Virginia
Department of Taxation
What isn’t new for 2005?
Agenda
• Introductions
• Overview of 2004 - Gerald Gwaltney, Deputy Commissioner
• Return Processing – Howard Overbey, Processing Manager
• Legislative & Form Changes for 2004 – Lee Mikelson, Channel Services
Manager
• Customer Services - Pam Inge, Senior Management Analyst
Overview of 2004
Virginia Capital – June 2004
Overview of 2004
• Legislation: Several significant bills passed by the
2004 Virginia General Assembly, including a
Major Tax Reform bill.
• IRMS: Replacement of agency’s host accounting
system now scheduled for scheduled for August
2005
• Filing Season 2004: A successful filing season.
2004 Key Legislation
• HB5018, a comprehensive tax reform bill passed during a
special session of the 2004 Virginia General Assembly,
which includes:
– Changes to both individual and corporate income taxes;
– An increase in the sales and use general state tax rate and the
vending sales tax rate along with scheduled decreases in the food
tax rate;
– Increases in the cigarette excise tax;
– New reporting requirements for Pass-through Entities, including S
Corporations; and
– A new tax, the Tobacco Products tax
2004 Key Legislation
• SB526, which advanced Virginia’s date of conformity with
the Internal Revenue Code (IRC) to 12/31/03:
– Includes exceptions for the 30% and 50% special bonus depreciation
and the 5-year Net Operating Loss (NOL) carryback provisions
– With extensive federal legislation passed in 2004, agency is
presented with challenges and timing issues
2004 Key Legislation
• HB1159, requires certain Paid Tax Preparers to file
individual returns using either electronic means or, if filing
on paper, software that includes 2D barcode technology
– Virginia joins several other states that have established return filing
mandates for certain paid tax preparers
– Trend is expected to continue, as more states announce adoption of
filing mandates for paid tax preparers
– For Virginia, our focus will be to work with the paid tax preparer
community to promote voluntary compliance
IRMS Update
• Implementation of the agency’s new host accounting
system rescheduled for August 2005
• Issues with converting millions of records from
current host to new host (IRMS) key reason for delay
• IRMS now being updated with legislative changes
• Testing of IRMS and new procedures now being
actively tested
Filing Season 2004
Results
• Electronic filing growth continued
• Refunds issued fast, faster, fastest….
• Error rate continues downward trend
Returns Processed
As of November 13, 2004
Refund Turnaround
Current Year Refunds, All Tax Types
As of November 13, 2004
Refund Information
Error Rates
As of November 5, 2004
Rate
Inventory
Filing Season 2001
22.36%
238,099
Filing Season 2002
10.76%
37,848
Filing Season 2003
10.13%
33,509
Filing Season 2004
9.77%
16,157
Individual Error Rates
Electronic vs Paper Filed Returns
All Years & All Types
• Electronic Returns
• Paper Filed Returns
• Overall Error Rate
As of November 15, 2004
2.98%
13.61%
9.77%
Most Common Errors
• Estimated, Extension & Other Payments –
amounts claimed do not equal TAX
Records
• Tax Roll Problems – Names, SSNs, and
birth dates do not match tax roll
• Deductions and Subtractions errors
Results
With lower error rates and refunds being issued faster
than ever, the payment of refund interest has dropped
significantly:
For calendar years:
Interest Paid
2004 (Nov 30)
2003
2002
$3,039,126
$4,188,807
$6,404,312
WOW
Looking Forward to
2005
VA TAX faces many challenges in 2005
Implementing IRMS and the legislation
passed by the 2004 Virginia General
Assembly is a “BIG JOB”
When we work together, no job is too big….we can meet
the challenges and continue to provide the citizens of
Virginia with top quality customer services
Looking Forward to 2005
And we’re not the only ones with a big job!
Virginia Capital – November 2004
Any questions?
Return Processing
A Great Way to Make New Friends!
What happens when you mail in a
paper return?
• First, the envelope must be opened and then the return is extracted and
sorted by form type, bottom line (refunds vs tax dues) and by taxable
year e.g., 760CGs, 760 Handprint, 760PYs, and 763s etc.
