Virginia — Corporate Income / Franchise Tax

Virginia imposes a corporate income tax at a flat rate of 6 percent on the Virginia taxable income of every corporation organized under Virginia law and every foreign corporation with income from Virginia sources. The tax is imposed annually for each taxable year.

Virginia taxable income generally means federal taxable income (and any other income taxable under federal law) adjusted by specific additions and subtractions set forth in the Virginia Code. Corporations with income from both within and outside Virginia must allocate and apportion their income under the rules in Va. Code §§ 58.1-407 through 58.1-420.

Certain corporations are exempt from the corporate income tax, including those paying alternative franchise or gross receipts taxes (public service corporations, banks, insurance companies), S corporations that have elected to be taxed under Subchapter S of the Internal Revenue Code, and charitable corporations exempt under IRC § 501(c).

Source: Va. Code § 58.1-400, Va. Code § 58.1-402, 23 Va. Admin. Code § 10-120-90

Virginia requires every corporation organized under Virginia law, or having income from Virginia sources, to file a return by the fifteenth day of the fourth month following the close of its taxable year. In addition, every foreign corporation registered with the State Corporation Commission to do business in Virginia must file a return even if it has no income from Virginia sources and no income tax is due.

A corporation has income from Virginia sources if it has sufficient business activity within Virginia to produce a positive apportionment factor under Virginia's allocation and apportionment rules. This includes income, gain, loss, or deduction from property located in Virginia or a business, trade, profession, or occupation carried on in Virginia.

Source: Va. Code § 58.1-441, 23 Va. Admin. Code § 10-120-310

Virginia employs a fixed-date conformity system for the Internal Revenue Code (IRC), replacing its prior rolling conformity approach. Under legislation enacted on February 20, 2026 (2026 Acts of Assembly, HB 29, Chapter 7), Virginia's conformity to the IRC is now fixed as of December 31, 2025. This means that for corporate income tax purposes, Virginia adopts federal tax law as it existed at that date, and subsequent federal tax changes do not automatically apply unless specifically adopted by the Virginia General Assembly through new conformity legislation.

Summary of Fixed-Date Conformity (Effective February 20, 2026)

• Virginia's corporate taxable income calculation begins with federal taxable income as determined under the IRC as of December 31, 2025.
• Only federal amendments that extend the expiration date of a provision already adopted by Virginia will be automatically conformed to. All other federal changes after December 31, 2025, require proactive legislative action to have effect in Virginia.

Business Interest Subtraction - IRC § 163(j)

• A key Virginia-specific subtraction relates to the business interest limitation under IRC § 163(j). For tax years beginning on or after January 1, 2025, Virginia allows an additional deduction equal to 20% of business interest disallowed at the federal level (previously 50% for 2023–2024). This reduction is established by the same 2026 Amendments (HB 29, Chapter 7, Item 4-14).

Other Subtractions from Federal Taxable Income

• Virginia continues to provide specific subtractions such as Virginia tax-exempt interest and certain income from foreign sources under Va. Code § 58.1-402(C), which are applied in the computation of Virginia taxable income after starting with the fixed-date federal starting point.

These changes are authoritative as documented in Virginia Tax Bulletin 26-1 (February 20, 2026), which provides detailed administrative guidance on the new fixed-date mechanism and the change to the business interest deduction.

Sources: Source: Virginia Tax Bulletin 26-1, Feb. 20, 2026 Source: Va. Code § 58.1-301, conformity as amended by 2026 Acts Source: Va. Code § 58.1-402, Virginia subtractions from federal taxable income

Not yet human confirmed. The section reflects legislative and administrative updates effective as of February 20, 2026.

Direct answer: Virginia recognizes the protections of federal Public Law 86-272 for out-of-state corporations soliciting orders for tangible personal property delivered to Virginia, but has not adopted economic nexus or “factor presence” nexus standards for corporate income tax. Nexus is generally established only through physical presence or active business registration/activities in Virginia.

