Virginia Offers Modified Apportionment Factors

Virginia allows modified apportionment factors for companies that make new investments in certain areas of Virginia. Eligible companies that operate in a qualified location may elect to modify Virginia’s three-factor apportionment method. Specifically, the companies can reduce:

  • the property factor numerator by the value of property acquired in those locations on or after January 1, 2018 but before January 1, 2025;
  • the payroll factor numerator by payroll attributable to jobs created on or after January 1, 2018 but before January 1, 2025, in qualified localities; and
  • the sales factor numerator by sales in Virginia for the tax year.

The company can use the modified apportionment factors in the first tax year the company becomes eligible. They can then be used for the next six tax years. However, a company cannot use the factors in a year that:

  • the eligible company’s total, cumulative new capital investment falls below the threshold; or
  • the number of new jobs falls below the threshold.

Modified Apportionment Factors for Specific Industries

Eligible companies using a single-factor apportionment method may also elect to modify its apportionment factors in the following manner:

  • manufacturing companies that utilize a single-sales factor apportionment method may reduce the numerator by the value of its sales in Virginia;
  • manufacturing companies that utilize a single-sales factor apportionment method may reduce the numerator by the value of its sales in Virginia;
  • retail companies that utilize a single-sales factor apportionment method may reduce the numerator by the value of its sales in Virginia;
  • companies with enterprise data center operations required to use a single-sales factor apportionment method may reduce the numerator by the value of its sales in Virginia;
  • motor carriers are permitted to modify their single factor apportionment method based on vehicle miles by reducing the numerator by vehicle miles traveled in any qualified locality or qualified localities;
  • railway companies are permitted to modify their single factor apportionment method based on revenue car miles by reducing the numerator by revenue car miles traveled in any qualified locality or qualified localities;
  • financial corporations are permitted to modify their single factor apportionment method based on business conducted in Virginia by reducing the numerator by the value of its business within any qualified locality or qualified localities; and
  • construction corporations are permitted to modify their single factor apportionment method based on business conducted in Virginia by reducing the numerator by the value of its business within any qualified locality or qualified localities.

Eligible companies conducting their entire business in Virginia are allowed to apportion income between:

  • qualified localities; and
  • other Virginia localities.

They may also use modified apportionment factors. However, the company must not apportion any of its income to a state other than Virginia.

Eligible Companies

An “eligible company” includes a corporation or pass-through entity that does not have existing property or payroll in Virginia as of January 1, 2018.

New Capital Investment and Job Creation

Additionally, from January 1, 2018, through December 21, 2024, the company must:

  • spend at least $5 million on new capital investment in a qualified locality or qualified localities; and
  • create at least 10 new jobs in a qualified locality or qualified localities;

Alternatively, the company can be eligible if it creates at least 50 new jobs in a qualified locality or qualified localities.

Traded-Sector Companies

Finally, the company must be a traded-sector company, as well as certified by the Virginia Economic Development Partnership Authority as generating a positive fiscal impact.

What is a New Capital Investment?

A “new capital investment” is defined as:

  • as real property acquired in a qualified locality or qualified localities from through December 21, 2024; and
  • any improvements to real property in a qualified locality or qualified localities through December 21, 2024.

What is a New Job?

A “new job” is defined as a permanent, full-time position of indefinite duration that pays at least 150% of the minimum wage. In addition, a new job requires a minimum of:

  • 35 hours of an employee’s time a week for the entire normal year (at least 48 weeks) of the eligible company’s operations, which normal year shall consist of at least 48 weeks; or
  • 1,680 hours per year.

Qualified Localities

In order to be considered a “qualified location,” eligible companies are required to operate in the following Virginia localities:

  • the County of Alleghany, Bland, Buchanan, Carroll, Craig, Dickenson, Giles, Grayson, Lee, Russell, Scott, Smyth, Tazewell, Washington, Wise, or Wythe or the City of Bristol, Galax, or Norton;
  • the County of Amelia, Appomattox, Buckingham, Charlotte, Cumberland, Halifax, Henry, Lunenburg, Mecklenburg, Nottoway, Patrick, Pittsylvania, or Prince Edward or the City of Danville or Martinsville;
  • the County of Accomack, Caroline, Essex, Gloucester, King and Queen, King William, Lancaster, Mathews, Middlesex, Northampton, Northumberland, Richmond, or Westmoreland; or
  • the County of Brunswick or Dinwiddie or the City of Petersburg.

Ch. 801 (S.B. 883) and Ch. 802 (H.B. 222), Laws 2018, effective July 1, 2018

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