• After the returns are opened and sorted, they are placed in batches of
50, for easy handling
• For tax due returns with checks, the return batches are routed to a
special work unit that prepares the checks for processing
• After opening, sorting, and batching, the returns are screened
What is return screening?
• Each batch of returns is reviewed by a “Screener”
• The screener views each return, looking to see if all required forms and
attachments are present
• If a return is missing forms and/or attachments, codes are placed on the
return e.g. if a taxpayer claims a credit for taxes paid to another state
but fails to submit the other state’s return, a code is placed on the
return indicating that the other state’s return is missing
• After screening, the returns are prepared for Data Capture, which can
occur using either automated screening equipment or manual data
entry, and then delivered to the Data Capture work unit
What can go wrong?
• Human Error: VA TAX has handled over 2.3 million paper individual
income tax returns this year – and with that volume, there’s always
human error! We work diligently to minimize human error – the staff
is trained and cross-trained and work product is continually reviewed
by supervisors and team leaders.
• Taxpayer Error: VA TAX regularly receives returns with missing
documentation. In some cases, we even receive returns with no names
and no SSNs! In addition, we frequently receive checks in the mail
with no payment vouchers and no indication of what the check is even
for – we research over 16,000 checks each month trying to determine
why the payments were submitted!
How can you help?
• Before letting your client leave your office, make sure the client
understands what to mail, where to mail it, and when it has to be
mailed!
• Taxpayers may leave your office with complete returns, but when they
get home, they may take the return apart and then put it all back
together – and the package you gave your client, is not the same
package we receive!
• Check out your software – read the materials available on VA TAX’s
web site and make sure your software is generating forms, vouchers,
and other documents correctly. The more you know, the easier it will
be for you to spot problems and avoid return processing delays.
Vouchers – An Example
• All payment vouchers include a “scanline”
• The scanline includes the taxpayer’s SSN, a form code identifying
what the payment is for, a period or due date, and, in some cases, the
taxpayer’s locality code
• If the wrong voucher is used or the information in the scanline is
incorrect, a taxpayer’s payment will most likely be misapplied – e.g.,
if a taxpayer uses the Form 760ES to submit a tax due payment,
we’ll process that payment as an estimated payment and the next
thing you know, the taxpayer is getting a bill!
• Your software should be programmed to generate the correct
information in the scanline – but sometimes software is programmed
incorrectly!
The 760ES Local Filed
Scanline – An Example
The 760ES Local Filed Scanline
What it means
To learn about Vouchers:
•
•
•
•
Go to www.tax.virginia.gov
View the voucher specifications located on the tax professional page
– password is VA_TAX
Your software should create vouchers based on these specifications
VA TAX tests each software company’s vouchers – but sometimes
the software companies make changes and don’t retest.
–
–
One software company created estimated payment vouchers with bad
period dates in the scanline, and all those payments were applied as late!
One software company created 760PMTs with the wrong taxable year –
its was 2003, and their tax due vouchers said 2000!
Vendor specifications for returns and schedules are also located on the tax
professional page! Check it out…………
What about those 2D
barcodes?
• 2D barcode returns:
– If you change information on a return with a 2D barcode,
always change the information using your software and
reprint the return!
– Educate your client. If they take home the return you
prepared and it has a 2D barcode, they should never
white out information and type in new information – if
they can’t bring the return back to you, then they should
line through the incorrect information and write in the
new information. That way we can see that the return
has been altered and we won’t use the 2D barcode.
Any Questions?
Legislative & Form Changes
Taxable Year 2004
Fixed Date Conformity
• Virginia conforms to the IRC as of December 31, 2003, with exceptions
for bonus depreciation and NOL – must adjust Virginia income tax returns
using addition and subtraction fields provided on returns
• Federal tax bill was passed late in year, after Virginia had gone to print
with forms and instructions
• We will post supplemental instructions on our web site – any changes to
Virginia returns that required because of this new federal legislation will
be reported using existing FDC addition and subtraction fields
• Are instruction booklets advise taxpayers and tax professionals to watch
our web site for release of supplemental instructions
www.tax.virginia.gov
What’s new in Virginia?
