SB346: Income tax, state; property information and analytics firms, business operations, definitions.


VIRGINIA ACTS OF ASSEMBLY -- CHAPTER
An Act to amend and reenact § 58.1-416 of the Code of Virginia and to amend the Code of Virginia by adding a section numbered 58.1-422.4, relating to income tax; property information and analytics firms.
[S 346]
Approved

 

Be it enacted by the General Assembly of Virginia:

1. That § 58.1-416 of the Code of Virginia is amended and reenacted and that the Code of Virginia is amended by adding a section numbered 58.1-422.4 as follows:

§ 58.1-416. When certain other sales deemed in the Commonwealth.

A. Sales, other than sales of tangible personal property, are in the Commonwealth if:

1. The income-producing activity is performed in the Commonwealth; or

2. The income-producing activity is performed both in and outside the Commonwealth and a greater proportion of the income-producing activity is performed in the Commonwealth than in any other state, based on costs of performance.

B. 1. For debt buyers, as defined in § 58.1-422.3, sales, other than sales of tangible personal property, are in the Commonwealth if they consist of money recovered on debt that a debt buyer collected from a person who is a resident of the Commonwealth or an entity that has its commercial domicile in the Commonwealth. Such rule shall apply regardless of the location of a debt buyer's business.

2. For property information and analytics firms, as defined in § 58.1-422.4, that meet the requirements set forth in § 58.1-422.4, sales of services are in the Commonwealth if they are  derived from transactions with a customer or client who receives the benefit of the services in the Commonwealth. Such rule shall apply regardless of the location of a property information and analytics firm's business operations.

C. The taxes under this article on the sales described under subsection B are imposed to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law. For the collection of such taxes on such sales, it is the intent of the General Assembly that the Tax Commissioner and the Department assert the taxpayer's nexus with the Commonwealth to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law.

D. If necessary information is not available to the taxpayer to determine whether a sale other than a sale of tangible personal property is in the Commonwealth pursuant to the provisions of subsections B and C, the taxpayer may estimate the dollar value or portion of such sale in the Commonwealth, provided that the taxpayer can demonstrate to the satisfaction of the Tax Commissioner that (i) the estimate has been undertaken in good faith, (ii) the estimate is a reasonable approximation of the dollar value or portion of such sale in the Commonwealth, and (iii) in using an estimate the taxpayer did not have as a principal purpose the avoidance of any tax due under this article. The Department may implement procedures for obtaining its approval to use an estimate. The Department shall adopt remedies and corrective procedures for cases in which the Department has determined that the sourcing rules for sales other than sales of tangible personal property have been abused by the taxpayer, which may include reliance on the location of income-producing activity and direct costs of performance as described in subsection A.

§ 58.1-422.4. Property information and analytics firms.

A. As used in this section:

"Authority" means the Virginia Economic Development Partnership Authority.

"Eligible city" means the City of Richmond.

"Memorandum of understanding" means a performance agreement or related document entered into by a property information and analytics firm and the Authority on or after December 1, 2021, but before August 1, 2022, that sets forth the requirements for capital investments and the creation of new full-time jobs by such property information and analytics firm.

"Property information and analytics firm" means an entity and its affiliated entities that as of January 1, 2022, is primarily a commercial real estate information and analytics firm with a location in an eligible city and that between January 1, 2022, and January 1, 2029, is expected to (i) make or cause to be made a capital investment in an eligible city of at least $414.45 million and (ii) create at least 1,785 new jobs with average annual wages of at least $85,000 per job.

B. 1. For taxable years beginning on or after January 1, 2022, but before January 1, 2029, a property information and analytics firm shall be subject to the provisions of subdivision B 2 of § 58.1-416 only if the Authority certifies to the Department that it has at least 1,000 full-time employees as of January 1, 2022, in an eligible city, subject to the terms and conditions of the memorandum of understanding.

2. For taxable years beginning on or after January 1, 2029, a property information and analytics firm shall be subject to the provisions of subdivision B 2 of § 58.1-416 only if the Authority certifies to the Department that it has at least 2,785 full-time employees as of January 1, 2029, in an eligible city, and from January 1, 2022, through December 31, 2028, has made or caused to be made a capital investment for its facilities in that eligible city of at least $414.45 million. Once the Authority certifies a property information and analytics firm has met the job and capital investment requirements set forth in this subdivision, no additional certifications shall be required and the property information and analytics firm shall continue to be subject to the provisions of subdivision B 2 of § 58.1-416 in all future taxable years.

C. The General Assembly finds that the growth of property information and analytics firms, including the capital investment and new jobs spurred by such growth, is essential to the continued fiscal health of the Commonwealth. Accordingly, the provisions of subsections A and B relating to capital investment and new jobs are integral to the purpose of this section. If any provision of this section is for any reason held to be invalid or unconstitutional by the decision of a court of competent jurisdiction, that provision shall not be deemed severable.

2. That the Department of Taxation shall develop and make publicly available guidelines implementing the provisions of this act. In developing such guidelines, the Department of Taxation shall not be subject to the provisions of the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia) for guidelines promulgated on or before December 31, 2023, but shall cooperate with and seek the counsel of interested groups and shall not promulgate any guidelines, preliminary or final, without first seeking such counsel and conducting a public hearing. Preliminary guidelines shall be promulgated and made publicly available no later than December 31, 2022, and final guidelines shall be promulgated and made publicly available no later than December 31, 2023. After December 31, 2023, the guidelines shall be subject to the Administrative Process Act and accorded the weight of regulations under § 58.1-205 of the Code of Virginia.