Why: Virginia’s nexus standard for corporate income tax is rooted in sourcing income from "Virginia sources"—predicated on in-state business activity, ownership of property in Virginia, or having a positive Virginia apportionment factor. Virginia’s governing statutes and regulations do not reference economic or factor-presence nexus standards. The Department of Taxation and published administrative guidance confirm that Virginia applies traditional physical presence—nexus is created by in-state property, payroll, or business activity, not by exceeding a sales threshold alone. For remote (out-of-state) corporate sellers, P.L. 86-272 (15 U.S.C. § 381) is explicitly recognized in Virginia regulation (23 VAC 10-120-90(G)), protecting companies that restrict in-state activity to solicitation of orders for tangible goods shipped from out-of-state. There is no statutory or regulatory economic nexus rule (unlike in sales tax) for corporate income tax as of June 2026.

Source support:

• 23 VAC 10-120-90(G) formally implements P.L. 86-272 protections.
• Va. Code §§ 58.1-302, 58.1-400, and 58.1-441 define nexus by Virginia-source income, positive apportionment factors, and business registration but do not reference economic thresholds or factor-presence tests.
• No statutes, regulations, bulletins, or administrative rulings to date have implemented economic or factor-presence nexus standards for Virginia corporate income tax following South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).

Caution / review status: Not yet human confirmed. Virginia guidance is clear that P.L. 86-272 is recognized and no economic nexus applies (administratively or by statute) as of June 2026. If statutory or regulatory changes occur, practitioners should confirm current law.

Source: 23 VAC 10‑120‑90 G Source: Va. Code § 58.1-302 Source: Va. Code § 58.1-400 Source: Va. Code § 58.1-441

Virginia apportions corporate income using a three-factor formula with double-weighted sales. Apportionable income is multiplied by a fraction: the numerator is the property factor plus the payroll factor plus twice the sales factor; the denominator is four. If the sales factor does not exist, the denominator is the number of existing factors. If the sales factor exists but the property or payroll factor does not exist, the denominator is the number of existing factors plus one. Motor carriers (§ 58.1-417), financial corporations (§ 58.1-418), construction corporations (§ 58.1-419), and railway companies (§ 58.1-420) use specialized apportionment formulas.

Source: Va. Code § 58.1-408

Virginia's sales factor sourcing rules differ depending on whether the sale involves tangible personal property or other types of sales (services and intangible property). For multistate corporations, these sourcing rules determine which sales are included in the numerator of the Virginia sales factor.

Tangible personal property

Sales of tangible personal property are sourced to Virginia using destination-based (market-based) sourcing. Under Va. Code § 58.1-415, a sale is attributed to Virginia if the property is delivered or shipped to a purchaser within Virginia, regardless of the f.o.b. point or other conditions of sale. If the property is shipped from an office, store, warehouse, factory, or other place of storage in Virginia and either the purchaser is the United States government or the taxpayer is not taxable in the state of the purchaser, the sale is attributed to Virginia.

Services and intangible property

Sales other than sales of tangible personal property—including services and intangible property—are sourced to Virginia using cost-of-performance rules under Va. Code § 58.1-416. A sale is in Virginia if (1) the income-producing activity is performed in Virginia, or (2) the income-producing activity is performed both in and outside Virginia and a greater proportion of the income-producing activity is performed in Virginia than in any other state, based on costs of performance.

"Income-producing activity" means the acts directly engaged in by the taxpayer for the ultimate purpose of producing the sale to be apportioned; indirect expenses such as interest or activities produced by independent contractors are included in the cost-of-performance analysis. 23 Va. Admin. Code § 10-120-230; see also General Motors Corp. v. Commonwealth, 268 Va. 289, 602 S.E.2d 123 (2004) (regulation limiting costs to direct costs is inconsistent with statute). The costs of performance are deemed performed at the location of the corporation's real and tangible property and its employees.

Virginia has used the cost-of-performance method for services and intangibles since 1960, modeled on § 17 of the Uniform Division of Income for Tax Purposes Act (UDITPA). CEB Inc. v. Commonwealth, 299 Va. 194 (2020). This approach differs from the market-based sourcing rules adopted by a majority of states. The 2025 General Assembly studied but did not enact market-based sourcing legislation; HB1866, which would have implemented market-based sourcing for taxable years beginning on or after January 1, 2026, was tabled by the House Finance Committee. The 2024–2026 Appropriation Act (Item 257(E)) directs the Department of Taxation to study market-based sourcing and submit recommendations by November 15, 2025.

