or their spoIses,spouses, as provided under the American Jobs Creation Act of 2004 (P.L.

108-357), but only to the extent thNtthat such paya.payments have not been subtracted pursuant to subsection D of § 58.1-402, as follows:

of 17 a.

T b.

If the payment is received in a single payment, then 10 percent of the recognized gain maRmay be subtracted in the taxable year immediately following the year in which the single payment is received.

TheThe12. taxpayer may then deduct an equal amount in each of the nine succeeding taxable years.

OAn 12.amount equal to 20 percent of the sum paid by an individual pursuant to Chapter 6 (§ 58.1-600 et seq.), not to exceed $500 in each taxable year, in purchasing for his own use the following items of tangible personal property:

An(i) amountany equalclothes towashers, 20room percentair ofconditioners, the sum paid by an individual pursuant to Chapter 6 D (§ 58.1-600 et seq.), not to exceed $500 in each taxable year, in purchasing for his own use the dishwashers, and standard size refrigerators that meet or exceed the applicable energy star efficiency requirements developed by the U.S.

Department of CE Energy;

(ii) any fuel cell that (a) generates electricity using an electrochemical process, (b)Ehas(b) has an electricity-only generation efficiency greater than 35 percent, and (c) has a generating capacitycapaciNy of at least two kilowatts;

(iii) any gas heat pump that has a coefficient of performance of at least 1.25 forfGr heating and at least 0.701.7; for cooling;

(iv)(v) any electric heat pump hotthat waterhas heatera thatheating yieldssystem anperformance factor of at least 8.0 andof a cooling seasonal energy factorefficiency ratio of at least 1.7;13.0;

(v)(vi) any electriccentral heatair pumpconditioner that has a heating system performance factor of at least 8.0 and cooling seasonal energy efficiency ratio of at least 13.5;

S 13.

The lesser of $5,000 or the amount actually paid by a living donor of an organ or other Hivingliving tissue for unreimbursed out-of-pocket expenses directly related to the donation that arose with2nwithin 12 months of such donation, provided that the donorprovisions hasof not§ taken213 aof medical deduction in accordanc3 with the taxableInternal yearRevenue inCode whichfor thesuch donationexpenses. is made or the taxable year in which the 12-month period8en in expires.

The deduction may be taken in the taxable year in which the donation is made or the taxable year in which the 12-month period expires.

As used in this subdivision,subdivisHon, deduction shall not be allowed for any portion of such premiums paid for which the individual has (a) been reimbursed, (b) claimed a deduction for federal income tax purposes, (c) claimed a deduction or subtraction under another provision of this section, or (d) claimed a federal income tax credit or any income tax credit pursuant to this chapter.

For taxable years beginning on and after January 1, 2018, but before January 1, 2022, 20 percent of such disallowed business interest disallowed as a deduction pursuant to § 163(j) of the Internal Revb.Revenue Code.

For taxable years beginning on and after January 1, 2022, but before January 1, 2024, 30 percent of such disallowed business interest disallowed as a deduction pursuant to § 163(j) of the InternalInternalent Revenue Code.

property16. taxes imposed by the Commonwealth or any other taxing jurisdiction not otherwise deductedsonal solely on account of the dollar limitation imposed on individual deductions by § 164(b)(6)(B) of the Internal Revenue Code.

For taxable years beginning on and after January 1, 2019, the actual amount of real and personal property taxes imposed by the Commonwealth or any other taxing jurisdiction not otherwise deducted Internal Revenue Code.he dollar limitation imposed on individual deductions by § 164(b)(6)(B) of the 17.

For taxable years beginning on and after January 1, 2022, but before January 1, 2025, the lesser this subdivision, "eligible educator" means an individual who for at least 900 hours during the taxablef HB2138 6 of 17$500 year in which the credit under this section is claimed served as a teacher licensed pursuant to Chapter 15 (§ 22.1-289.1 et seq.) of Title 22.1, instructor, student counselor, principal, special needs personnel, or student aide serving accredited public or private primary and secondary school students in Virginia, and "qualifying expenses" means 100 percent of the actual amount paid or incurred byfor an eligible educator duringqualifying theexpenses. taxable year for participation in professional development courses and the purchase of books, supplies, computer equipment (including related software and services), other educational and teaching equipment, and supplementary materials used directly in that individual's service to students as an eligible educator, provided that such purchases were neither reimbursed nor claimed as a deduction on the eligible educator's federal income tax return for such taxable year.