3. That for taxable years beginning on and after January 1, 2022, but before January 1, 2032, any property information and analytics firm, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, that apportions its income pursuant to subdivision B 2 of § 58.1-416 of the Code of Virginia, as amended by this act, shall include with its income tax return information regarding market-based sourcing for services under this act as compared to cost of performance, including the amounts of the property, payroll, and sales factors under both methods; the apportionment percentages under both methods; and the amount of tax calculated under both methods. The Department of Taxation shall use such information to compute an estimate of the fiscal savings to such firms. Notwithstanding any provision of § 58.1-3 of the Code of Virginia or any other law, the Department may provide to the Virginia Economic Development Partnership Authority and the Secretaries of Commerce and Trade and Finance such information as may be necessary to facilitate the purposes of this act. In addition and notwithstanding any provision of § 58.1-3 of the Code of Virginia or any other law, the Department of Taxation shall, upon request, report to the Chairmen of the House Committee on Appropriations and the Senate Committee on Finance and Appropriations the number of returns processed for property information and analytics firms that used market-based sourcing for services under this act and the annual estimated revenue impact of market-based sourcing as compared with cost of performance.

4. That the memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, shall include provisions that require the property information and analytics firm (the Firm) to report annually to the Secretaries of Commerce and Trade and Finance beginning January 1, 2023, such information as is necessary to demonstrate the Firm is in compliance with the performance criteria set forth in the memorandum of understanding.  The annual report shall contain information regarding the new jobs created and new capital investments made by the Firm to satisfy the performance criteria, the anticipated liability of the Firm notwithstanding the provisions of this act related to the apportionment of its income, the anticipated liability of the Firm pursuant to the apportionment formula under this act, and other such financial information as the Virginia Economic Development Partnership Authority or the Secretaries of Commerce and Trade and Finance deem necessary to demonstrate that the Firm will be able to fulfill the obligations of the memorandum of understanding regarding repayment of the benefit of the apportionment formula under this act should it fail to meet the terms and conditions of the memorandum of understanding.

5. That the memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, shall contain a provision that should the property information and analytics firm (the Firm) be out of substantial compliance with the performance criteria set forth in the memorandum of understanding for three consecutive years, then the memorandum of understanding shall terminate, and the Firm shall repay the benefits received under this act proportional to the failure to create new jobs and make new investments as outlined in the terms and conditions. If the memorandum is terminated pursuant to this enactment and such provision, the Secretary of Finance shall notify the Department of Taxation, and the Firm shall thereafter no longer be eligible to utilize the apportionment formula set forth in subdivision B 2 of § 58.1-416 of the Code of Virginia.

6. Any person to whom tax information is divulged pursuant to this act shall be subject to the prohibitions and penalties set forth in § 58.1-3 as though he were a tax official.

7. That the provisions of this act shall not become effective until a memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, is signed.  If such memorandum of understanding is not signed by August 1, 2022, the provisions of subsection B 2 of § 58.1-416 shall not be applicable in any taxable year beginning on or after January 1, 2023.

8. That the Virginia Economic Development Partnership Authority shall provide, upon signature, a copy of any memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, to the Chairmen of the MEI Project Approval Commission, the House Committee on Appropriations, and the Senate Committee on Finance and Appropriations. The provisions of this act shall expire if copies of such memorandum are not delivered within seven days of signature.


SENATE BILL NO. 346
AMENDMENT IN THE NATURE OF A SUBSTITUTE
(Proposed by the House Committee on Appropriations
on February 23, 2022)
(Patron Prior to Substitute--Senator Barker)
A BILL to amend and reenact § 58.1-416 of the Code of Virginia and to amend the Code of Virginia by adding a section numbered 58.1-422.4, relating to income tax; property information and analytics firms.

Be it enacted by the General Assembly of Virginia:

1. That § 58.1-416 of the Code of Virginia is amended and reenacted and that the Code of Virginia is amended by adding a section numbered 58.1-422.4 as follows:

§ 58.1-416. When certain other sales deemed in the Commonwealth.

A. Sales, other than sales of tangible personal property, are in the Commonwealth if:

1. The income-producing activity is performed in the Commonwealth; or

2. The income-producing activity is performed both in and outside the Commonwealth and a greater proportion of the income-producing activity is performed in the Commonwealth than in any other state, based on costs of performance.

B. 1. For debt buyers, as defined in § 58.1-422.3, sales, other than sales of tangible personal property, are in the Commonwealth if they consist of money recovered on debt that a debt buyer collected from a person who is a resident of the Commonwealth or an entity that has its commercial domicile in the Commonwealth. Such rule shall apply regardless of the location of a debt buyer's business.

2. For property information and analytics firms, as defined in § 58.1-422.4, that meet the requirements set forth in § 58.1-422.4, sales of services are in the Commonwealth if they are  derived from transactions with a customer or client who receives the benefit of the services in the Commonwealth. Such rule shall apply regardless of the location of a property information and analytics firm's business operations.

C. The taxes under this article on the sales described under subsection B are imposed to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law. For the collection of such taxes on such sales, it is the intent of the General Assembly that the Tax Commissioner and the Department assert the taxpayer's nexus with the Commonwealth to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law.