Individual Income Tax – Legislative Changes
• Taxable Year 2004
• Age Deduction Changes – includes phase-out of $6,000 Under
Age 65 age deduction and, for the Age 65 and Older age
deduction, “grand-fathering”and “income-testing”
• 4 New “Refund Only” contributions and 8 new Public School
Foundation contributions
• Contribution “limits”
• Expansion of services eligible to qualify for Neighborhood
Assistance Act Credit
• Electronic filing or 2D barcode Tax Practitioner mandate
• Agricultural Products Donation subtraction, Code 27: Expired
What’s new in Virginia?
Individual Income Tax – Legislative Changes
• Taxable Year 2005
• Standard deduction for married taxpayers increases - $5,000
increases to $6,000 for married filing jointly and $3,000 for married
filing separately
• Filing thresholds increase - $5K/$8K increases to $7K/$14K
• Personal exemptions for taxpayers and dependents increases to
$900 – the age 65 and over and the blind exemptions remain at
$800 each
• The Taxable Year 2005 changes impact:
• Employer withholding beginning January 1, 2005
• Individual estimated payments for 2005
• Annual return filing for ty2005, which begins January 1, 2006
What’s new in Virginia?
Individual Income Tax – Legislative Changes
Taxable Year 2006
New nonrefundable credit equal to 20% of federal EITC –
taxpayers may claim this credit OR the Low Income Credit, not
both
Individual Income Tax
Age Deduction – 3 Parts
1. Phase-out of the Under Age 65 age
deduction;
1. “Grandfathered” taxpayers; and
2. The new income-based age deduction.
Individual Income Tax
The Phase-Out
For taxable year 2004, only taxpayers born on or between
January 2, 1940, and January 1, 1942, may claim the $6,000
under age 65 age deduction.
• Taxpayers must be 63 or 64 as of January 1, 2005, to
claim the Under Age 65 age deduction on the TY2004
return
• Age 62 not eligible for Under Age 65 age deduction as
phase-out begins
Individual Income Tax
The Phase-out
For taxable year 2005, only taxpayers born on or between
January 2, 1941, and January 1, 1942, may claim the $6,000
under age 65 age deduction.
• Taxpayers must be age 64 as of January 1, 2006, to claim
the Under Age 65 age deduction on the TY2005 return
• Age 62 and 63 not eligible for Under Age 65 age
deduction, as phase-out continues
Individual Income Tax
The Phase-out
• For taxable year 2006, the Under Age 65 $6,000 age
deduction is eliminated and the phase-out is completed
• For taxable year 2006, only taxpayers who have
attained age 65 and older by January 1, 2007, will be
eligible for an Age 65 and Older age deduction
Individual Income Tax
Grandfathered Taxpayers
• Taxpayers born on or before January 1, 1939, may claim a
$12,000 age deduction for taxable year 2004 and all future
taxable years
• In short, if a taxpayer is born on or before January 1, 1939,
then that taxpayer may claim the full $12,000 age deduction
without regard to income
Key Date: January 1, 1939
Individual Income Tax
The income based Age Deduction
• Taxpayers born on or after January 2, 1939, who attain age
65 during the current taxable year, may qualify for an
income based age deduction.
• For single filers, the income based age deduction is
computed by reducing the $12,000 maximum age
deduction $1 for every $1 that AFAGI exceeds $50,000.
• For married filers, whether filing jointly or separately,
the income based age deduction is computed by reducing
the $12,000 maximum age deduction $1 for every $1 that
AFAGI exceeds $75,000.
Individual Income Tax
What’s the AFAGI?
AFAGI = Federal Adjusted
Gross Income (FAGI)
modified for fixed date
conformity adjustments minus
taxable Social Security Act
and Tier One Railroad
Retirement Act Benefits.
Individual Income Tax
What’s the AFAGI?
For Married Filers, whether filing jointly or separately, the
AFAGI is calculated using both spouses’ FAGI, FDC
adjustments, and taxable SSA & Tier One Railroad Retirement
benefits.