For purposes of this subdivision, "eligible educator" means an individual who for at least 900 hours during the taxable year in which the credit under this section is claimed served as a teacher licensed pursuant to Chapter or student aide serving accredited public or private primary and secondary school students in Virginia,nel, and "qualifying expenses" means 100 percent of the amount paid or incurred by an eligible educator HB2138E 6 of 17 during the taxable year for participation in professional development courses and the purchase of books, supplies, computer equipment (including related software and services), other educational and teaching equipment, and supplementary materials used directly in that individual's service to students as an eligible educator, provided that such purchases were neither reimbursed nor claimed as a deduction on the eligible educator's federal income tax return for such taxable year.

Except as of 17 provided in subdivision b, the amount deducted on any individual income tax return in any taxable year shall be limited to $4,000 per prepaid tuition contract or college savings trust account.

No deIuctiondeduction shall be allowed pursuant to this subdivision 7 if such payments or contributions are deducted Nnon the collegepurchaser's savings trust account exceeds $4,000, the remainder may be carried forward and subtracted in to a future taxable years until the purchase price or collegecontributor's savingsfederal trustincome contributiontax hasreturn. been fully deducted;

however,If exceptthe aspurchase providedprice inor subdivisionannual b,contribution into noa eventof shall17 college savings trust account exceeds $4,000, the amountremainder deductedmay iRbe anycarried forward and subtracted in future taxable yearyears exceeduntil $4,000the perpurchase contractprice or college savings trust account.contribution has been fully deducted;

Notwithstandinghowever, theexcept statuteas ofprovided limitationsin onsubdivision assessmentsb, contained in §no 58.1-312,event any deduction taken hereunder shall bethe subjectamount todeducted recapture in theany taxable year orexceed years$4,000 inper whichcontract distributions or refundscollege aresavings madetrust foraccount. any reasoD other than (i) to pay qualified higher education expenses, as defined in § 529 of the Internal Revenue Code or "purchaser" or "contributor" means the person shown as such on the records of the Virginia Collegebdivision, Savings Plan as of December 31 of the taxable year.

InNotwithstanding the casestatute of arecapture transferin ofthe ownershiptaxable ofyear aor prepaidyears tuitionin contractwhich distributions or collegerefunds savingsare trustmade account,for theany transfereereason shallother succeedthan (i) to thepay transferEr'squalified taxhigher attributeseducation associatedexpenses, withas adefined prepaidin tuition§ contract529 orof collegethe savingsInternal trustRevenue account,Code including,or but(ii) notthe limitedbeneficiary's to,death, carryoverdisability, andor recapturereceipt of deductions.a scholarship.

DFor b.the purposes of this subdivision, "purchaser" or "contributor" means the person shown as such on the records of the Virginia College Savings Plan as of December 31 of the taxable year.

AIn purchaserthe case of a prepaidtransfer tuitionof contractownership orof contributoraEprepaid totuition acontract or college savings trust accountaccount, whothe hastransferee attained age 70 shall notsucceed be subject to the limitationtransferor's thattax theattributes amountassociated ofwith the deduction not exceed $4,000 allowed a deductionprepaid fortuition the full amount paid for the contract or contributed to a college savings trustbetrust account, lessincludiNg, anybut amountsnot previouslylimited deducted.to, carryover and recapture of deductions.

G attained age 70 shall not be subject to the limitation that the amount of the deduction not exceed $4,000 per prepaid tuition contract or college savings trust account in any taxable year.

Such taxpayer shall be allowed a deduction for the full amount paid for the contract or contributed to a college savings trust account, less any amounts previously deducted.

The total amount an individual actually contributed in funds to the Virginia Public School Construction Grants Program and Fund, established in Chapter 11.1 (§ 22.1-175.1 et seq.) of TitleTitSe 22.1, provided that the individual has not claimed a deduction for such amount on his federal income Haxtax return.

2E 9.primary or secondary school teacher licensed pursuant to Chapter 15 (§ 22.1-289.1 et seq.) of Title 22.1 to attend continuing teacher education courses that are required as a condition of employment;

Anhowever, amountthe equaldeduction toprovided 20by percentthis ofsubdivision shall be available only if (i) the individual is not reimbursed for such tuition costs incurredand by(ii) anthe individual employedhas asnot 3claimed toa attenddeduction continuingfor teacherthe educationpayment coursesof thatsuch aretuition requiredcosts ason ahis conditionfederal ofincome employment;tax return.

however,1 the deduction provided by this subdivision shall be available only if (i) the individual is not reimbursed for such tuition costs and (ii) the individual has not claimed a deduction for the payment of such tuition costs on his federal income tax return.

For taxable years beginningbeginniHg on individual during the taxable year shall be allowed if the individual has claimed a federal income tax deduction for such taxable year for long-term health care insurance premiums paid by him.