D. If necessary information is not available to the taxpayer to determine whether a sale other than a sale of tangible personal property is in the Commonwealth pursuant to the provisions of subsections B and C, the taxpayer may estimate the dollar value or portion of such sale in the Commonwealth, provided that the taxpayer can demonstrate to the satisfaction of the Tax Commissioner that (i) the estimate has been undertaken in good faith, (ii) the estimate is a reasonable approximation of the dollar value or portion of such sale in the Commonwealth, and (iii) in using an estimate the taxpayer did not have as a principal purpose the avoidance of any tax due under this article. The Department may implement procedures for obtaining its approval to use an estimate. The Department shall adopt remedies and corrective procedures for cases in which the Department has determined that the sourcing rules for sales other than sales of tangible personal property have been abused by the taxpayer, which may include reliance on the location of income-producing activity and direct costs of performance as described in subsection A.

§ 58.1-422.4. Property information and analytics firms.

A. As used in this section:

"Authority" means the Virginia Economic Development Partnership Authority.

"Eligible city" means the City of Richmond.

"Memorandum of understanding" means a performance agreement or related document entered into by a property information and analytics firm and the Authority on or after December 1, 2021, but before August 1, 2022, that sets forth the requirements for capital investments and the creation of new full-time jobs by such property information and analytics firm.

"Property information and analytics firm" means an entity and its affiliated entities that as of January 1, 2022, is primarily a commercial real estate information and analytics firm with a location in an eligible city and that between January 1, 2022, and January 1, 2029, is expected to (i) make or cause to be made a capital investment in an eligible city of at least $414.45 million and (ii) create at least 1,785 new jobs with average annual wages of at least $85,000 per job.

B. 1. For taxable years beginning on or after January 1, 2022, but before January 1, 2029, a property information and analytics firm shall be subject to the provisions of subdivision B 2 of § 58.1-416 only if the Authority certifies to the Department that it has at least 1,000 full-time employees as of January 1, 2022, in an eligible city, subject to the terms and conditions of the memorandum of understanding.

2. For taxable years beginning on or after January 1, 2029, a property information and analytics firm shall be subject to the provisions of subdivision B 2 of § 58.1-416 only if the Authority certifies to the Department that it has at least 2,785 full-time employees as of January 1, 2029, in an eligible city, and from January 1, 2022, through December 31, 2028, has made or caused to be made a capital investment for its facilities in that eligible city of at least $414.45 million. Once the Authority certifies a property information and analytics firm has met the job and capital investment requirements set forth in this subdivision, no additional certifications shall be required and the property information and analytics firm shall continue to be subject to the provisions of subdivision B 2 of § 58.1-416 in all future taxable years.

C. The General Assembly finds that the growth of property information and analytics firms, including the capital investment and new jobs spurred by such growth, is essential to the continued fiscal health of the Commonwealth. Accordingly, the provisions of subsections A and B relating to capital investment and new jobs are integral to the purpose of this section. If any provision of this section is for any reason held to be invalid or unconstitutional by the decision of a court of competent jurisdiction, that provision shall not be deemed severable.

2. That the Department of Taxation shall develop and make publicly available guidelines implementing the provisions of this act. In developing such guidelines, the Department of Taxation shall not be subject to the provisions of the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia) for guidelines promulgated on or before December 31, 2023, but shall cooperate with and seek the counsel of interested groups and shall not promulgate any guidelines, preliminary or final, without first seeking such counsel and conducting a public hearing. Preliminary guidelines shall be promulgated and made publicly available no later than December 31, 2022, and final guidelines shall be promulgated and made publicly available no later than December 31, 2023. After December 31, 2023, the guidelines shall be subject to the Administrative Process Act and accorded the weight of regulations under § 58.1-205 of the Code of Virginia.

3. That for taxable years beginning on and after January 1, 2022, but before January 1, 2032, any property information and analytics firm, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, that apportions its income pursuant to subdivision B 2 of § 58.1-416 of the Code of Virginia, as amended by this act, shall include with its income tax return information regarding market-based sourcing for services under this act as compared to cost of performance, including the amounts of the property, payroll, and sales factors under both methods; the apportionment percentages under both methods; and the amount of tax calculated under both methods. The Department of Taxation shall use such information to compute an estimate of the fiscal savings to such firms. Notwithstanding any provision of § 58.1-3 of the Code of Virginia or any other law, the Department may provide to the Virginia Economic Development Partnership Authority and the Secretaries of Commerce and Trade and Finance such information as may be necessary to facilitate the purposes of this act. In addition and notwithstanding any provision of § 58.1-3 of the Code of Virginia or any other law, the Department of Taxation shall, upon request, report to the Chairmen of the House Committee on Appropriations and the Senate Committee on Finance and Appropriations the number of returns processed for property information and analytics firms that used market-based sourcing for services under this act and the annual estimated revenue impact of market-based sourcing as compared with cost of performance.

4. That the memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, shall include provisions that require the property information and analytics firm (the Firm) to report annually to the Secretaries of Commerce and Trade and Finance beginning January 1, 2023, such information as is necessary to demonstrate the Firm is in compliance with the performance criteria set forth in the memorandum of understanding.  The annual report shall contain information regarding the new jobs created and new capital investments made by the Firm to satisfy the performance criteria, the anticipated liability of the Firm notwithstanding the provisions of this act related to the apportionment of its income, the anticipated liability of the Firm pursuant to the apportionment formula under this act, and other such financial information as the Virginia Economic Development Partnership Authority or the Secretaries of Commerce and Trade and Finance deem necessary to demonstrate that the Firm will be able to fulfill the obligations of the memorandum of understanding regarding repayment of the benefit of the apportionment formula under this act should it fail to meet the terms and conditions of the memorandum of understanding.

