Key figures
Virginia accounting
2026, with sources
6%, with a double-weighted sales factor
Virginia taxes corporations at a flat 6% of Virginia taxable income, on Form 500. The standard apportionment formula weights sales at 50% and payroll and property at 25% each. Several industries, including retail companies, financial corporations, construction corporations, motor carriers and electing manufacturers, use a single sales factor instead.
Receipts other than from tangible goods are Virginia sales when the income-producing activity is performed in Virginia, or when more of it is performed in Virginia than in any other state, measured by costs of performance. That is the older cost-of-performance rule, not market sourcing: what drives a services company’s Virginia factor is where its people and costs are.
A fixed conformity date
Virginia adopts the Internal Revenue Code as of a fixed date. The 2026 General Assembly set it at December 31, 2025, which brings in most of the 2025 federal law, but Virginia deconforms from its immediate expensing of domestic research and experimental expenditures (including the retroactive and catch-up provisions), from immediate expensing of qualified production property, and from the higher expensing limits on depreciable assets. Virginia also continues to deconform from bonus depreciation, and it reduced its subtraction for federally disallowed business interest from 50% to 20% for 2025 returns.
Each of those is a Virginia book-tax difference: research costs expensed federally are added back and recovered over time for Virginia, and assets that took bonus depreciation are depreciated for Virginia as if they hadn’t.
Elective combination and an example
Affiliated groups may file separately, on a consolidated return or on a combined return, but the choice binds later years unless Virginia Tax approves a change, and worldwide consolidation is prohibited. For a Delaware parent and one Virginia operating subsidiary, the election is a planning decision worth making deliberately in the first year.
An example: a company with $1 million of taxable income, 40% of its payroll and 30% of its property in Virginia, and 20% of its sales sourced to Virginia apportions (0.40 × 25%) + (0.30 × 25%) + (0.20 × 50%), or 27.5%, to Virginia and owes $16,500 at 6%.
The federal baseline
This page covers what Virginia adds. The federal rules underneath it apply here too.
Common questions
Does Virginia follow the 2025 federal tax changes?
Not all of it. Virginia conforms to the Internal Revenue Code as of December 31, 2025, but deconforms from the 2025 federal law’s immediate expensing of domestic research and experimental expenditures, including its retroactive and catch-up provisions, from immediate expensing of qualified production property and from the higher expensing limits for depreciable assets. It also continues to deconform from bonus depreciation.
How does Virginia source SaaS revenue for income tax?
It depends where the work is done. For most corporations Virginia sources receipts from services to the state where the income-producing activity is performed, by costs of performance, rather than to where the customer is. A software company with its engineers in Virginia can have a larger Virginia sales factor than its Virginia customer base suggests.
Accounting next door
- DCDistrict of Columbia accountingDC taxes corporations at 8.25% through a franchise tax that works as an income tax, with a $250 or $1,000 minimum, water’s-edge combined reporting and market-based sourcing.
- KYKentucky accountingKentucky taxes corporations at 5% plus a limited liability entity tax with a $175 minimum, requires unitary combined returns, apportions on single sales factor, and decouples from bonus depreciation and Section 174A.
- MDMaryland accountingMaryland taxes corporations at a flat 8.25% on separate-company returns, with a single receipts factor and services sourced to the customer. For 2025 it decoupled from federal R&D expensing.
- NCNorth Carolina accountingNorth Carolina taxes C-corporations at 2.00% for 2026 on a single, market-sourced sales factor, but its 2026 conformity update decoupled from federal R&D expensing and it still adds back 85% of bonus depreciation.
- TNTennessee accountingTennessee taxes corporations through a 6.5% excise tax on earnings and a 0.25% franchise tax on net worth, apportioned on a single sales factor from 2025, with the property measure repealed in 2024.
- WVWest Virginia accountingWest Virginia taxes corporations at 6.5% with mandatory combined reporting, a single sales factor and market-based sourcing since 2022, and conforms to federal tax changes enacted through 2025.
Founder guides on this
- US GAAPUS GAAP for early-stage startups, in plain EnglishAccrual accounting, revenue recognition (ASC 606), leases (ASC 842), stock compensation and capitalized software: what each means for a small company.
- R&D taxThe R&D tax credit and Section 174A for startupsEngineering salaries can earn a federal R&D credit against payroll tax, and Section 174A lets you deduct US research again. What qualifies, what to track.
- FundraisingAudit-ready books before your Series AInvestors, lenders and auditors ask for the same things: accrual statements, reconciled accounts and support for every balance. How to be ready first.
More of the Virginia guide
- ReceivablesReceivables and sales tax in VirginiaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayablesPayables and contractors in VirginiaPaying vendors and contractors: 1099 filing, use tax, contractor tests and withholding
- PayrollPayroll taxes and employer rules in VirginiaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in VirginiaRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in VirginiaCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.