Virginia doubles down on its commitment to international trade
Since 2010, Virginia has purposely stepped up its commitment to international trade. This year has been no exception, with the Virginia General Assembly’s passage of HB 858, establishing the Virginia International Trade Corp. (VITC). VITC will coordinate private and public efforts to stimulate the international trade segment of Virginia’s economy and market products and services of Virginia companies to the world. This separate, newly created entity, will be led by an as-yet-unnamed CEO, managed by a 17-member board and overseen by the Virginia Secretary of Commerce and Trade.
VITC will have less than two years to transition certain international trade functions from the Virginia Economic Development Partnership into itself before it is fully operational. It will have an arsenal of attractive incentives at its disposal to help Virginia companies grow their businesses internationally, with most having been established, expanded, enhanced and/or extended between 2010 and 2016. My goal is to highlight a number of these incentives so that readers can learn about them and explore their impact to their business.
VITC will support Virginia companies with several export assistance programs and initiatives designed to move their products and services beyond U.S. borders. These include:
• Virginia International Trade Alliance (VITAL), partnering businesses with Virginia’s public universities, industry associations and the Virginia Chamber of Commerce with goals to grow Virginia exports by $1.6 billion and create 14,000 trade-supported jobs in five years.
• Going Global Defense (GGD) Initiative, mitigating the impact of defense spending cuts on Virginia’s economy by helping defense-related companies diversify into new international markets.
• Virginia Leaders in Export Trade (VALET) Program, assisting companies in expanding their international business by connecting them to state capital resources and with professional services from expert, private-sector partners.
• State Trade and Export Promotion (STEP) Grant Program, a Federal SBA program providing financial support to the Commonwealth of Virginia to assist small businesses with export development, thereby increasing the number small business exporters and increasing their export sales.
VITC also will promote a number of state tax credits and incentives offered to assist Virginia companies in increasing their international trade efforts, thus making the tax bite of profitable foreign sales that less painful. I should also point out that Virginia businesses that already have a flow of international trade can — and should — be claiming these incentives.
The largest incentive — and by far the most underutilized — is the all-important export tax incentive known as a Domestic International Sales Corporation (DISC). In 2014, the General Assembly passed DISC legislation that allows Virginia to conform to this federal statute that helps small and mid-sized manufacturers and exporters across the commonwealth. DISCs are U.S. corporations meeting the special criteria of U.S. Internal Revenue Code (IRC) Sections 991–997, where a U.S. exporter can exclude a portion of its qualifying “export” income from federal taxation. Under the federal DISC rules, exporters pay their affiliated DISCs with commissions from export income; they then deduct those commissions from income. Qualifying commissions are not taxable to a DISC, and are instead taxed when paid to the DISC’s shareholders as a dividend. That dividend is then taxed federally at a maximum rate of 20 percent, resulting in permanent federal tax savings for U.S. exporters and their owners (avoiding the 39.6 percent maximum rate that applies to ordinary income).
VITC also will be promoting three additional state trade-related tax credits that are tied directly to movement of products via our ports and/or rail systems. These include:
• The Barge and Rail Usage Tax Credit, for usage of barge or rail to move cargo rather than by truck or other motor vehicle on Virginia highways.
• The International Trade Facility Tax Credit, for creating new jobs or capital investment in an international trade facility as a result of moving 5 percent more cargo through a public or private port facility in Virginia than in the preceding taxable year.
• The Port Volume Increase Tax Credit, for taxpayers engaged in manufacturing or distribution of manufactured goods, agricultural entities, or mineral and gas entities that use public or private port facilities located in Virginia and increase cargo volume through the facility by 5 percent in a single calendar year over their base year cargo volume.
As Virginians, we are fortunate that our governor, Terry McAuliffe, understands the significant impact that international trade has on Virginia’s economy. With the establishment of the Virginia International Trade Corp., Virginia certainly has doubled down on its commitment to international trade. I applaud these efforts and look forward to seeing the impact that VITC’s programs, incentives and tax credits will have on businesses throughout our great commonwealth.
Ryan L. Losi, CPA, is a shareholder and executive vice president of PIASCIK, providing domestic and international tax services to a broad range of clients throughout the United States and abroad. Losi leads the firm’s international tax practice, advising clients in over 59 countries spanning six continents. He is a widely published author and member of the American Institute of Certified Public Accountants, Virginia Society of Certified Public Accountants, Virginia International Business Council, Virginia Leaders for Export Trade, VSCPA Tax Committee and the Virginia International Trade Alliance. He can be contacted by phone (877) 527-2046 or email [email protected].