02/14/13: Another delay rolls down Capitol Hill
This op-ed appeared in The Virginian-Pilot on the date shown.
ON JAN. 2, Congress finally got around to passing legislation that affected the filing of 2012 federal income tax returns. The delay in passing the American Taxpayer Relief Act of 2012 forced the Internal Revenue Service to push back the start date for filing returns.
Many returns could not be filed because the forms simply were not ready. Just this week, those filers claiming education tax credits or depreciation were allowed to file their returns.
Filers claiming credits for such things as adoption expenses will have to wait a little longer. That form, along with 29 others, is still being completed. The IRS expects taxpayers using those forms to be able to file in the first week of March.
For certain Virginia taxpayers, it’s not the IRS forms they are waiting on but action by the General Assembly. Virginia is what is known as a piggyback state, one of those whose calculation of taxable income is based on federal tax law.
But Virginia’s conformity to federal law is not automatic; each year, the General Assembly has to pass legislation to roll forward the conformity date to include the latest federal legislation. At this time, Section 58.1-301 of the Virginia Code has not been updated to reflect the Jan. 2 federal action.
Until the governor signs HB2150, which has passed both chambers of the legislature, Virginia tax law conforms only to the provisions of federal tax law that existed on Dec. 31, 2011, known as the conformity date.
Like other states, Virginia decoupled from conformity to federal law because some provisions of the law cost the state too much in tax revenue. As a practitioner, I recall the early 1980s decoupling for accelerated depreciation. It wasn’t until 2003, however, that the code section was changed away from an automatic adoption of federal provisions. That year, the conformity date was inserted and the first of two exceptions added.
In some of the intervening years, legislation has consisted solely of advancing the conformity date. Such legislation is generally passed quickly and, because it contains an emergency clause, is effective on the date of enactment. In other years, significant changes to federal law have meant more exceptions, often accompanied by a delay in the passage of the legislation.
Sometimes, that delay is significant. In 2010, for example, the legislature never approved bills submitted and the conformity date and new exceptions were instead incorporated into the budget legislation. That was not approved until May 17, 2010, the latest ever.
Fortunately for Virginia taxpayers this year, the legislation awaiting the governor’s signature contains no new exceptions to federal law and the six that were in effect remain.
Nevertheless, Virginians whose federal returns were affected by the Jan. 2 provisions may want to wait to file their state returns until the governor signs the bill.
The actions — or lack thereof — by Congress have effects beyond Washington. It is no wonder that its approval rating is so low.
I suggest a new rule: no federal tax law changes after Sept. 30 each year. This would give everyone involved — the IRS, the states, the software companies, the practitioners, and, of course, the taxpayers themselves — the time to effectively deal with the effects.
Passing laws after the end of the year that are retroactive to the beginning of the year just doesn’t make sense.