AND
For Married Filers, whether filing jointly or separately, if
both spouses are eligible and both are claiming the income
based age deduction, the married taxpayers must compute a
joint income based age deduction first and then split the joint
income based age deduction between each spouse.
No exceptions
Individual Income Tax
Income based Age Deduction
Example 1
A “Filing Status Single” taxpayer born on April 15, 1939, with a TY2004
AFAGI of $55,000, may claim an income based age deduction of $7,000:
AFAGI =
Threshold =
Difference =
$55,000
(minus) $50,000
$5,000
Maximum age deduction =
Amount AFAGI exceeds threshold =
Age Deduction allowed =
$12,000
(minus) $5,000
$7,000
Individual Income Tax
Income based Age Deduction
Example 2
Married taxpayers filing a joint Virginia return. One taxpayer is claiming the
income based age deduction and the other is claiming the Under Age 65 age
deduction for TY2004.
Joint AFAGI =
Threshold =
Difference =
$80,000
(minus) $75,000
$5,000
Maximum age deduction =
$12,000
Amount AFAGI exceeds threshold = (minus) $5,000
Age Deduction allowed =
$,7000
Note: the Under Age 65 age deduction does not impact the computation of the
income based age deduction (a grandfathered Age 65 and Older age deduction
would not impact the computation either).
Individual Income Tax
Income based Age Deduction
Example 3
Married taxpayers with a joint AFAGI of $80,000. Taxpayers are filing
separately. One spouse is a Virginia resident. The other is a nonresident
with no Virginia source income and, thus, will not be filing a VA return.
Each spouse meets the age requirement to claim an Age 65 and Older
income based age deduction.
Joint AFAGI =
Threshold =
Difference =
Maximum age deduction =
Amount AFAGI exceeds threshold =
Age Deduction allowed =
$80,000
(minus) $75,000
$5,000
$12,000
(minus) $5,000
$,7000
Individual Income Tax
Income based Age Deduction
Example 4
Married taxpayers with a joint AFAGI of $80,000. Taxpayers are filing
jointly and both are eligible for an Age 65 and Older income based age
deduction.
Joint AFAGI =
Threshold =
Difference =
Maximum joint age deduction =
Amount AFAGI exceeds threshold =
Joint Age Deduction allowed =
Each spouse claims 50% =
$80,000
(minus) $75,000
$5,000
$24,000
(minus) $5,000
$19,000
(divide by 2) $9,500
Note: The $1 reduction for every $1 the AFAGI exceeds the threshold occurs
once, whether one or both spouses are claiming an income based age deduction.
Individual Income Tax
Income based Age Deduction
Example 5
Married taxpayers with a joint AFAGI of $92,000. Both taxpayers are
filing separately in VA and both are eligible for and are claiming an Age
65 and Older income based age deduction.
Joint AFAGI =
Threshold =
Difference =
$92,000
(minus) $75,000
$17,000
Maximum joint age deduction =
$24,000
Amount AFAGI exceeds threshold =
(minus) $17,000
Joint Age Deduction allowed =
$7,000
Each spouse claims 50% =
(divide by 2) $3,500
Individual Income Tax
Income based Age Deduction
Example 6
Married taxpayers with a joint AFAGI of $92,000. Both taxpayers meet the
age requirement for an Age 65 and Older income based age deduction.
However, one taxpayer is a VA resident filing separately and the other is a
nonresident with no VA source income (and thus will not be filing a VA
return).
Joint AFAGI =
Threshold =
Difference =
$92,000
(minus) $75,000
$17,000
Maximum age deduction =
Amount AFAGI exceeds threshold =
Age Deduction allowed =
$12,000
(minus) $17,000
$ 0.00
Note – even though both spouses meet the age requirement for the Age 65 and
Older age deduction, only one spouse is actually filing a return in VA. Thus, the
maximum age deduction from which the reduction occurs is $12,000, not $24,000
(see example 5).
Individual Income Tax
Income based Age Deduction
Example 7
Married taxpayers with a joint AFAGI of $92,000. Taxpayers are filing a joint
VA return and both taxpayers meet the age requirement for an Age 65 and Older
income based age deduction . However, one spouse is claiming a disability
subtraction of $20,000 and thus cannot claim the age deduction.
