Virginia Enacts Retroactive Legislation That Significantly Limits Intangible Addback Exceptions

On April 1, Virginia Governor Terry McAuliffe signed into law H.B. 5001, enacting Virginia's budget bill "caboose," including a provision imposing retroactive limitations on the intangible expense addback exceptions.¹

Limiting the Intangible Expense Addback Exceptions

Under the original version of the addback provision enacted in 2004, Virginia taxpayers were required to add back intangible expenses paid to a related member (defined to include certain related parties) to the extent such expenses were deducted by the taxpayer in calculating federal taxable income for Virginia income tax purposes.² Exceptions to this addback requirement were provided for taxpayers meeting certain conditions. Specifically, two of these exceptions were commonly referred to as the "subject to tax" and "unrelated third-party revenues" exceptions.³