5. That the memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, shall contain a provision that should the property information and analytics firm (the Firm) be out of substantial compliance with the performance criteria set forth in the memorandum of understanding for three consecutive years, then the memorandum of understanding shall terminate, and the Firm shall repay the benefits received under this act proportional to the failure to create new jobs and make new investments as outlined in the terms and conditions. If the memorandum is terminated pursuant to this enactment and such provision, the Secretary of Finance shall notify the Department of Taxation, and the Firm shall thereafter no longer be eligible to utilize the apportionment formula set forth in subdivision B 2 of § 58.1-416 of the Code of Virginia.

6. Any person to whom tax information is divulged pursuant to this act shall be subject to the prohibitions and penalties set forth in § 58.1-3 as though he were a tax official.

7. That the provisions of this act shall not become effective until a memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, is signed.  If such memorandum of understanding is not signed by August 1, 2022, the provisions of subsection B 2 of § 58.1-416 shall not be applicable in any taxable year beginning on or after January 1, 2023.

8. That the Virginia Economic Development Partnership Authority shall provide, upon signature, a copy of any memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, to the Chairmen of the MEI Project Approval Commission, the House Committee on Appropriations, and the Senate Committee on Finance and Appropriations. The provisions of this act shall expire if copies of such memorandum are not delivered within seven days of signature.


SENATE BILL NO. 346
AMENDMENT IN THE NATURE OF A SUBSTITUTE
(Proposed by the Senate Committee on Finance and Appropriations)
(Patron Prior to Substitute--Senator Barker)
Senate Amendments in [ ] – February 14, 2022
A BILL to amend and reenact § 58.1-416 of the Code of Virginia and to amend the Code of Virginia by adding a section numbered 58.1-422.4, relating to income tax; property information and analytics firms.

Be it enacted by the General Assembly of Virginia:

1. That § 58.1-416 of the Code of Virginia is amended and reenacted and that the Code of Virginia is amended by adding a section numbered 58.1-422.4 as follows:

§ 58.1-416. When certain other sales deemed in the Commonwealth.

A. Sales, other than sales of tangible personal property, are in the Commonwealth if:

1. The income-producing activity is performed in the Commonwealth; or

2. The income-producing activity is performed both in and outside the Commonwealth and a greater proportion of the income-producing activity is performed in the Commonwealth than in any other state, based on costs of performance.

B. 1. For debt buyers, as defined in § 58.1-422.3, sales, other than sales of tangible personal property, are in the Commonwealth if they consist of money recovered on debt that a debt buyer collected from a person who is a resident of the Commonwealth or an entity that has its commercial domicile in the Commonwealth. Such rule shall apply regardless of the location of a debt buyer's business.

2. For property information and analytics firms, as defined in § 58.1-422.4, that meet the requirements set forth in § 58.1-422.4, sales of services are in the Commonwealth if they are income derived from transactions with a customer or client who receives the benefit of the services in the Commonwealth. Such rule shall apply regardless of the location of a property information and analytics firm's business operations.

C. The taxes under this article on the sales described under subsection B are imposed to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law. For the collection of such taxes on such sales, it is the intent of the General Assembly that the Tax Commissioner and the Department assert the taxpayer's nexus with the Commonwealth to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law.

D. If necessary information is not available to the taxpayer to determine whether a sale other than a sale of tangible personal property is in the Commonwealth pursuant to the provisions of subsections B and C, the taxpayer may estimate the dollar value or portion of such sale in the Commonwealth, provided that the taxpayer can demonstrate to the satisfaction of the Tax Commissioner that (i) the estimate has been undertaken in good faith, (ii) the estimate is a reasonable approximation of the dollar value or portion of such sale in the Commonwealth, and (iii) in using an estimate the taxpayer did not have as a principal purpose the avoidance of any tax due under this article. The Department may implement procedures for obtaining its approval to use an estimate. The Department shall adopt remedies and corrective procedures for cases in which the Department has determined that the sourcing rules for sales other than sales of tangible personal property have been abused by the taxpayer, which may include reliance on the location of income-producing activity and direct costs of performance as described in subsection A.

§ 58.1-422.4. Property information and analytics firms.

A. As used in this section:

"Authority" means the Virginia Economic Development Partnership Authority.

"Eligible city" means the City of Richmond.

"Memorandum of understanding" means a performance agreement or related document entered into by a property information and analytics firm and the Authority on or after December 1, 2021, but before August 1, 2022, that sets forth the requirements for capital investments and the creation of new full-time jobs by such property information and analytics firm.

"Property information and analytics firm" means an entity and its affiliated entities that as of January 1, 2022, is primarily a commercial real estate information and analytics firm with a location in an eligible city and that between January 1, 2022, and January 1, 2029, is expected to (i) make or cause to be made a capital investment in an eligible city of at least $460.5 million and (ii) create 1,984 new jobs with average annual wages of at least $85,604 per job.

B. 1. For taxable years beginning on or after January 1, 2022, but before January 1, 2029, a property information and analytics firm shall be subject to the provisions of subdivision B 2 of § 58.1-416 only if the Authority certifies to the Department that it has at least 1,000 full-time employees as of January 1, 2022, in an eligible city, subject to the terms and conditions of the memorandum of understanding.