Joint AFAGI =
Threshold =
Difference =
$92,000
(minus) $75,000
$17,000
Maximum age deduction =
Amount AFAGI exceeds threshold =
Age Deduction allowed =
$12,000
(minus) $17,000
$ 0.00
Note – even though both spouses meet the age requirement for the Age 65 and Older
age deduction, only one spouse is actually eligible to claim the age deduction.
Individual Income Tax
The Age 65 & Older
Income Based Age Deduction
Critical Points
The joint AFAGI must always be used for married taxpayers, even if:
•
•
•
•
only one spouse is claiming an income based age deduction;
the taxpayers are filing separate federal or Virginia returns;
the taxpayers do not live together; or
one taxpayer is not a Virginia resident.
If the taxpayer is married, use the joint AFAGI.
Individual Income Tax
The Age 65 & Older
Income Based Age Deduction
Critical Points
For married taxpayers, whether filing jointly or separately, when both
spouses are claiming the Age 65 and Older income based age
deduction, the calculation is performed using a maximum allowable
age deduction of $24,000. That is, with a $75,000 threshold, the age
deduction phases out at $99,000.
For the income based age deduction to phase out at $99,000, both
spouses must actually be filing a VA return and claiming the
income based age deduction.
Individual Income Tax
The Age 65 & Older
Income Based Age Deduction
Critical Points
The examples provided demonstrate the calculation of a
“gross” income based age deduction.
For part-year and nonresident returns, the gross age
deduction must be further reduced i.e., using the partyear ratio or the nonresident allocation percentage.
What’s new in Virginia?
“Paid Tax Preparer”
Electronic Medium and 2D Barcode Filing Requirements
If a paid tax preparer:
• Prepared 200+ TY2003 Virginia individual income tax returns, then that
tax preparer is required to file TY2004 individual income tax returns and
all future taxable year individual income tax returns using electronic
medium or using software with 2D barcode technology
• Prepares 100+ Virginia individual income tax returns in any taxable year
beginning with TY2004, then that tax preparer is required to file individual
income tax returns using electronic medium or using software with 2D
barcode technology the following taxable year and thereafter
What’s new in Virginia?
“Paid Tax Preparer”
Electronic Medium and 2D Barcode Filing Requirements
Who is a “Tax Preparer”?
A tax preparer is defined as a person who prepares, or who employs one
or more individuals to prepare, an income tax return for compensation.
For purposes of this requirement, a tax preparer does not include
volunteers who prepare tax returns for the elderly or poor as part of a
nonprofit organization's program.
What’s new in Virginia?
“Paid Tax Preparer”
Electronic Medium and 2D Barcode Filing Requirements
What electronic mediums are available for filing individual
income tax returns?
• E-file: Most current year 760, 760PY, and 763 returns can be submitted
via e-file, a joint federal and state electronic filing program, which is
accessed using commercial tax preparation software
• I-File: Most current and prior year 760s (from ty2000 forward) can be
submitted via I-File, a web-based filing channel developed and maintained
by Virginia TAX
E-file – A fast, secure, and accurate
channel!
•
E-file is a joint federal and state program that allows tax professionals and taxpayers to submit
both federal and state returns to the IRS electronically using commercial tax preparation
software (also referred to as ELF or JELF).
•
VA TAX receives the returns by accessing a secure IRS site and downloading the Virginia
returns daily
•
For each e-filed return, Virginia either accepts or rejects the return and then sends an
acknowledgement to the tax professional – so the filer knows within 2 to 3 days if Virginia has
accepted or rejected the return! (And, if we reject the return, we provide the filer with a reason
code so the filer can fix the return and and resubmit!)
•
E-filed returns have a 2.83% error rate compared to a 10.47% error rate for paper returns. And,
the errors for e-filed returns are usually simple errors that can be quickly resolved without any
taxpayer contact!
•
Refunds are issued fast – no mail delays, no manual processing at TAX to capture the return
information – the return is transferred right from the preparer’s computer into ours!
For taxable year 2004, e-file will
include DIRECT DEBIT for
Virginia returns with a tax due!
What can be filed using e-file?
