The Virginia Department of Taxation has released draft guidance to help debt buyers comply with a new law related to how they apportion their income to the state.
The state’s legislature passed a new law last year that requires debt buyers, regardless of where they are based, to apportion their income from the collection of debt to Virginia based on a single sales factor. Previously, debt buyers apportioned their income to Virginia based on the ratio of its property, payroll, and sales in Virginia to the same factors in all other states.
Released earlier this week, the guidance also defined a debt buyer, for the purposes of having to comply with the statute. Under the guidance, a debt buyer is defined as an entity and its affiliated entities that purchase nonperforming loans from unaffiliated commercial entities that are in default for at least 120 days or in bankruptcy proceedings. Under the definition, debt buyers do not include entities that provide debt collection services for unaffiliated entities.
The guidance provides a number of different scenarios and shares details about how to comply with the law in each instance.
To determine the sales factor for a debt buyer, the guidance says to create a fraction, using the total sales of the corporation in Virginia during the taxable year as the numerator and the total sales of the corporation everywhere during the taxable year as the denominator. Collection of any debt from an individual who is a resident of Virginia should be included in the numerator of the sales factor.
The guidance provides a series of steps to help debt buyers determine the origin or location of a debt receipt.
Debt buyers now join multistate manufacturing companies, retail companies, companies with enterprise data center operations, motor carriers, railway companies, financial corporations, and construction companies as having specialized apportionment calculations in Virginia.