The Virginia Supreme Court has granted review of the Richmond City Circuit’s decision regarding the “subject to tax” exception to intangible addback. In a case of first impression, the Richmond City Circuit had determined that the “subject to tax” exception to Virginia’s intangible expense addback only applies to the portion of the royalty that the recipient included in its income subject to tax in another state, after apportionment1.

The Virginia Supreme Court has granted review of the Richmond City Circuit’s decision regarding the “subject to tax” exception to intangible addback. In a case of first impression, the Richmond City Circuit had determined that the “subject to tax” exception to Virginia’s intangible expense addback only applies to the portion of the royalty that the recipient included in its income subject to tax in another state, after apportionment.

While the case was pending before the Richmond City Circuit, the parties stipulated that the controversial 2014 amendments to the addback exception were not at issue in this case, notwithstanding the fact that the 2014 amendments purport to be applicable retroactively to 2004 (the year Virginia’s intangible expense addback first went into effect). Whether the Virginia Supreme Court will feel bound by the parties’ stipulation is unclear, but prudential considerations may motivate the court to conserve its limited resources and decide this case in a way that applies to all interested taxpayers. The Virginia Supreme Court grants discretionary review in less than 20% of civil appeals2, so it would be unusual for the court to elect to review the Richmond City Circuit’s decision, unless at least one of the justices viewed the case as one that would have an effect on other taxpayers, in addition to Kohl’s.