Virginia Corporation Income Tax 2023 - 2024

Virginia has several taxes and fees that apply to businesses. Corporations pay a state business tax based on their gross taxable revenue. This tax is similar to the Virginia personal income tax, and corporations are allowed certain deductions, such as wages paid, cost of goods sold, and other qualifying expenses. Virginia corporate income tax has not been raised in more than 40 years, and its 6 percent rate is one of the lowest in the nation. The tax is levied on taxable Virginia income using a three-factor apportionment formula of payroll, property, and sales. A single-factor apportionment election based on sales is available for manufacturing companies.

In addition to corporate taxes, you must pay local and county taxes on your company’s taxable Virginia income. These taxes vary by locality, but you typically pay a combined state and local sales tax of 5.30%. The state offers ACH Credit for estimated tax and extension payment transactions to make payments easier. Bizee can help you set up this service through your bank as part of the VA corporation registration process. You’ll also need an EIN (Employer Identification Number) for your business, which Bizee can provide as part of our LLC formation services.

Virginia S-Corp Taxation

S-Corporations and flow-through entities aren’t required to pay corporate income tax in Virginia, but they must report and pay federal income taxes on their pass-through profits. In addition, these companies must file an informational return with the Virginia Department of Taxation and a federal business tax return (Form 1120) with the IRS. Under new legislation, any entity that fails to file the required report or makes a material misstatement or omission may be subject to a $10,000 penalty.

The company’s presence and activity in Virginia are the main determining factors of whether the state tax obligations apply. This means that the company should have employees in the state, have offices there, generate revenue from activities there, or be present in other ways. A founder living in the state is insufficient to trigger corporate income taxes.

A company may also benefit from electing S-corp tax status in order to avoid paying corporate income taxes. This is because S-corps act as pass-through entities and don’t have to pay the Virginia state corporate income tax. However, this may not be a good idea for all companies. It’s best to consult a professional about the specific situation of each business.

Virginia PTE Taxation

A Virginia PTE may make an annual election to tax itself at the entity level on a 5.75 percent rate for state income taxes. This option is available for PTEs that qualify to do so, including qualifying S corporations and subchapter S trusts.

The electing PTE must submit Form 502PTET, with all owner credit allocation details and required schedules, via the online business services portal by the date the election is due. The DOT has recently issued draft guidelines to clarify the process for making this election.

For nonresident owners, the DOT will add back to each nonresident owner’s share of the PTE’s Virginia taxable income those items that are excluded from federal taxable income or subject to a limitation under federal law (for example, extraordinary COVID-19 loans and grants such as AEDP Back-2-Business and weather grant assistance). The DOT also limits the amount of the addback for nonresident owners by the ratio that their Virginia taxable income bears to the total income base for the resident state.

A PTE that makes the PTET election must file its return and pay any tax due by the original filing deadline, or risk an extension penalty of 2 percent per month, up to 12 percent of the final tax liability. This is different from the IRS, which applies a seven-month extension period to returns and six months to payments.