Member Alert: Virginia Debt Buyer Apportionment Law Impacts Multi-State Debt Buyers

In 2018  the Virginia General Assembly enacted House Bill 798 (2018 Acts of Assembly, Chapter 807). This law requires multistate debt buyers to apportion their income to Virginia to determine the amount of tax they owe to the state (“Debt Buyer Apportionment”). Under Debt Buyer Apportionment, companies that meet the definition of “debt buyer” must use a single factor method of apportionment based on sales and also a market-based sourcing approach to source its sales that consist of the money recovered on debt.

For purposes of Debt Buyer Apportionment, “debt buyer” is 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. “Debt buyer” does not include an entity that provides debt collection services for unaffiliated entities

For taxable years beginning on or after January 1, 2019, a company that qualifies as a debt buyer is required to use Debt Buyer Apportionment when apportioning income to Virginia.  No company may utilize Debt Buyer Apportionment unless it qualifies as a debt buyer.

To assist companies in interpreting the new tax law, the Virginia Department of Taxation published guidance to taxpayers regarding the apportionment method and market-based sourcing methods that apply to debt buyers. These guidelines represent the Department’s interpretation of the relevant laws.  They do not constitute formal rulemaking and hence do not have the force and effect of law or regulation. The new guidelines go into effect on February 6.

Additional Information  

Multi-state debt buyers are encouraged to seek the advice of a tax attorney to determine how Virginia’s Debt Buyer Apportionment requirements impact their company’s tax liability.

These guidelines are available online on the Virginia Regulatory Town Hall website, located at https://townhall.virginia.gov, and on the Guidance Documents section of the Department’s website, located at http://tax.virginia.gov/guidance-documents. For additional information, please contact the Department at (804) 367-8037

This Alert is intended for Members of RMAI and is for informational purposes only; it is in no way intended to provide legal advice. Members are encouraged to consult with an attorney of their choice for legal advice concerning this matter.