• 760 Returns w/o credits from the Schedule CR or the Credit
for Taxes Paid to Another State
– Exception: may file using e-file if only credit claimed from
the Schedule CR is the Political Contribution Credit
• 760PY returns w/o credits from the Schedule CR or the Credit
for Taxes Paid to Another State
• 763 returns w/o credits from the Schedule CR or the Credit for
Taxes Paid to Another State
Virginia also accepts “state only” returns – however, not all
software supports this functionality.
What cannot be filed using e-file
•
•
•
•
•
•
•
•
•
•
Amended Returns
Prior Year Returns – use ifile
Fiduciary Returns
Extension Requests – use ifile
Returns with certain other subtractions that require
documentation
Returns with Federal Forms 4852, Substitute W2s
Returns for deceased taxpayers – including joint returns
with one deceased taxpayer
Fiscal Year Returns
Returns with Schedule CR credits claimed (except for
760s when the only Schedule CR credit claimed is the
Political Contribution Credit)
Returns with Credit for Taxes Paid for Another State
What’s new in Virginia?
“Paid Tax Preparer”
Electronic Medium and 2D Barcode Filing Requirements
What is a 2D barcode and does my software have 2D?
• For taxable year 2004, the following software companies have
indicated that their software will provide 2D barcodes:
• CCH, Inc
• Lacerte Software
• Creative Solutions
• RIA
• Drake Enterprises
• H & R Block
• Intuit ProSeries
• STF Service Corp
• TaxWise
• ATX
What’s new in Virginia?
“Paid Tax Preparer”
Electronic Medium and 2D Barcode Filing Requirements
What is a 2D Barcode?
The 2D
Barcode
What’s new in Virginia?
“Paid Tax Preparer”
Electronic Medium and 2D Barcode Filing Requirements
Legislation includes:
• An Opt Out Provision for Taxpayers
• A Hardship Waiver for the Tax Preparer
What’s new in Virginia?
“Paid Tax Preparer”
Electronic Medium and 2D Barcode Filing Requirements
• Materials describing the legislation along with FAQs are posted on our web
site in the Tax Professional Section / Important News and Updates
• The Taxpayer Opt Out Form and the Tax Preparer Hardship Waiver
Request form have also been posted
• Materials and forms were emailed to NACTP and our Tax Professional
email group week of 8/20/04
As a paid tax preparer,
which channel should you
use?
What’s new in Virginia?
Individual Income Tax – Form Changes
•
For the age deduction changes have added fields for birth dates and AFAGI to the
760CG and fields for the AFAGI to the Schedule NPY (for Form 760PY filers) and
Form 763.
•
New Contributions and Public School Foundations have no form impacts, as we use
the the “code box” method with the Schedule ADJ
•
Schedule NPY has been converted to code boxes for contributions
What’s new in Virginia?
Individual Income Tax – Form Changes
•
Paid Tax Preparer legislation requires capture of a tax preparer “FEIN/PTIN/SSN”
field and a new “Filing Election” field. These changes drove a redesign of page 2
of the 760CG – we established a “Paid Tax Preparer” Section.
•
For Schedule CR, have expanded line 30 to clarify when and for what reasons
taxpayers may claim a credit for “Clean Fuel”
•
Added instructional text to the 760PMT
What’s new in Virginia?
What’s the 760PMT?
• The 760PMT is the voucher taxpayers who e-file a tax due return should
always use to submit payment by check to VATAX
• The 760PMT should never be used by taxpayers submitting a paper return!
• Taxpayers who e-file a tax due return should never submit payment with a
copy of the return
• The 760PMT should always have the primary’s SSN printed in the “Your
SSN” field, regardless of which taxpayer on a joint return writes the check!
