Virginia Department of Taxation isn’t What isn’t new for 2005?

VirginiaDepartment of Taxation

What isn’tisn’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


• 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


• 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 2004Results

• Electronic filing growth continued

• Refunds issued fast, faster, fastest….

• Error rate continues downward trend

Returns Processed

As of November 13, 2004

Refund TurnaroundCurrent Year Refunds, All Tax Types


Refund Information

Error RatesAs 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 RatesElectronic vs Paper Filed

ReturnsAll Years & All Types

• Electronic Returns 2.98%• Paper Filed Returns 13.61%• Overall Error Rate 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) $3,039,126 2003 $4,188,8072002 $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 ProcessingA 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.

• 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!

Vouchers – An Example

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…………

http://www.tax.virginia.gov/

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

• 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

Fixed Date Conformity

What’s new in Virginia?

Individual Income Tax – Legislative Changes Individual Income Tax – Legislative Changes

• Taxable Year 2004Taxable Year 2004

• Age Deduction Changes – includes phase-out of $6,000 Under Age 65 age Age Deduction Changes – includes phase-out of $6,000 Under Age 65 age deduction and, for the Age 65 and Older age deduction, “grand-deduction and, for the Age 65 and Older age deduction, “grand-fathering”and “income-testing”fathering”and “income-testing”

• 4 New “Refund Only” contributions and 8 new Public School Foundation 4 New “Refund Only” contributions and 8 new Public School Foundation contributionscontributions

• Contribution “limits”Contribution “limits”• Expansion of services eligible to qualify for Neighborhood Assistance Act Expansion of services eligible to qualify for Neighborhood Assistance Act

CreditCredit• Electronic filing or 2D barcode Tax Practitioner mandateElectronic filing or 2D barcode Tax Practitioner mandate• Agricultural Products Donation subtraction, Code 27: ExpiredAgricultural Products Donation subtraction, Code 27: Expired

What’s new in Virginia?IndividualIndividual Income Tax – Legislative ChangesIncome Tax – Legislative Changes

• Taxable Year 2005Taxable Year 2005• Standard deduction for married taxpayers increases - $5,000 Standard deduction for married taxpayers increases - $5,000

increases to $6,000 for married filing jointly and $3,000 for married increases to $6,000 for married filing jointly and $3,000 for married filing separatelyfiling separately

• Filing thresholds increase - $5K/$8K increases to $7K/$14KFiling thresholds increase - $5K/$8K increases to $7K/$14K• Personal exemptions for taxpayers and dependents increases to Personal exemptions for taxpayers and dependents increases to

$900 – the age 65 and over and the blind exemptions remain at $900 – the age 65 and over and the blind exemptions remain at $800 each$800 each

• The The Taxable Year 2005Taxable Year 2005 changes impact: changes impact:• Employer withholding beginning January 1, 2005Employer withholding beginning January 1, 2005• Individual estimated payments for 2005Individual estimated payments for 2005• Annual return filing for ty2005, which begins January 1, 2006Annual return filing for ty2005, which begins January 1, 2006


Individual Income Tax – Legislative ChangesIndividual Income Tax – Legislative Changes

Taxable Year 2006Taxable Year 2006

New New nonrefundable nonrefundable credit equal to 20% of federal EITC – credit equal to 20% of federal EITC – taxpayers may claim this credit OR the Low Income Credit, not taxpayers may claim this credit OR the Low Income Credit, not bothboth

Individual Income TaxAge 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 TaxThe 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

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


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


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.


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.


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


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 = $55,000

Threshold = (minus) $50,000

Difference = $5,000

Maximum age deduction = $12,000

Amount AFAGI exceeds threshold = (minus) $5,000

Age Deduction allowed = $7,000


Income based Age DeductionExample 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 = $80,000Threshold = (minus) $75,000Difference = $5,000

Maximum age deduction = $12,000Amount AFAGI exceeds threshold = (minus) $5,000Age 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).



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.


Maximum age deduction = $12,000Amount AFAGI exceeds threshold = (minus) $5,000Age Deduction allowed = $,7000



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.


Maximum joint age deduction = $24,000Amount AFAGI exceeds threshold = (minus) $5,000Joint Age Deduction allowed = $19,000Each spouse claims 50% = (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.



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 = $92,000

Threshold = (minus) $75,000

Difference = $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



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).


Maximum age deduction = $12,000Amount AFAGI exceeds threshold = (minus) $17,000Age Deduction allowed = $ 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).



Married taxpayers with a joint AFAGI of $92,000. Taxpayers are filing a joint VA return and 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 . 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 However, one spouse is claiming a disability subtraction of $20,000 and thus cannot claim the age deduction. deduction.


Maximum age deduction = $12,000Amount AFAGI exceeds threshold = (minus) $17,000Age Deduction allowed = $ 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.


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.


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.


The Age 65 & OlderIncome 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 part-year ratio or the nonresident allocation percentage.



“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




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 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!

http://media.fastclick.net/w/click.here?sid=4951&m=1&c=1

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”


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

• Creative Solutions

• Drake Enterprises

• H & R Block

• Intuit ProSeries

• Lacerte Software

• RIA

• STF Service Corp

• TaxWise

• ATX

What’s new in Virginia?“Paid Tax Preparer”


What is a 2D Barcode?

The 2D Barcode




Legislation includes:

• An Opt Out Provision for Taxpayers

• A Hardship Waiver for the Tax Preparer




• 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?


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


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 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 2004Effective Taxable Year 2004

New Reporting RequirementsNew Reporting Requirements

forfor

Pass-Through EntitiesPass-Through Entities

• Legislation creates a uniform filing requirement for Pass-Through-Entities

• Requirement applies all Partnerships including S-

Corporations, General and Limited Partnerships, and Limited Liability Partnerships and Companies

• Form 500S is being discontinued, effective for

TY2004


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


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).


• 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 computer-generated.

• Notification of legislative changes and information on how to obtain forms scheduled to be mass mailed to all registered businesses mid December.

Corporate Income 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

A New Tax

• 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.

Tobacco Products

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.


Effective September 1, 2004: • The state sales and use tax rate on sales of non-

food 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%


• 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.


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%


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.)



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 the760 instruction booklet hasbeen re-writtento 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 IssuesTax Tips include:

• 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.

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.

Military Issues

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.


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.


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


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VA TAX Web SiteWe’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!

Virginia Department of Taxation isn’t What isn’t new for 2005?

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Transcript of Virginia Department of Taxation isn’t What isn’t new for 2005?