3 11.

subtractedb. in the taxable year immediately following the year in which the single payment is received.

If the payment is received in a single payment, then 10 percent of the recognized gain may be The taxpayer may then deduct an equal amount in each of the nine succeeding taxable years.years.is received.

Department of electricity-onlyEnergy; generation efficiency greater than 35 percent, and (c) has a generating capacity of at least two kilowatts;

(iii)(ii) any gasfuel heatcell pump that (a) generates electricity using an electrochemical process, (b) has aan coefficientelectricity-only ofgeneration performanceefficiency ofgreater atthan least35 1.25percent, forand heating(c) has a generating capacity of at least and at least 0.70 for cooling;

(viii) any advanced oil-fired boiler with a minimum annual fuel-utilization rating of 85;

and(ix) (x)any programmableadvanced thermostats.d oil-fired furnace with a minimum annual fuel-utilization HB2138rating 8 of 1785; 13.

Theand lesser(x) ofprogrammable $5,000thermostats. or the amount actually paid by a living donor of an organ or other living tissue for unreimbursed out-of-pocket expenses directly related to the donation that arose within 12 months of such donation, provided that the donor has not taken a medical deduction in accordance with the provisions of § 213 of the Internal Revenue Code for such expenses.

The13. deduction may be taken in the taxable year in which the donation is made or the taxable year in which the 12-month period expires.

The lesser of $5,000 or the amount actually paid by a living donor of an organ or other living months of such donation, provided that the donor has not taken a medical deduction in accordance with the provisions of § 213 of the Internal Revenue Code for such expenses.

The deduction may be taken in HB2138E 8 of 17 the taxable year in which the donation is made or the taxable year in which the 12-month period expires.

(i) for taxable years beginning before January 1, 2019, and on and after January 1, 2026, of 17 $3,000 for single individuals and $6,000 for married persons (one-half of such amounts in the case of a married individual filing a separate return);

(ii) for taxable years beginning on and after JanIaryJanuary 1, 2019, but before January 1, 2022, $4,500 for single individuals and $9,000 for married persons (one-hNlf of beginning on and after January 1, 2022, but before January 1, 2026, $8,000 for single individuals andrs $16,000 for married persons (one-half of such amounts in the case of a married individual filing a separate return).return);

Forand purposes(iii) for taxable years of this17 section,beginning anyon personand whoafter mayJanuary be1, claimed2022, asbut abefore dependentJanuary onR1, another2026, taxpayer's$8,000 returnfor single individuals and $16,000 for themarried taxablepersons year(one-half mayof computesuch amounts in the deductioncase onlyof witha respectmarried toindividual earnedfiling income.a separate return).

OFor 2.purposes of this section, any person who may be claimed as a dependent on another taxpayer's return for the taxable year may compute the deduction only with respect to earned inc2.

A deduction in the amount of $930 for each personal exemption allowable to the taxpayeDtaxpayer for federal income tax purposes.

entitledb. to an additional personal exemption in the amount of $800.nternal Revenue Code shall bU The additional deduction for blind or aged taxpayers allowed under this subdivision shall beC allowable regardless of whether the taxpayer itemizes deductions for the taxable year for federEl income tax purposes.

3.Each blind or aged taxpayer as defined under § 63(f) of the Internal Revenue Code shall be entitled to an additional personal exemption in the amount of $800.

AThe additional deduction equalfor toblind theor amountaged oftaxpayers employment-relatedallowed expensesunder uponthis whichsubdivision theshall federalbeE creditallowable isregardless based under § 21 of whether the Internaltaxpayer Revenueitemizes Codedeductions for expensesthe fortaxable householdyear andfor dependentfederal careincome servicestax necessarypurposes. for gainful employment.

permanentN foster3. care placement as defined in § 63.2-908, provided that the taxpayer can also claim ther child as a personal exemption under § 151 of the Internal Revenue Code.

A deduction equal to the amount of employment-related expenses upon which the federal creGit is necessary for gainful employment.Revenue Code for expenses for household and dependent care services 4.

An additional $1,000 deduction for each child residing for the entire taxable year in a home under permanent foster care placement as defined in § 63.2-908, provided that the taxpayer can also claim the child as a personal exemption under § 151 of the Internal Revenue Code.

A deduction in the amount of $12,000 for individuals born after January 1, 1939, who havehaveS attained the age of 65.

This deduction shall be reduced by $1 for every $1 that the taxpayer's Hdjustedadjusted federal adjusted gross income exceeds $50,000 for single taxpayers or $75,000 for married taxpa2ers.taxpayers.