Special sourcing rules

Certain industries are subject to specialized sales factor sourcing rules. Qualifying property information and analytics firms with a memorandum of understanding with the Virginia Economic Development Partnership Authority may use a hybrid sales factor that applies market-based sourcing for sales of services and cost-of-performance for other non-tangible sales. Va. Code § 58.1-422.4; see also Va. Code § 58.1-422.3 (debt buyers).

Source: Va. Code § 58.1-414, Va. Code § 58.1-415, Va. Code § 58.1-416, 23 Va. Admin. Code § 10-120-230

Virginia recognizes the protections afforded by federal Public Law 86‑272 (15 U.S.C. §§ 381–384). The Commonwealth may not impose net corporate income tax on an out‑of‑state corporation whose only activity in Virginia consists of the solicitation of orders for the sale of tangible personal property, provided such orders are approved and shipped from outside Virginia. This protection is implemented in Virginia law and regulation. Source: 23 VAC 10‑120‑90 G

Definition of Protected Activities (Solicitation)

Virginia narrowly interprets the scope of protected activities, strictly applying the standards set by the U.S. Supreme Court in Wisconsin Dept. of Revenue v. Wrigley, 505 U.S. 214 (1992):

• Only direct solicitation and activities entirely ancillary to solicitation are protected.
• Even minor in‑state activities that are non‑ancillary, such as providing post‑sale technical support, servicing property, or conducting training, may exceed the protection and create taxable nexus. See P.D. 20-192, P.D. 12‑192.
• Activities performed in Virginia by non‑independent contractors are attributed to the out‑of‑state corporation for nexus purposes. See P.D. 01-136, P.D. 17-161.

Solicitation of Intangibles and Non‑Tangible Sales

Virginia rulings clarify that P.L. 86‑272 protection is strictly limited to solicitation of orders for tangible personal property. Solicitation of intangibles or services is not protected by P.L. 86‑272, and Virginia adheres to this limitation. In these cases, the Department of Taxation may analyze 'solicitation' for interpretative purposes, but the rulings (e.g., P.D. 99‑81, P.D. 01-136) explicitly confirm no federal immunity applies for non-tangible sales—only tangible goods are covered.

Examples of Activities that Exceed Protection

• Installation or servicing tangible goods by the company’s employees in Virginia.
• Providing post-sale technical training or support in Virginia (unless truly de minimis).
• Maintaining equipment or proprietary devices in Virginia for client use, especially with regular in-state support.
• Any non‑ancillary activity by employees or non‑independent agents in Virginia.

These standards are grounded in regulation and detailed in multiple Virginia Department of Taxation rulings. Practitioners should carefully assess any in-state activity for possible loss of immunity.

Source: 23 VAC 10‑120‑90 G Source: P.D. 06‑32 Source: P.D. 12‑192 Source: P.D. 99‑81 Source: P.D. 01‑136 Source: P.D. 20‑192 Source: P.D. 17‑161

Not yet human confirmed.

Corporations subject to Virginia corporate income tax must make quarterly estimated tax payments if their expected tax liability (after credits) will exceed $1,000 for the taxable year. This requirement applies to both calendar-year and fiscal-year filers.

Installment Amounts and Due Dates Under Va. Code § 58.1‑502, corporations must pay estimated tax in four equal installments—each equal to 25% of the required annual estimated amount. The standard due dates for calendar-year corporations are:

• April 15 (15th day of 4th month)
• June 15 (15th day of 6th month)
• September 15 (15th day of 9th month)
• December 15 (15th day of 12th month)

Fiscal-year filers substitute the 15th day of the 4th, 6th, 9th, and 12th months of their taxable year.

