Virginia: Conformity and CARES Act Decoupling and PPE Exemption Legislation Enacted

Recently, significant tax legislation was signed into law in Virginia. Senate Bill 1146 and House Bill 1935 update the Commonwealth’s conformity to the Internal Revenue Code as it existed on December 31, 2020. Importantly for corporate taxpayers, the bills decouple Virginia from the CARES Act changes that (1) suspend the 80 percent limit on NOLs and allowing NOL carrybacks; and (2) temporarily enhance the amount of business interest that can be deducted under IRC section 163(j). For taxpayers other than corporations, the bills decouple from the CARES Act IRC section 461(1) changes. For corporate and individual taxpayers, for tax years beginning on and after January 1, 2020, but before January 1, 2021, the bills require an addback of expenses paid with forgiven PPP loan amounts to the extent they exceed $100,000. Virginia Tax Bulletin 21-4 explains the various conformity changes in some detail.

House Bill 2185 and Senate Bill 1403 create a temporary sales and use tax exemption for personal protective equipment (PPE). The exemption is available to businesses who purchase PPE to enable compliance with COVID-19 safety protocols. The bills include an exhaustive list of items and services that qualify as PPE for purposes of the sales and use tax exemption. The exemption does not apply, however, if PPE is purchased for “other than business use.” Other than business use" means the business uses the purchased item or service more than 50 percent of the time for nonbusiness purposes, or the business transfers a purchased item to a person other than the business or transfers the use of a purchased service to a person other than the business. If the Department of Taxation is informed of a business’ non-exempt use, the business will be required to remit tax and pay penalties and interest on the tax due. The Department also has the authority to revoke a business’ qualification for the exemption if the business is not following COVID-19 safety protocols. The temporary PPE exemption is set to expire upon the first day following the expiration of the last executive order issued by the Governor related to the COVID-19 pandemic and the termination of the COVID-19 Emergency Temporary Standard. For more information on conformity, please contact Diana Smith. If you have questions on the new PPE sales and use tax exemption, please contact  Sarika Bakshi or Jeremy Jester.