• The 760PMT should always be mailed to directly to VATAX at PO Box
1478 – not to the Locality
New for 2004: Use Direct Debit for E-Filed Tax Due Returns
Pass-Through Entities
Effective Taxable Year 2004
New Reporting Requirements
for
Pass-Through Entities
Pass-Through Entities
• Legislation creates a uniform filing requirement
for Pass-Through-Entities
• Requirement applies all Partnerships including SCorporations, General and Limited Partnerships,
and Limited Liability Partnerships and
Companies
• Form 500S is being discontinued, effective for
TY2004
Pass-Through Entities
Form 502 Penalties:
• Due 15th day of 4th month following close of
taxable year
• Late filing - $200 per month; maximum 6 months
• Failure to file in excess of 6 months = 6% of
Virginia taxable income, reduced by the late filing
penalty and any tax paid by the owners on their
respective shares of income
Pass-Through Entities
New Forms and Schedules
•
Form 502 PTE Return, Schedule 502A for Allocation and
Apportionment, and Schedule VK-1, to report each
Owner’s Share of Income and Virginia Modifications and
Credits, and Form 502E, for extensions
•
Form 765 Unified Nonresident Individual Income Tax
Return – optional. Includes a Form 765 with a Part II
Summary of the individual Schedule VK-1s, and a
Schedule of Participants (use of Form 763 by Unified
Filers discontinued for TY2004).
Corporate Income Tax
• New Schedule 500AB for “Add Back”
• Requires add back of certain intangible expenses i.e., “DHC”
legislation.
• VA TAX will not mass mail TY2004 forms and instruction booklets
to corporations:
• Research indicates 95% of returns are computergenerated.
• Notification of legislative changes and
information on how to obtain forms scheduled
to be mass mailed to all registered businesses
mid December.
Tobacco Products
A New Tax
• New Tax effective March 1, 2005.
• 10% tax on the sale price charged by wholesaler for each
package of tobacco product sold to a retail dealer or
institutional, commercial, or industrial user.
• 10% tax on the purchase price paid by the retail dealer for each
package of tobacco product purchased from a wholesale dealer
located outside of the Commonwealth.
Tobacco Products
• All returns due by 10th of following month; i.e., all
taxpayers liable for tax are required to remit return
with payment monthly, with first return due April
10th, 2005.
• Corporate mass mailer includes a registration form
for businesses liable for the Tobacco Products tax
to complete and mail back to VA TAX.
• Returns will be mailed to registered businesses in
February 2005.
Sales & Use Tax 2004
Sales & Use Tax 2004
Effective July 1, 2004:
• Telephone calling cards now subject to sales and
use tax on July 1, for initial purchases only.
• HB 1463 codifies Virginia’s longstanding policy
with respect to nexus for imposing sales and use
tax requirements on dealers.
Sales & Use Tax 2004
Effective September 1, 2004:
• The state sales and use tax rate on sales of nonfood items increased from 3.5% to 4%.
• Combined state and local tax rate is now 5%.
• Combined rate for vending machine tax is now
be 6%
Sales & Use Tax 2004
• New forms were mailed in early September
• Quarterly filers were provided with a special
worksheet to compute the tax under the old and
new rates occurring in the quarter ending
September 30, 2004.
Sales & Use Tax 2004
The “Qualified” food tax rate changes:
• Current state food tax rate of 3% remains in
effect through June 30, 2005.
• On July 1, 2005, the state food tax rate on
qualified food will decrease to 2.5%
• New combined rate 3.5%
Sales & Use Tax 2004
Additional qualified food tax rate changes
• Reductions of 0.5% each scheduled for July 1,
2006, and July 1, 2007.
• No change to the definition of food (food for
home consumption as defined by the Food
Stamp Act of 1977, 7 U.S.C. § 2012.)
Individual Income Tax
Return Preparation Tips and
Customer Services
Who Is a Resident?
Virginia law provides for two types of
residents:
Domiciliary and Actual
Domiciliary Resident
A domiciliary resident is an individual whose legal state of
residence is Virginia, even if that person does not actually
live in Virginia during the taxable year. Examples of
domiciliary residents who do NOT live in the state include:
• Members of the military who enter the service from Virginia (i.e.,
Virginia is the home of record);
• Students who maintain Virginia as their state of legal residence, but
who attend school in another state;
• Virginia residents who accept employment in other countries for
extended periods and do not take steps to abandon their Virginia
domiciles.
Actual Resident
An actual resident is an individual who resides in Virginia for
more than 183 days during the taxable year. The period of
residency does not have to be consecutive days.