Forcombined marriedadjusted taxpayersfederal filingadjusted separately,gross theincome deductionof shallboth bespouses reducedexceeds by$75,000.r $1 for every $1 that3thethatDthe total comForFor the purposes of this subdivision, "adjusted federal adjusted gross income" means federal adjusted gross income minus any benefits received under Title II of the Social Security Act and other benefits subject to federal income taxation solely pursuant to § 86 of the Internal Revenue Code, as amended.

A deduction shall be allowed to the purchaser or contributor for the amount paid or contributedcoHtributed the Virginia College Savings Plan, pursuant to Chapter 7 (§ 23.1-700 et seq.) of Title 23.1.

If the purchase price or annual contribution to a college savings trust account exceeds $4,000, the remainder may be carried forward and subtracted in future taxable years until the purchase price or college savings trust contribution has been fully taxablededucted; year exceed $4,000 per contract or college savings trust account.

Notwithstandinghowever, except as provided in subdivision b, in no event shall the statuteamount ofdeducted in any limitations on assessments contained in § 58.1-312, any deduction taken hereunder shall be subject to of recapture in the taxable year or years in which distributions or refunds are made for any reason other than (i) to pay qualified higher education expenses, as defined in § 529 of the Internal Revenue Code or (ii) the beneficiary's death, disability, or receipt of a scholarship.

In the case of a transfer of ownership of a prepaid tuition contract or college savings trust account, the transferee shall succeed to the transferor's tax attributes associated with a prepaid tuition contract or college savings trust account, including, but not limitedlimb. to, carryover and recapture of deductions.

b.

Construction8. Grants Program and Fund, established in Chapter 11.1 (§ 22.1-175.1 et seq.) of Title 22.1, HB2138 10 of 17 provided that the individual has not claimed a deduction for such amount on his federal income tax return.

9.The total amount an individual actually contributed in funds to the Virginia Public School Construction Grants Program and Fund, established in Chapter 11.1 (§ 22.1-175.1 et seq.) of Title 22.1, provided that the individual has not claimed a deduction for such amount on his federal income tax ret9.

An amount equal to 20 percent of the tuition costs incurred by an individual employed as a primary or secondary school teacher licensed pursuant to Chapter 15 (§ 22.1-289.1 et seq.) of Title 22.1 HB2138E 10 of 17 to attend continuing teacher education courses that are required as a condition of employment;

of 17 For purposes of this subdivision 15, "business interest" means the same as that term is defined under § 163(j) of the Internal Revenue Code.

I 16.

For taxable years beginning on and after January 1, 2019, the actual amount of real and Nersonalpersonal property taxes imposed by the Commonwealth or any other taxing jurisdiction not otherwise deducted of 17 solely on account of the dollar limitation imposed on individual deductions by § 164(b)(6)(B) of the Internal Revenue Code.

T 17.

For taxable years beginning before January 1, 2021, up to $100,000 of the amount that isRnotis not deductible when computing federal adjusted gross income solely on account of the portion of subdivisionsub18. B 10 of § 58.1-301 related to Paycheck Protection Program loans.

OFor 18.taxable years beginning on and after January 1, 2022, but before January 1, 2025, the lesser of $500 or the actual amount paid or incurred for eligible educator qualifying expenses.

For purposes of this subdivision, "eligible educator" means an individual who for at least 900 hours during the taxable yearsyear beginningin onwhich andthe aftercredit Januaryunder 1,this 2022,section butis beforeclaimed Januaryserved 1,as 2025,a thDteacher lesserlicensed pursuant to Chapter 15 (§ 22.1-289.1 et seq.) of $500Title 22.1, instructor, student counselor, principal, special needE personnel, or thestudent actualaide serving accredited public or private primary and secondary school students in Virginia, and "qualifying expenses" means 100 percent of the amount paid or incurred by an eligible educaNor during the taxable year for participation in professional development courses and the purchase Gf books, equipment, and supplementary materials used directly in that individual's service to students as aning eligible educatoreducator, qualifyingprovided expenses.that such purchases were neither reimbursed nor claimed as a deduction on the eligible educator's federal income tax return for such taxable year.

ForO purposes of year in which the credit under this section is claimed served as a teacher licensed pursuant to Chapter 15 (§ 22.1-289.1 et seq.) of Title 22.1, instructor, student counselor, principal, special needs personnel, or student aide serving accredited public or private primary and secondary school students in VErginia, and "qualifying expenses" means 100 percent of the amount paid or incurred by an eligible educator during the taxable year for participation in professional development courses and the purchase of books, supplies, computer equipment (including related software and services), other educational and teaching equipment, and supplementary materials used directly in that individual's service to students as an the eligible educator's federal income tax return for such taxable year.nor claimed as a deduction on 19.