If the declaration is filed after the original due date, Virginia law provides for alternative installment schedules. For example, a declaration filed by May 1 is payable in four equal parts (first at filing, then by June 15, September 15, and January 15); declarations filed after May 1 but by June 15 are payable in three equal installments (at filing, then September 15 and January 15); later filings adjust accordingly. (Va. Code § 58.1-491)

Safe Harbor to Avoid Underpayment Addition Virginia imposes an addition to tax (interest) for underpayment of estimated taxes. However, this is waived if the sum of timely paid installments equals at least (1) 90% of the current year’s liability (annualized if elected), or (2) 100% of the prior year’s tax liability (if the prior year covered 12 months and a return was filed). (Va. Code § 58.1-504)

Electronic Filing Requirement Estimated payments must be remitted electronically, typically using Form 500-ES via the Virginia Department of Taxation’s Business Online Services system. This mandate is sourced from the Virginia Department of Taxation, not the Code.

Source: Va. Code § 58.1‑491, Va. Code § 58.1‑502, Va. Code § 58.1‑504, Virginia Tax – Corporate Estimated Payments

Not yet human confirmed.

Virginia does not impose a general minimum tax or a capital-based franchise tax on C corporations or most other business corporations. The standard imposition is a 6% tax on Virginia taxable income under Va. Code § 58.1-400. The Virginia Code does not contain a provision imposing a separate franchise tax or minimum income tax on general corporations based on net worth, capital, or gross receipts.

Statutory exceptions—special minimum/gross receipts tax regimes:

• Telecommunications companies: Under Va. Code § 58.1-400.1, any corporation whose principal revenue comes from furnishing telecommunications services to the public is subject to a minimum tax equal to 0.5% of its gross receipts attributable to Virginia sources, in lieu of the regular income tax when the minimum exceeds the calculated 6% corporate income tax liability.

• Home service contract providers: Va. Code § 58.1-405 allows eligible providers of home service contracts covering Virginia property to elect a minimum tax of 2.25% of collected provider fees, rather than the 6% corporate income tax. The election is subject to statutory definitions and procedural requirements outlined in § 58.1-405(B).

• Banks, insurance companies, and certain public service corporations: These are taxed under separate franchise or gross receipts tax regimes specified elsewhere in the Virginia Code (see Va. Code § 58.1-1202 (bank franchise tax), Va. Code §§ 58.1-2500 et seq. (insurance premiums license tax), and Va. Code § 58.1-2600 et seq. (public service companies)). Such companies are specifically exempted from the standard corporate income tax by Va. Code § 58.1-401 and Va. Code § 58.1-400(D).

Absence of general minimum/franchise tax: For all other corporations, Virginia law imposes corporate income tax only on net taxable income. There is no statutory provision for a franchise tax (tax upon capital, net worth, or gross receipts) or a separate minimum tax applicable to ordinary C corporations. Va. Code § 58.1-400(D) specifies only the state corporate income tax applies, except as set out above.

Source: Va. Code § 58.1-400 Source: Va. Code § 58.1-400.1 Source: Va. Code § 58.1-405 Source: Va. Code § 58.1-401 Source: Va. Code § 58.1-1202 Source: Va. Code § 58.1-2500 Source: Va. Code § 58.1-2600

Virginia's research and development (R&D) income tax credits for corporations have undergone material updates effective for taxable years beginning on or after January 1, 2023, with further amendments in 2024. Practitioners must distinguish between the standard R&D Expenses Tax Credit and the Major R&D Expenses Tax Credit, as both now include specific limitations, expanded aggregate caps, and a tiered structure.

1. Research & Development Expenses Tax Credit (§ 58.1‑439.12:08)

• The general R&D Expenses Tax Credit remains available but is subject to a $15.77 million annual statewide cap beginning with fiscal year 2024 (applies to taxable years starting on or after January 1, 2023). This represents a significant increase from previous years and reflects legislative action to expand the credit's aggregate availability. The cap and carryforward provisions are set out by statute and administered by the Virginia Department of Taxation.
• The standard credit applies a rate of 15% of the first $300,000 of excess qualified research expenses (QREs) over the base amount, or 20% if conducted in partnership with a Virginia college, university, or research institute. There is no provision for the credit for tax years beginning after January 1, 2025, unless extended.