2. For taxable years beginning on or after January 1, 2029, a property information and analytics firm shall be subject to the provisions of subdivision B 2 of § 58.1-416 only if the Authority certifies to the Department that it has at least 2,785 full-time employees as of January 1, 2029, in an eligible city, and from January 1, 2022, through December 31, 2028, has made or caused to be made a capital investment for its facilities in that eligible city of at least $460.5 million. Once the Authority certifies a property information and analytics firm has met the job and capital investment requirements set forth in this subdivision, no additional certifications shall be required and the property information and analytics firm shall continue to be subject to the provisions of subdivision B 2 of § 58.1-416 in all future taxable years.

C. The General Assembly finds that the growth of property information and analytics firms, including the capital investment and new jobs spurred by such growth, is essential to the continued fiscal health of the Commonwealth. Accordingly, the provisions of subsections A and B relating to capital investment and new jobs are integral to the purpose of this section. If any provision of this section is for any reason held to be invalid or unconstitutional by the decision of a court of competent jurisdiction, that provision shall not be deemed severable.

2. That the Department of Taxation shall develop and make publicly available guidelines implementing the provisions of this act. In developing such guidelines, the Department of Taxation shall not be subject to the provisions of the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia) for guidelines promulgated on or before December 31, 2023, but shall cooperate with and seek the counsel of interested groups and shall not promulgate any guidelines, preliminary or final, without first seeking such counsel and conducting a public hearing. Preliminary guidelines shall be promulgated and made publicly available no later than December 31, 2022, and final guidelines shall be promulgated and made publicly available no later than December 31, 2023. After December 31, 2023, the guidelines shall be subject to the Administrative Process Act and accorded the weight of regulations under § 58.1-205 of the Code of Virginia.

3. That for taxable years beginning on and after January 1, 2022, but before January 1, 2032, any property information and analytics firm, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, that apportions its income pursuant to subdivision B 2 of § 58.1-416 of the Code of Virginia, as amended by this act, shall include with its income tax return information regarding market-based sourcing for services under this act as compared to cost of performance, including the amounts of the property, payroll, and sales factors under both methods; the apportionment percentages under both methods; and the amount of tax calculated under both methods. The Department of Taxation shall use such information to compute an estimate of the fiscal savings to such firms. Notwithstanding any provision of § 58.1-3 of the Code of Virginia or any other law, the Department may provide to the Virginia Economic Development Partnership Authority and the Secretaries of Commerce and Trade and Finance such information as may be necessary to facilitate the purposes of this act. In addition and notwithstanding any provision of § 58.1-3 of the Code of Virginia or any other law, the Department of Taxation shall, upon request, report to the Chairmen of the House Committee on Appropriations and the Senate Committee on Finance and Appropriations the number of returns processed for property information and analytics firms that used market-based sourcing for services under this act and the annual estimated revenue impact of market-based sourcing as compared with cost of performance.

4. That the memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, shall include provisions that require the property information and analytics firm (the Firm) to report annually to the Secretaries of Commerce and Trade and Finance beginning January 1, 2023, such information as is necessary to demonstrate the Firm is in compliance with the performance criteria set forth in the memorandum of understanding.  The annual report shall contain information regarding the new jobs created and new capital investments made by the Firm to satisfy the performance criteria, the anticipated liability of the Firm notwithstanding the provisions of this act related to the apportionment of its income, the anticipated liability of the Firm pursuant to the apportionment formula under this act, and other such financial information as the Virginia Economic Development Partnership Authority or the Secretaries of Commerce and Trade and Finance deem necessary to demonstrate that the Firm will be able to fulfill the obligations of the memorandum of understanding regarding repayment of the benefit of the apportionment formula under this act should it fail to meet the terms and conditions of the memorandum of understanding.

5. That the memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, shall contain a provision that should the property information and analytics firm (the Firm) be out of substantial compliance with the performance criteria set forth in the memorandum of understanding for three consecutive years, then the memorandum of understanding shall terminate, and the Firm shall repay the benefits received under this act proportional to the failure to create new jobs and make new investments as outlined in the terms and conditions. If the memorandum is terminated pursuant to this enactment and such provision, the Secretary of Finance shall notify the Department of Taxation, and the Firm shall henceforth be subject to the apportionment formula [ set forth in § 58.1-408 without the use of subdivision B 2 of § 58.1-416 ] of the Code of Virginia.

6. Any person to whom tax information is divulged pursuant to this act shall be subject to the prohibitions and penalties set forth in § 58.1-3 as though he were a tax official.

7. That the provisions of this act shall not become effective until a memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, is signed.  If such memorandum of understanding is not signed by August 1, 2022, the provisions of subsection B 2 of § 58.1-416 shall not be applicable in any taxable year beginning on or after January 1, 2023.

8. That the Virginia Economic Development Partnership Authority shall provide, upon signature, a copy of any memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, to the Chairmen of the MEI Project Approval Commission, the House Committee on Appropriations, and the Senate Committee on Finance and Appropriations. The provisions of this act shall expire if copies of such memorandum are not delivered within seven days of signature.


SENATE BILL NO. 346
AMENDMENT IN THE NATURE OF A SUBSTITUTE
(Proposed by the Senate Committee on Finance and Appropriations
on February 10, 2022)
(Patron Prior to Substitute--Senator Barker)
A BILL to amend and reenact § 58.1-416 of the Code of Virginia and to amend the Code of Virginia by adding a section numbered 58.1-422.4, relating to income tax; property information and analytics firms.

