A BILL to amend and reenact §§ 58.1-416, as it is effective and as it may become effective, 58.1-422.4, and 58.1-422.5, as it may become effective, of the Code of Virginia and to repeal the third enactment of Chapter 256 and the third enactment of Chapter 257 of the Acts of Assembly of 2022, relating to corporate income tax; sourcing of sales other than sales of tangible personal property.
HB609 revises Virginia’s corporate income tax sourcing rules for sales other than sales of tangible personal property, with a focus on how service and intangible-property receipts are assigned to the Commonwealth for apportionment purposes. The bill shifts the general rule toward a market-based sourcing approach for taxable years beginning on and after January 1, 2027, so that sales are sourced to Virginia when the customer receives the benefit of the service, the property is used in Virginia, or the relevant real property is located in Virginia. It also keeps special sourcing rules for debt buyers and adds a new special rule for Internet root infrastructure providers.
The bill also updates and extends the statutory special treatment for certain firms tied to economic development agreements. It narrows the covered period and certification requirements for property information and analytics firms and Internet root infrastructure providers, while preserving their ability to be sourced under the special Virginia rules if the statutory conditions are met. The bill includes estimation procedures when taxpayers cannot determine sourcing with reasonable effort, a special population-based estimate for certain defense contractor contracts, and a provision allowing telecommunications companies to elect a cost-of-performance method for a limited period. It repeals two 2022 enactments tied to the prior special sourcing framework and makes the changes effective for taxable years beginning on and after January 1, 2027.
HB609 would amend §§ 58.1-416, 58.1-422.4, and 58.1-422.5 of the Code of Virginia, changing how certain non-tangible sales are sourced for corporate income tax purposes and thereby affecting the sales factor used in apportioning income to Virginia. It would also repeal prior 2022 enactments that had established earlier versions of the special sourcing rules, and it would alter the eligibility windows and certification triggers for property information and analytics firms and Internet root infrastructure providers. The practical effect is to expand and clarify Virginia’s authority to tax receipts from services and intangibles tied to Virginia customers or users, while preserving targeted industry-specific exceptions and transition rules.
The bill appears to be generally pro-business-development in tone but also revenue-protective, reflecting an effort to modernize sourcing rules while preserving special treatment for certain employers that have made large capital and job commitments in Virginia. Because the bill was only introduced and referred to subcommittee, there is no recorded vote or transcript showing formal support or opposition. The available text suggests the measure is intended to align tax sourcing with market-based principles and to protect the Commonwealth’s tax base, which may appeal to fiscal policymakers and economic development stakeholders alike.
The main points of contention are likely to be the shift away from a pure cost-of-performance approach toward market-based sourcing for services and intangibles, and the continued use of special carve-outs for selected firms. Taxpayers with multistate operations, especially telecommunications companies and businesses selling services or intangible property, may object to broader Virginia sourcing and the Department’s stated intent to assert nexus to the maximum extent permitted by law. At the same time, the bill preserves and refines preferential treatment for property information and analytics firms and Internet root infrastructure providers, which could draw scrutiny from those who view the provisions as industry-specific tax preferences tied to large economic development deals.