A BILL to amend and reenact § 58.1-402 of the Code of Virginia, relating to corporate income tax; taxable income; net operating loss.
HB958 would amend Virginia’s corporate income tax rules by changing how Virginia taxable income is calculated for corporations beginning in tax year 2027. The bill removes federal net operating loss deductions from the starting point for Virginia taxable income and then creates a separate Virginia net operating loss framework, including rules for how losses are computed, carried forward, and applied on consolidated and combined returns. It also directs the Department of Taxation to issue implementation guidelines and to publish preliminary guidance before finalizing those rules.
In addition to the new net operating loss treatment, the bill makes conforming changes to the long list of Virginia additions and subtractions used to reconcile federal taxable income to Virginia taxable income. The text preserves and restates existing rules on related-party intangible expenses and interest expenses, captive REITs, certain investment and real estate subtractions, and other corporate tax adjustments, while adding a new subtraction for costs incurred to install a qualifying upgrade required to interconnect a triggering project beginning in 2026. The bill’s effective date is January 1, 2027, except for the interconnection-upgrade subtraction, which applies beginning in 2026.
HB958 would materially change the calculation of corporate taxable income in Virginia by decoupling the state from the federal net operating loss deduction and replacing it with a Virginia-specific net operating loss deduction regime. This would affect corporate taxpayers, especially those with losses, and would require the Department of Taxation to administer new rules for tracking losses across taxable years and across consolidated or combined filing groups. The bill also adds a new corporate subtraction for certain electric-grid interconnection upgrade costs and requires agency guidance to implement the changes.
There is limited recorded discussion in the provided materials, but the committee action suggests the bill received strong support in Finance and Appropriations, where it was continued to the next session by a 14-1 vote. That vote indicates broad committee approval with only minimal opposition. The absence of recorded debate or testimony makes it difficult to identify broader public sentiment, but the vote history points to generally favorable treatment in committee.
The main policy issue appears to be the shift from federal to Virginia-specific treatment of net operating losses, which can affect corporate tax liability, loss utilization timing, and compliance complexity. Corporations with existing federal NOL carryforwards may be affected by the transition rules, and combined or consolidated filers may need to adjust how losses are tracked and applied. The bill also gives the Tax Commissioner and Department of Taxation significant administrative authority, including issuing guidelines and reviewing petitions, which may raise concerns about implementation burden and discretion, though no specific objections are recorded in the provided materials.