Be it enacted by the General Assembly of Virginia:

1. That § 58.1-416 of the Code of Virginia is amended and reenacted and that the Code of Virginia is amended by adding a section numbered 58.1-422.4 as follows:

§ 58.1-416. When certain other sales deemed in the Commonwealth.

A. Sales, other than sales of tangible personal property, are in the Commonwealth if:

1. The income-producing activity is performed in the Commonwealth; or

2. The income-producing activity is performed both in and outside the Commonwealth and a greater proportion of the income-producing activity is performed in the Commonwealth than in any other state, based on costs of performance.

B. 1. For debt buyers, as defined in § 58.1-422.3, sales, other than sales of tangible personal property, are in the Commonwealth if they consist of money recovered on debt that a debt buyer collected from a person who is a resident of the Commonwealth or an entity that has its commercial domicile in the Commonwealth. Such rule shall apply regardless of the location of a debt buyer's business.

2. For property information and analytics firms, as defined in § 58.1-422.4, that meet the requirements set forth in § 58.1-422.4, sales of services are in the Commonwealth if they are income derived from transactions with a customer or client who receives the benefit of the services in the Commonwealth. Such rule shall apply regardless of the location of a property information and analytics firm's business operations.

C. The taxes under this article on the sales described under subsection B are imposed to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law. For the collection of such taxes on such sales, it is the intent of the General Assembly that the Tax Commissioner and the Department assert the taxpayer's nexus with the Commonwealth to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law.

D. If necessary information is not available to the taxpayer to determine whether a sale other than a sale of tangible personal property is in the Commonwealth pursuant to the provisions of subsections B and C, the taxpayer may estimate the dollar value or portion of such sale in the Commonwealth, provided that the taxpayer can demonstrate to the satisfaction of the Tax Commissioner that (i) the estimate has been undertaken in good faith, (ii) the estimate is a reasonable approximation of the dollar value or portion of such sale in the Commonwealth, and (iii) in using an estimate the taxpayer did not have as a principal purpose the avoidance of any tax due under this article. The Department may implement procedures for obtaining its approval to use an estimate. The Department shall adopt remedies and corrective procedures for cases in which the Department has determined that the sourcing rules for sales other than sales of tangible personal property have been abused by the taxpayer, which may include reliance on the location of income-producing activity and direct costs of performance as described in subsection A.

§ 58.1-422.4. Property information and analytics firms.

A. As used in this section:

"Authority" means the Virginia Economic Development Partnership Authority.

"Eligible city" means the City of Richmond.

"Memorandum of understanding" means a performance agreement or related document entered into by a property information and analytics firm and the Authority on or after December 1, 2021, but before August 1, 2022, that sets forth the requirements for capital investments and the creation of new full-time jobs by such property information and analytics firm.

"Property information and analytics firm" means an entity and its affiliated entities that as of January 1, 2022, is primarily a commercial real estate information and analytics firm with a location in an eligible city and that between January 1, 2022, and January 1, 2029, is expected to (i) make or cause to be made a capital investment in an eligible city of at least $460.5 million and (ii) create 1,984 new jobs with average annual wages of at least $85,604 per job.

B. 1. For taxable years beginning on or after January 1, 2022, but before January 1, 2029, a property information and analytics firm shall be subject to the provisions of subdivision B 2 of § 58.1-416 only if the Authority certifies to the Department that it has at least 1,000 full-time employees as of January 1, 2022, in an eligible city, subject to the terms and conditions of the memorandum of understanding.

2. For taxable years beginning on or after January 1, 2029, a property information and analytics firm shall be subject to the provisions of subdivision B 2 of § 58.1-416 only if the Authority certifies to the Department that it has at least 2,785 full-time employees as of January 1, 2029, in an eligible city, and from January 1, 2022, through December 31, 2028, has made or caused to be made a capital investment for its facilities in that eligible city of at least $460.5 million. Once the Authority certifies a property information and analytics firm has met the job and capital investment requirements set forth in this subdivision, no additional certifications shall be required and the property information and analytics firm shall continue to be subject to the provisions of subdivision B 2 of § 58.1-416 in all future taxable years.

C. The General Assembly finds that the growth of property information and analytics firms, including the capital investment and new jobs spurred by such growth, is essential to the continued fiscal health of the Commonwealth. Accordingly, the provisions of subsections A and B relating to capital investment and new jobs are integral to the purpose of this section. If any provision of this section is for any reason held to be invalid or unconstitutional by the decision of a court of competent jurisdiction, that provision shall not be deemed severable.

2. That the Department of Taxation shall develop and make publicly available guidelines implementing the provisions of this act. In developing such guidelines, the Department of Taxation shall not be subject to the provisions of the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia) for guidelines promulgated on or before December 31, 2023, but shall cooperate with and seek the counsel of interested groups and shall not promulgate any guidelines, preliminary or final, without first seeking such counsel and conducting a public hearing. Preliminary guidelines shall be promulgated and made publicly available no later than December 31, 2022, and final guidelines shall be promulgated and made publicly available no later than December 31, 2023. After December 31, 2023, the guidelines shall be subject to the Administrative Process Act and accorded the weight of regulations under § 58.1-205 of the Code of Virginia.