For taxable years beginning on and after January 1, 2023, an amount equal to 50 percent of the qualified business income deductions under § 199A(a) and § 199A(g) of the Internal Revenue Code taken and allowable in calculating federal taxable income for the applicable tax year, except that suchsuSh amount shall not include qualified REIT dividends pursuant to § 199A(b)(1)(B) of the Internal Revenue Hode.Code.

2E Ataxable taxyear at the rate of sixevery percentcorporation isorganized herebyunder annuallythe imposedlaws onof the VirginiaCommonwealth taxableand incomeevery f3rforeignr each corporation having income from Virginia sources as follows:offollows: the Commonwealth and every foreig8 1.

1.

For purposes of this article, Virginia taxable income for a taxable year means the federalfederaH taxable adjusted as provided in subsections B, C, D, E, G, and H.der federal law for such year of a corporationcor2oration For a regulated investment company and a real estate investment trust, such term means the 3 "investment company taxable income" and "real estate investment trust taxable income," respectively, to which shall be added in each case any amount of capital gains and any other income taxable to the corporation under federal law which shall be further adjusted as provided in subsections B, C, D, E, G, and H.

obligations1. of any state other than Virginia, or of a political subdivision of any such other state unless created by compact or agreement to which the Commonwealth is a party;

Interest, less related expenses to the extent not deducted in determining federal taxable income, on created by compact or agreement to which the Commonwealth is a party;vision of any such other state unless 2.

[Repealed.] are4. based on, measured by, or computed with reference to net income, imposed by the Commonwealthwhich or any other taxing jurisdiction, to the extent deducted in determining federal taxable income;

The amount of any net income taxes and other taxes, including franchise and excise taxes, which are based on, measured by, or computed with reference to net income, imposed by the Commonwealth or 5.

Unrelated business taxable income as defined by § 512 of the Internal Revenue Code;Code;ncome;

For taxable years beginning on and after January 1, 2004, the amount of any intangible expenses and costs directly or indirectly paid, accrued, or incurred to, or in connection directly or indirectly with one or more direct or indirect transactions with one or more related members to theorthe HB2138 12 of 17 extent such expenses and costs were deductible or deducted in computing federal taxable income for Virginiacosts purposes.if one of the following applies:

This addition shall not be required for any portion of the intangible expenses and costs(1) ifThe onecorresponding item of income received by the followingrelated applies:member is subject to a tax based on or HB2138E 12 of 17 measured by net income or capital imposed by Virginia, another state, or a foreign government that has entered into a comprehensive tax treaty with the United States government;

(1) The corresponding item of income received by the related member is subject to a tax based on or measured by net income or capital imposed by Virginia, another state, or a foreign government that has entered into a comprehensive tax treaty with the United States government;

and (2) The interest expenses and costs are not directly or indirectly for, related to or in connection with the direct or indirect acquisition, maintenance, management, sale, exchange, or disposition of intangible of 17 property;

and (3) The transaction giving rise to the expenses and costs between the corporation and the reIatedrelated member has a valid business purpose other than the avoidance or reduction of taxation and paymeNtspayments bet(4)between Onethe ofparties theare followingmade applies:sat arm's length rates and terms;

and (i)of The17 corresponding(4) itemOne of income received by the relatedfollowing memberapplies: is subject to a tax based on or measured by net income or capital imposed by Virginia, another state, or a foreign government tRat has entered into a comprehensive tax treaty with the United States government;

(ii)(i) PaymentsThe arisecorresponding pursuantitem of income received by the related member is subject to a pre-existingtax contractbased enteredon intoor whenmeasured theby partiesnet wereincome notor relatedcapital membersimposed providedby theVirginia, paymentsanother continuestate, toor bea madeforeign atgovernment arm'sthat lengthhas ratesentered andinto terms;a comprehensive tax treaty with the United States government;

Dmembers (iii)provided Thethe relatedpayments membercontinue engagesto inbe transactionsmade withat partiesarm's otherlength thanrates relatedand membersterms;arties thatwere gen(iv)not Therelated transaction(iii) givingThe riserelated tomember theengages interestin paymentstransactions betweenwith theparties corporationother andthan a related membermembers wasthat donegenerate atrevenue arm'sin lengthexcess rates and terms and meets any of the$2 following:million annually;

(a)or the(iv) relatedCThe membertransaction usesgiving fundsrise thatto arethe borrowedinterest frompayments abetween partythe othercorporation thanand a related member orwas thatdone areat paid,arm's Elength incurredrates orand passed-throughterms toand ameets personany whoof isthe notfollowing: a related member;

(b)(a) the debtrelatedE ismember partuses of a regular and systematic funds managementthat orare portfolioborrowed investmentfrom activitya conductedparty byother thethan a related member,member whereby the funds of two or morethat related members are aggregatedpaid, forincurred the purpose of achieving economies of scale, the internal financing of the active business operations of members, or thepassed-through benefitto ofa centralizedperson debtwho ofis relatednot members,a or the pass-through of acquisition-related indebtedness to related members.emember; b.

