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VSCPA Releases Whitepaper on Tax Conformity and TCJA

October 5, 2018

The VSCPA has released a whitepaper, “Virginia Tax Conformity: 2018 and Beyond” (PDF), detailing its official position on tax conformity in Virginia as it relates to the Tax Cuts and Jobs Act (TCJA) of 2017, including its recommendations for the General Assembly and Gov. Ralph Northam.

The paper was developed over the course of several months in response to the TCJA and the General Assembly’s decision to take up tax conformity in the 2019 session. The VSCPA made the following recommendations for the 2019 session:

  • Pass Virginia tax conformity for 2018 tax returns as early as possible and align Virginia tax law to federal law as closely as possible.
  • Automatically apply abatement for any tax penalties incurred due to uncertainty regarding the adoption of federal changes by Virginia and require no action to be taken by taxpayers or their representatives.
  • Sequester any new revenue gained for calendar year 2018 by conforming to federal law until a decision on policy is made, which is similar to the action Virginia took after sweeping new federal tax law changed in 1986.
  • Delay the effective date to no earlier than Jan. 1, 2019, for any tax policy changes resulting from conformity to the TCJA, including adjustments to the individual and business provisions to provide relief for taxpayers adversely impacted by the federal changes.
  • Delay the effective date to no earlier than Jan. 1, 2019, for comprehensive tax reform, in order to permit an accounting for additional revenues and to permit orderly and efficient implementation of the impact of the TCJA on Virginia and result in full conformity to federal tax law.

The positions contained in the whitepaper reflect the entirety of the VSCPA’s official position on tax reform. VSCPA leadership and the Tax Advisory Committee considered and discussed numerous policy options in an effort to make a recommendation, considering extensive input from VSCPA members and tax professionals, and determined that there was no member consensus on any single policy prescription. In addition to the official recommendations, the whitepaper outlines several future approaches to tax policy, but does not make any recommendations beyond those listed above.

We encourage you to read the whitepaper and share it with your legislators and any other contacts you have in state government with influence on Virginia tax policy, as well as any colleagues or clients you feel could benefit from reading it. Moving forward, we will provide sample communications you can use to communicate with your legislators about the importance of swift passage of conformity. We encourage you to use the paper to start conversations with decision-makers and stakeholders and to share your own recommendations on tax policy and reform, but please draw a clear line between the VSCPA’s positions and your own. Also, swift passage of tax conformity legislation is the VSCPA’s top legislative priority for the 2019 session, so please keep that top of mind when articulating your positions.

Tax conformity legislation is defined as the adoption of federal definitions of income as outlined in the U.S. Internal Revenue Code (IRC). Conformity does not include alignment to federal tax rates, tax brackets, exemption amounts, deduction amounts or credits. Virginia sets its own tax rates, tax brackets, exemption amounts, deduction amounts and credits.

Each year, the General Assembly passes retroactive emergency legislation to bring the Commonwealth into conformity with federal tax law as of a fixed date, albeit with certain exceptions. Conformity for individuals is the calculation of federal adjusted gross income; for businesses, it is federal taxable income. Any exceptions are treated as additions or subtractions when calculating Virginia taxable income.

The VSCPA will continue to work with the General Assembly, Gov. Northam and other key representatives from the state government to get conformity legislation passed in a timely manner. We will keep you up to date on our actions and conformity- and tax reform-related news as it becomes available. Please visit vscpa.com/TaxReform to weigh in with any issues you have encountered with the federal law. If you have any questions or feedback, please contact VSCPA Vice President, Advocacy Emily Walker, CAE, at [email protected].