3. That for taxable years beginning on and after January 1, 2022, but before January 1, 2032, any property information and analytics firm, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, that apportions its income pursuant to subdivision B 2 of § 58.1-416 of the Code of Virginia, as amended by this act, shall include with its income tax return information regarding market-based sourcing for services under this act as compared to cost of performance, including the amounts of the property, payroll, and sales factors under both methods; the apportionment percentages under both methods; and the amount of tax calculated under both methods. The Department of Taxation shall use such information to compute an estimate of the fiscal savings to such firms. Notwithstanding any provision of § 58.1-3 of the Code of Virginia or any other law, the Department may provide to the Virginia Economic Development Partnership Authority and the Secretaries of Commerce and Trade and Finance such information as may be necessary to facilitate the purposes of this act. In addition and notwithstanding any provision of § 58.1-3 of the Code of Virginia or any other law, the Department of Taxation shall, upon request, report to the Chairmen of the House Committee on Appropriations and the Senate Committee on Finance and Appropriations the number of returns processed for property information and analytics firms that used market-based sourcing for services under this act and the annual estimated revenue impact of market-based sourcing as compared with cost of performance.

4. That the memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, shall include provisions that require the property information and analytics firm (the Firm) to report annually to the Secretaries of Commerce and Trade and Finance beginning January 1, 2023, such information as is necessary to demonstrate the Firm is in compliance with the performance criteria set forth in the memorandum of understanding.  The annual report shall contain information regarding the new jobs created and new capital investments made by the Firm to satisfy the performance criteria, the anticipated liability of the Firm notwithstanding the provisions of this act related to the apportionment of its income, the anticipated liability of the Firm pursuant to the apportionment formula under this act, and other such financial information as the Virginia Economic Development Partnership Authority or the Secretaries of Commerce and Trade and Finance deem necessary to demonstrate that the Firm will be able to fulfill the obligations of the memorandum of understanding regarding repayment of the benefit of the apportionment formula under this act should it fail to meet the terms and conditions of the memorandum of understanding.

5. That the memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, shall contain a provision that should the property information and analytics firm (the Firm) be out of substantial compliance with the performance criteria set forth in the memorandum of understanding for three consecutive years, then the memorandum of understanding shall terminate, and the Firm shall repay the benefits received under this act proportional to the failure to create new jobs and make new investments as outlined in the terms and conditions. If the memorandum is terminated pursuant to this enactment and such provision, the Secretary of Finance shall notify the Department of Taxation, and the Firm shall henceforth be subject to the apportionment formula set forth in § 58.1-408 of the Code of Virginia.

6. Any person to whom tax information is divulged pursuant to this act shall be subject to the prohibitions and penalties set forth in § 58.1-3 as though he were a tax official.

7. That the provisions of this act shall not become effective until a memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, is signed.  If such memorandum of understanding is not signed by August 1, 2022, the provisions of subsection B 2 of § 58.1-416 shall not be applicable in any taxable year beginning on or after January 1, 2023.

8. That the Virginia Economic Development Partnership Authority shall provide, upon signature, a copy of any memorandum of understanding, as defined in § 58.1-422.4 of the Code of Virginia, as created by this act, to the Chairmen of the MEI Project Approval Commission, the House Committee on Appropriations, and the Senate Committee on Finance and Appropriations. The provisions of this act shall expire if copies of such memorandum are not delivered within seven days of signature.

SENATE BILL NO. 346

Offered January 12, 2022
Prefiled January 11, 2022
A BILL to amend and reenact §§ 58.1-408 and 58.1-416 of the Code of Virginia and to amend the Code of Virginia by adding a section numbered 58.1-422.4, relating to income tax; property analytics firms; apportionment and sourcing.
Patron-- Barker

Referred to Committee on Finance and Appropriations

Be it enacted by the General Assembly of Virginia:

1. That §§ 58.1-408 and 58.1-416 of the Code of Virginia are amended and reenacted and that the Code of Virginia is amended by adding a section numbered 58.1-422.4 as follows:

§ 58.1-408. What income apportioned and how.

A. The Virginia taxable income of any corporation, except those subject to the provisions of § 58.1-417, 58.1-418, 58.1-419, 58.1-420, 58.1-422, 58.1-422.1, 58.1-422.2, or 58.1-422.3, or 58.1-422.4, excluding income allocable under § 58.1-407, shall be apportioned to the Commonwealth by multiplying such income by a fraction, the numerator of which is the property factor plus the payroll factor, plus twice the sales factor, and the denominator of which is four; however, where the sales factor does not exist, the denominator of the fraction shall be the number of existing factors and where the sales factor exists but the payroll factor or the property factor does not exist, the denominator of the fraction shall be the number of existing factors plus one.

B. Any eligible company, as defined in § 58.1-405.1, may subtract from the numerator of the corresponding factor the value of its (i) property acquired in any qualified locality or qualified localities, as defined in § 58.1-405.1, on or after January 1, 2018, but before January 1, 2025; (ii) payroll attributable to jobs created on or after January 1, 2018, but before January 1, 2025, in any qualified locality or qualified localities; and (iii) sales in the Commonwealth during the taxable year. Such eligible company may make such modification for the taxable year in which it first becomes eligible and for the six subsequent, consecutive taxable years, except for any year in which the eligible company's (a) total, cumulative new capital investment falls below the applicable initial threshold or (b) number of new jobs falls below the applicable initial threshold.