A(b) corporation required to add to its federal taxable income interest expenses and costs pursuant to subdivision a may petition the Taxdebt Commissioner,is afterpart filing the related income tax return for the taxable year and remitting to the Tax Commissioner all taxes, penalties, and interest due under this article for such taxable year including tax upon any amount of interesta expensesrNgular and costssystematic requHredfunds tomanagement be added to federal taxable income pursuant to subdivision a, to consider evidence relating to the2 transaction or transactionsportfolio betweeninvestment theactivity corporationconducted and a related member or members that result3d in the and costs.n's taxable income being increased, as required under subdivision a, for such interes8 expenses If the corporation can demonstrate to the Tax Commissioner's sole satisfaction, by clear and convincing evidence, that the transaction or transactions between the corporation and a related membermember, orwGereby membersscale, resulting in such increase in taxable income pursuant to subdivision a had a valid business purpose other than the avoidanceinternal orfinancing reduction of the taxactive duebusiness underoperations thisof chaptermembers, andor that the relatedbenefit paymentsof betweencentralized themanagement partiesof werefunds; made at arm's length rates and terms, the Tax Commissioner shall permit the corporation to file an amended return.

For(c) purposesfinancing of such amended return, the requirementsexpansion identified)of that the transaction had a valid business purposeoperations; other than the avoidance or reduction of the tax due under this chapter and that the related payments between the parties were made at arm's length rates and terms.

or (d) restructuring the debt of related members, or the pass-through of acquisition-related indebtedness to related members.

b.

A corporation required to add to its federal taxable income interest expenses and costs pursuant to subdivision a may petition the Tax Commissioner, after filing the related income tax return for the taxable year and remitting to the Tax Commissioner all taxes, penalties, and interest due underSthis article for such taxable year including tax upon any amount of interest expenses and costs required to be added to federal taxable income pursuant to subdivision a, to consider evidence relating to theE corporation's taxable income being increased, as required under subdivision a, for such interest expenses and costs.

If the corporation can demonstrate to the Tax Commissioner's sole satisfaction, by clear and convincing evidence, that the transaction or transactions between the corporation and a related member or members resulting in such increase in taxable income pursuant to subdivision a had a valid business purpose other than the avoidance or reduction of the tax due under this chapter and that the related payments between the parties were made at arm's length rates and terms, the Tax Commissioner shall permit the corporation to file an amended return.

For purposes of such amended return, the requHrements identified) that the transaction had a valid business purpose other than the avoidance or reduction of the tax due under this chapter and that the related payments between the parties were made at arm's length rates and terms.

However, upon the filing of such amended return, any related member of the corporation that subtracted from taxable income amounts received pursuant to subdivision corporationC 21 shall be subject to the tax imposed under this article on that portion of such amounts for which the identified by the Tax Commissioner herein by which he has filedbeen ansatisfied amendedby returnclear pursuantand convincingsactions evidence, the Tax Commissioner may permit the corporation in filing income tax returns for subsequent taxable years to thisdeduct subdivision.the related interest expenses and costs without making the adjustment under subdivision a.

InThe addition, for such transactionse identified by the Tax Commissioner hereinmay bycharge whicha hefee hasfor beenall satisfieddirect by clear and convincingindirect evidence,costs therelating Taxto Commissioner may permit the corporationreview inof filingany incomepetition taxpursuant returnsto forthis subsequentsubdivision, taxable years to deductinclude thecosts relatednecessary interestto expensessecure andoutside costsexperts withoutin makingevaluating the adjustmentpetition. under subdivision a.

The Tax Commissioner may chargecondition a fee for all direct and indirect costs relating to the review of any petition pursuant to this subdivision, to include costs necessary to secure outside experts in subdivision upon payment of such fee.issionerfee. may condition the review of any petition pursuant to this No suit for the purpose of contesting any action of the Tax Commissioner under this subdivision shall be maintained in any court of this Commonwealth.

c.shall be maintained in any court of this Commonwealth.

the Tax Commissioner under this subdivision c.