2. Major R&D Expenses Tax Credit (§ 58.1‑439.12:11; HB1518 (2024))

• The Major R&D Expenses Tax Credit, which applies to businesses with more than $5 million in Virginia QREs, now features a tiered structure: 10% of the first $1 million in QREs above the base, and 5% of amounts above $1 million.
• A new per-taxpayer annual credit limit of $300,000 applies, or $400,000 if at least half the spending was with a Virginia public or private higher education institution or federal laboratory. This new limit, created by 2024 legislation (HB 1518, effective July 1, 2024), applies to applications submitted July 2024 and forward, affecting tax years 2024 and later.
• Both credits are subject to application and allocation based on timely submissions and available cap.

Key practitioner implications as of June 2026:

• The R&D Expenses Tax Credit cap is affirmed at $15.77 million annually (for fiscal year 2024 and onward). Major R&D is now limited per taxpayer and applies a new tiered calculation.
• Both credits remain in statute, but practitioners should confirm statute and departmental guidance annually for changes to eligibility, cap, or structure, as the legislative landscape is active in this area.

Sources: Source: Va. Code § 58.1‑439.12:08 Source: Va. Code § 58.1‑439.12:11 Source: 2024 Legislative Summary, Virginia Dept. of Taxation

Virginia generally conforms to federal treatment of net operating losses (NOLs) for corporate income tax purposes, but important differences apply regarding carryback and carryforward periods, especially where federal law has been amended (such as under the TCJA or CARES Act).

Virginia Starting Point and General Rule Virginia corporate taxable income begins with federal taxable income, including any NOL deduction computed for federal purposes, except as otherwise required by Virginia law. There is no Virginia-specific NOL calculation: an NOL is allowed only to the extent reflected in federal taxable income. Virginia requires that any additions or subtractions (modifications) affecting federal taxable income for the loss year "follow the loss"—that is, they are apportioned with the NOL into each carryback or carryforward year in the same ratio as the NOL. Source: 23 VAC 10-120-100

Carryback and Carryforward Periods — Virginia Limits

• Virginia historically permitted a 2-year carryback and 20-year carryforward of NOLs. While federal changes (e.g., CARES Act) temporarily allowed broader carryback (up to 5 years federally for certain years), Virginia has not adopted those changes. The Virginia Department of Taxation confirms that only a 2-year carryback is allowed for Virginia corporate income tax purposes. There is no provision in statute, regulation, or official DOR guidance extending the period beyond 2 years for Virginia, regardless of federal allowances. Source: Tax Commissioner Ruling 20-184
• The standard 20-year carryforward applies for years in which federal law allows it, also confirmed by the Department and Virginia’s conformity regulations.

Virginia Election to Forgo Carryback Virginia corporations may elect to forgo the 2-year carryback period for a particular loss year, but only in restricted circumstances: specifically, if the corporation or group files its Virginia and federal returns on different bases, or if the Virginia combined/group return covers a different set of corporations than the federal return. In such cases, the election to waive carryback must be made with the loss year return, by statement or as instructed. Source: 23 VAC 10-120-325

Practical Points

• Virginia does not conform to the federal 5-year NOL carryback for tax years impacted by the CARES Act (2018 through 2020 NOLs)—the carryback remains limited to 2 years for all Virginia corporate taxpayers. The state has not issued guidance expanding this period or adopting federal expansions. Source: Tax Commissioner Ruling 20-184
• When computing Virginia taxable income in a year a federal NOL is absorbed (either a positive or negative modification), practitioners must ensure any Virginia-specific additions or subtractions from the original loss year are included with the NOL in the carryback/carryforward periods, in the proportion the NOL is utilized.

Summary Table | Feature | Virginia Rule | |---------|--------------| | NOL Calculation | Federal starting point, adjustments follow loss year modifications | | NOL Carryback | 2 years only (no CARES Act 5-year period) | | NOL Carryforward | 20 years (as federal law allows) | | Election to Forgo Carryback | Only if Virginia/federal group returns differ or corporate composition differs; with timely loss year return | | Modifications | Follow the loss into carry years proportionally |

Source: 23 VAC 10-120-100 Source: Tax Commissioner Ruling 20-184 Source: 23 VAC 10-120-325

Not yet human confirmed.