§ 58.1-416. When certain other sales deemed in the Commonwealth.

A. Sales, other than sales of tangible personal property, are in the Commonwealth if:

1. The income-producing activity is performed in the Commonwealth; or

2. The income-producing activity is performed both in and outside the Commonwealth and a greater proportion of the income-producing activity is performed in the Commonwealth than in any other state, based on costs of performance.

B. 1. For debt buyers, as defined in § 58.1-422.3, sales, other than sales of tangible personal property, are in the Commonwealth if they consist of money recovered on debt that a debt buyer collected from a person who is a resident of the Commonwealth or an entity that has its commercial domicile in the Commonwealth. Such rule shall apply regardless of the location of a debt buyer's business.

2. For property analytics firms, as defined in § 58.1-422.4, and that meet the requirements set forth in subsection C of § 58.1-422.4, sales, other than sales of tangible personal property, are in the Commonwealth if they consist of income derived from transactions with a customer or client that is a resident of the Commonwealth or an entity that has its commercial domicile in the Commonwealth. Such rule shall apply regardless of the location of a property analytics firm's business.

C. The taxes under this article on the sales described under subsection B are imposed to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law. For the collection of such taxes on such sales, it is the intent of the General Assembly that the Tax Commissioner and the Department assert the taxpayer's nexus with the Commonwealth to the maximum extent permitted under the Constitutions of Virginia and the United States and federal law.

D. If necessary information is not available to the taxpayer to determine whether a sale other than a sale of tangible personal property is in the Commonwealth pursuant to the provisions of subsections B and C, the taxpayer may estimate the dollar value or portion of such sale in the Commonwealth, provided that the taxpayer can demonstrate to the satisfaction of the Tax Commissioner that (i) the estimate has been undertaken in good faith, (ii) the estimate is a reasonable approximation of the dollar value or portion of such sale in the Commonwealth, and (iii) in using an estimate the taxpayer did not have as a principal purpose the avoidance of any tax due under this article. The Department may implement procedures for obtaining its approval to use an estimate. The Department shall adopt remedies and corrective procedures for cases in which the Department has determined that the sourcing rules for sales other than sales of tangible personal property have been abused by the taxpayer, which may include reliance on the location of income-producing activity and direct costs of performance as described in subsection A.

§ 58.1-422.4. Property analytics firms; apportionment.

A. As used in this section, "property analytics firm" means an entity and its affiliated entities that primarily is a commercial real estate information and analytics firm and that meets the requirements of subsection C.

B. For taxable years beginning on and after January 1, 2022, the Virginia taxable income of a property analytics firm, excluding income allocable under § 58.1-407, shall be apportioned within and without the Commonwealth by multiplying such income by the sales factor. For a property analytics firm, only income derived from a transaction with a person who is a resident of the Commonwealth or an entity that has its commercial domicile in the Commonwealth shall be apportioned to the Commonwealth for income tax purposes.

C. 1. A firm shall qualify as a property analytics firm only if it meets the following criteria:

a. For taxable years beginning on and after January 1, 2022, but before January 1, 2024, such firm as of January 1, 2022, has at least 1,000 full-time employees in a locality within the Commonwealth that serves as the Virginia capital.

b. For taxable years beginning on and after January 1, 2024, but before January 1, 2029, such firm as of January 1, 2024, has at least 1,348 full-time employees in a locality within the Commonwealth that serves as the Virginia capital, and from January 1, 2022, through December 31, 2023, has made or caused to be made a capital investment for its facilities in that locality of at least $209 million.

c. For taxable years beginning on and after January 1, 2029, such firm as of January 1, 2029, has at least 2,785 full-time employees in a locality within the Commonwealth that serves as the Virginia capital, and from January 1, 2022, through December 31, 2028, has made or caused to be made a capital investment for its facilities in that locality of at least $414 million.

2. This section shall not apply to a taxpayer unless it enters into a memorandum of understanding with the Virginia Economic Development Partnership Authority on or after December 1, 2021, but before August 1, 2022, that contains provisions regarding the commitment of the property analytics firm to make or cause to be made on or after December 1, 2021, a new capital investment in the Commonwealth, and to create and maintain new jobs in the Commonwealth, all in the furtherance of its business. The apportionment formula under this section shall apply to such taxpayer for all taxable years beginning on or after January 1, 2022.

D. The General Assembly finds that the growth of property analytics firms, including the capital investment and new jobs spurred by such growth, is essential to the continued fiscal health of the Commonwealth. In this modern economy, states often compete for analytics and research companies. Accordingly, the provisions of subsections A, B, and C relating to capital investment and new jobs are integral to the purpose of this section. If any provision of this section is for any reason held to be invalid or unconstitutional by the decision of a court of competent jurisdiction, that provision shall not be deemed severable.

2. That the Department of Taxation shall develop and make publicly available guidelines implementing the provisions of this act. In developing such guidelines, the Department of Taxation shall not be subject to the provisions of the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia) for guidelines promulgated on or before December 31, 2023, but shall cooperate with and seek the counsel of interested groups and shall not promulgate any guidelines, preliminary or final, without first seeking such counsel and conducting a public hearing. Preliminary guidelines shall be promulgated and made publicly available no later than December 31, 2022, and final guidelines shall be promulgated and made publicly available no later than December 31, 2023. After December 31, 2023, the guidelines shall be subject to the Administrative Process Act and accorded the weight of regulations under § 58.1-205 of the Code of Virginia.