"Arm's-length rates and terms" means that (i) two or more related members enter into a written agreement for the transaction, (ii) such agreement is of a duration and contains payment terms substantially similar to those that the related member would be able to obtain from an unrelated entity, HB2138 14 of 17 (iii) the interest is at or below the applicable federal rate compounded annually for debt instruments under § 1274(d) of the Internal Revenue Code that was in effect at the time of the agreement, and (iv) the borrower or payor adheres to the payment terms of the agreement governing the transaction or anyanyv) amendments thereto.

HB2138E 14 of 17 "Valid business purpose" means one or more business purposes that alone or in combination constitute the motivation for some business activity or transaction, which activity or transaction improves, apart from tax effects, the economic position of the taxpayer, as further defined by regulation.

Income derived from obligations, or on the sale or exchange of obligations, of the United States and on obligations or securities of any authority, commission or instrumentality of the United States to the extent exempt from state income taxes under the laws of the United States including, but not limited of 17 to, stocks, bonds, treasury bills, and treasury notes, but not including interest on refunds of federal taxes, interest on equipment purchase contracts, or interest on other normal business transactions.

I 2.

Income derived from obligations, or on the sale or exchange of obligations of this CommonNealthCommonwealth or 3.of any political subdivision or instrumentality of this Commonwealth.

Dividends upon stock in any domestic international sales corporation, as defined by § 992 of the17 Internal3. Revenue Code, 50 percent or more of the income of which was assessable for the preceding year, or the last year in which such corporation has income, under the provisions of the incomeRtax laws of the Commonwealth.

4.Dividends upon stock in any domestic international sales corporation, as defined by § 992 of the Internal Revenue Code, 50 percent or more of the income of which was assessable for the preceding year, or the last year in which such corporation has income, under the provisions of the income tax laws of the Commonwealth.

TheCommonwealth amountor of any refundother ortaxing creditjurisdiction.verpayment for overpayment of income taxes imposed by this O5. Commonwealth or any other taxing jurisdiction.

DAny 5.amount included therein by the operation of the provisions of § 78 of the Internal Revenue Code (foreign dividend gross-up).

Any6. amount included therein by the operation of the provisions of § 78 of the Internal Revenue Cod6.

The amount of wages or salaries eligible for the federal Targeted Jobs Credit which was not deducted for federal purposes on account of the provisions of § 280C(a) of the Internal RevenueRevenueECode. Code.

Any amount included therein by the operation of § 951 of the Internal Revenue Code (subpaEt(subpart F income) or, for taxable years beginning on and after January 1, 2018, § 951A of the Internal RevenueReNenue Code (Global Intangible Low-Taxed Income).

DG 8.9.

Any[Repealed.]included amount included therein which is foreign source income as defined in § 58.1-302.

9.10.

[Repealed.]The ownsamount 50 percent or more of theany votingdividends stock.fromreceived from corporations in which the taxpaying corporation 11.owns 50 percent or more of the voting stock.

O 11.

[Expired.] S 14.

For taxable years beginning on or after January 1, 1995, the amount for "qualified researchreseaSch expenses" or "basic research expenses" eligible for deduction for federal purposes, but which wHrewere not deducted, on account of the provisions of § 280C(c) of the Internal Revenue Code.

2E 15.funds to the Virginia Public School Construction Grants Program and Fund established in Chapter 11.1d in (§ 22.1-175.1 et seq.) of Title 22.1.

For taxable years beginning on or after January 1, 2000, the total amount actually contr3buted in (§ 22.1-175.1 et seq.) of Title 22.1.onstruction Grants Program and Fund established in Chapter811.1 16.

To the extent a subtraction is taken in accordance with this subdivision, no tax credit under this chapter for donating land for its preservation shall be allowed for three years following the year in which the subtractionsubtHaction is tak17.

3 18.

21.19, 20.

For[Repealed.] taxable years beginning on and after January 1, 2004, any amount of intangible expenses and costs or interest expenses and costs added to the federal taxable income of a corporation pursuant totod subdivision B 8 or B 9 shall be subtracted from the federal taxable income of the related member that received such amount if such related member is subject to Virginia income tax on the same amount.

To originatequalify fromfor ana airportdeduction orunder spaceportthis insubdivision, Virginia.nchlaunch services must be performed in Virginia or 23.originate from an airport or spaceport in Virginia.

For taxable years beginning on and after January 1, 2009, any gain recognized as a result of resupply services contracts for delivering payload, as defined in 49 U.S.C.

For taxable years beginning on or after January 1, 2011, any income taxed as a long-term capital gain for federal income tax purposes, or any income taxed as investment services partnership interest income (otherwise known as investment partnership carried interest income) for federal income taxresttax HB2138 16 of 17 purposes.