It is possible to be an actual resident of Virginia and a
domiciliary resident of another state. For example, dual
residency commonly occurs when a domiciliary resident of
another state enrolls in a Virginia school and lives here
during the school year.
Determining which Form to use
• A resident spouse and a nonresident spouse may not file a joint
return on Form 760. The resident spouse files Form 760. The
nonresident spouse files Form 763 if he or she has Virginia
source income to report.
• A full-year resident spouse and a part-year resident spouse may
not file jointly on Form 760, but may file a joint return on
Form 760PY.
The Residency section of the
760 instruction booklet has
been re-written
to improve accuracy –
check it out.
Military Issues
• Visit our web site at www.tax.virginia.gov
• Go to Individual,
General Information, and
Click on the icon for
“Virginia Tax Tips for Military Personnel”.
Military Issues
Tax Tips include:
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Filing Requirements
Resident Military Personnel
Nonresident Military Personnel
Spouses and dependents
Filing separate returns
Deduction for Military Basic pay
Exemption for Virginia National Guard pay
Subtraction for Combat and Hazardous Duty Pay
Claiming more than one subtraction
Filing and paying extensions
September 11th Disaster Relief
Military Issues
Exemption for Virginia National Guard Income
The wages or salaries received for active and inactive service
in the National Guard of the Commonwealth of Virginia by
any person with a military rank of 03 or below may be
subtracted on the Virginia return to the extent the amount
subtracted does not to exceed the amount of income derived
from 39 calendar days of such service or $3,000, whichever
is less.
Military Issues
Exemption for Virginia National Guard Income
• If a National Guard service member has been on active duty status for
90 consecutive days, the service member may also qualify for the basic
military pay subtraction, an exemption allowed for the first $15,000 of
basic military pay.
• If the service member’s active duty status exceeds 90 consecutive days
during a period that crosses taxable years, the service member will
qualify for the basic military pay subtraction in the 2nd taxable year, but
only to the extent of pay earned in that taxable year.
Military Issues
Filing Status 3 – Splitting Income
For married taxpayers with different residency statuses:
•
Use the federal return and all other available documentation to determine
income, exemptions, and deductions as if the taxpayers had filed separate
federal returns.
•
In general, the taxpayer claiming an exemption for a dependent must be
reporting at least half of the federal adjusted gross income
•
In computing itemized deductions, determine each taxpayer’s share of the
itemized deductions based on which taxpayer incurred the expenses – but if
that is not possible, allocate the itemized deductions proportionately based
on each taxpayer’s respective share of the federal adjusted gross income
reported on the joint federal return.
Amending
Individual Returns
• Taxpayers should file an amended Virginia return
whenever a change is made to the federal return.
• Prepare a new individual return and complete the
appropriate lines for amending the return.
• Protective claims must be filed with the Tax
Commissioner.
Amending
Individual Returns
Due Dates for Refund Claims
• 3 years from original due date (including valid
extensions); or
• For NOL carrybacks, 3 years from the due date of the loss
year return; or
• 2 years from actual date of payment; or
• 1 year from FINAL federal determination.
Amending
Individual Returns
Federal Approval
• Proof of IRS approval may be needed to complete
processing of amended returns based on federal changes.
• IRS statement or copy of refund check is acceptable.
Taxpayers should
maintain complete
records.
Important Contact and Resource
Information
• TAX’s web site is located at www.tax.virginia.gov
• Certain areas of the Tax Professional section are password
protected
the password is VA_TAX
• To receive the latest breaking tax news, sign up for the Tax
Professional email group – just click on the “General Information
Section and sign-up!
• The Tax Professional Hot Line is 804-367-9286
VA TAX Web Site
We’d Love to have you visit us!
Click
here
The Tax Professional Page
Click here to
sign up for
the Tax
Professional
email group
The Tax Professional Page
Check out our Policy
Library. It has
everything, from the
Code of Virginia to
Rulings of the Tax
Commission all the way
to the early 80s! And,
it’s searchable!
Working together, we can make
filing and paying taxes fast and easy
for the citizens of Virginia.
Thank you!