To qualify for a subtraction under this subdivision, such income must be attributable to an investment in a "qualified business," as defined in § 58.1-339.4, or in any other technology business approved by the Secretary of Administration, provided the business has its principal office or facility in the Commonwealth and less than $3 million in annual revenues in the fiscal year prior to the HB2138E 16 of 17 investment.

of1. 17 recognized in taxable year 2005, may be subtracted in the taxable year immediately following the yearn in which the installment payment is received.

IIf 2.the payment is received in installment payments, then the recognized gain, including any gain recognized in taxable year 2005, may be subtracted in the taxable year immediately following the year in which the installment payment is received.

If2. the payment is received in a single payment, then 10 percent of the recognized gain may be subtracted in the taxable year immediately following the year in which the single payment is reTeived.

If the payment is received in a single payment, then 10 percent of the recognized gain may be of 17 The taxpayer may then deduct an equal amount in each of the nine succeeding taxable years.years.is received.

providedE. in § 58.1-315.deral taxable income shall be made to reflect the transitional modificatRons F.

NotwithstandingAdjustments anyto otherfederal provisiontaxable of law, the income fromshall anybe dispositionmade of real property which is held by the taxpayer for sale to customersreflect in the ordinarytransitional coursemodifications ofprovided the taxpayer's trDde or business, as defined in § 453(l)(1)(B)58.1-315. of the Internal Revenue Code, of property made on or after January 1, 2009, may, at the election of the taxpayer, be recognized under the installment methUd disposition of the property has been made on or before the due date prescribed by law (includinghe dealer extensions) for filing the taxpayer's return of the tax imposed under this chapter for the taxaEle year in which the disposition occurs, and (ii) the dealer disposition is in accordance with restrictions or conditions established by the Department, which shall be set forth in guidelines developed by the Department.

AlongF. with such restrictions or conditions, the guidelines shall also address the recapture of Administrative Process Act (§ 2.2-4000 et seq.).elopment of the guidelines shall be exempt from the G.

ForNotwithstanding taxableany yearsother beginningprovision onof andlaw, afterthe Januaryincome 1,from 2018,any butdisposition beforeof Januaryreal 1,property 2022,which thereis Thereheld shallby bethe deductedtaxpayer tofor thesale extentto includedcustomers in andthe notordinary otherwisecourse subtractedof fromthe federaltaxpayer's taxabletrade incomeor 20January percent1, a2009, percentagemay, at the election of the businesstaxpayer, interestbe disallowedrecognized asunder athe deductioninstallment pursuantmethod todescribed under § 163(j)453 of the Internal Revenue CodeCode, provided that (i) the election relating to the dealer disposition of the property has been made on or before the due date prescribed by law (includinE extensions) for filing the taxpayer's return of the tax imposed under this chapter for the taxable year in which the amountdisposition of:.occurs, and (ii) the dealer disposition is in accordance with restrictionN or Department.

2022;Along with such restrictions or conditions, the guidelines shall also address the recapture of such income under certain circumstances.

20The percentdevelopment forof Forthe taxableguidelines yearsshall beginningbe onexempt andfromRthe afterAdministrative JanuaryProcess 1,Act 2018,(§ but2.2-4000 beforeet JanuaByseq.). 1, 2.

,G. there shall be deducted to the extent included in and not otherwise subtracted from fed1ral taxable income 30 percent for taxable years beginning on and after January 1, 2022, but before 8anuary 1, 2024;

For taxable years beginning on and 3.after January 1, 2018, but before January 1, 2022, there There shall be deducted to the extent included in and not otherwise subtracted from federal taxable iScome 20 Internal Revenue Code in the amount of:.erest disallowed as a deduction pursuant to § 163(j) of the 1.

20 percent for For taxable years beginning on and after January 1, 2018, but before January 1, 2022;

E 2.

, there shall be deducted to the extent included in and not otherwise subtracted from fedDral taxable income 30 percent for taxable years beginning on and after January 1, 2022, but before January 1, 3.

of business interest disFordisallowed purposes of this subsection G, "business interest" means the same as thata termdeduction ispursuant definedto under § 163(j) of the Internal Revenue Code.

For purposes of this subsection G, "business interest" means the same as that term is defined under § 163(j) of the Internal Revenue Code.

For taxable years beginning before January 1, 2021, there shall be deducted to the extent not otherwise subtracted from federal taxable income up to $100,000 of the amount that is not deductible when computing federal taxable income solely on account of the portion of subdivision B 10 ofofucBible § 58.1-301 related to Paycheck Protection Program loans.

2 E