CHAPTER 636

An Act to amend and reenact § 58-78, as amended, of the Code of Virginia,
relating to gross income for State income tax purposes; exclusions
therefrom.

[S 68]

Approved April 4, 1968

Be it enacted by the General Assembly of Virginia:

1. That § 58-78, as amended, of the Code of Virginia be amended and
reenacted as follows:

§ 58-78. Gross income.—(a) General definition.—The term “gross
income”, as used herein, includes gains, profits and income derived from
salaries, wages or compensation for personal services of whatever kind
and in whatever form paid or from professions, vocations, trades, busi-
nesses, commerce or sales or dealings in property, whether real or per-
sonal, growing out of the ownership, use or interest in such property;
also from rent, interest, dividends, securities or transactions of any busi-
ness carried on for gain or profit or gains or profits and income derived
from any source whatever, including gains or profits and income derived
through estates or trusts by the beneficiaries thereof, whether as dis-
tributive or distributable shares.

The term includes all interest received within the taxable year on
refunds of State or United States taxes.

The term includes compensation received for personal service as an
officer or employee of the United States, any territory or possession or
political subdivision thereof, the District of Columbia or any agency or
instrumentality of any one or more of the foregoing; and the term
“officer or employee” includes a member of a legislative body, a judge
or officer of a court and a person in the armed forces.

The amount of all such items shall be included in the gross income
for the taxable year in which received by the taxpayer, unless under the
methods of accounting permitted herein such amounts are to be properly
accounted for as of a different period.

(b) Exclusions from gross income.—The following items shall not
be included in gross income and shall be exempt from taxation under this
chapter: |

(1) The proceeds of life insurance policies and contracts paid upon
the death of the insured.

(2) The amount received by the insured as a return premium or
premiums paid by him under life insurance, endowment or annuity con-
tracts, either during the term or at the maturity of the term mentioned
in the contract, or at the surrender of the contract.

The value of property acquired by gift, bequest, devise or
inheritance, but the income received from such gifts, bequests, devises
and inheritances shall be assessed under the provisions of this chapter.
(4) Any amount received through accident or health insurance or
under workmen’s compensation acts or under ordinances in the nature
of workmen’s compensation acts, as compensation for personal injuries
or sickness and the amount of any damages received, whether by suit or
agreement, on account of such injuries or sickness.

(5) Interest upon obligations of the United States or of this State
or of any political subdivision of this State, interest upon obligations
issued by any educational institution under chapter 3 (§ 23-14 et seq.)
of Title 23 of this Code, and interest upon securities issued under the
provisions of the Federal Farm Loan Act.

(6) Pensions received from the United States or this State on
account of military or naval service in armed forces, whether such service
was rendered by the recipient of the pension or by a relative by blood or
marriage.

(7) The first two thousand dollars of retirement benefits derived in
each taxable year from civilian service for the federal government or any
agency thereof. The exemption shall apnly after the taxpayer has recov-
ered tax-free his own contributions which were includible in his gross
come,

(8) The first two thousand dollars of retirement benefits derived
from service as a member of the armed forces of the United States re-
ceived by taxpayers who have attained the age of sixty-five before the
close of their taxable year.

(8a) Inthe case of a member or former member of the armed forces
of the United States who has made an election under Chapter 78 of Title
10 of the United States Code to receive a reduced amount of retired or
retainer pay, gross income does not include the amount of any reduction
mise December 31, 1967, in his retired or retainer pay by reason of such
election.

(9) Amounts received as pensions, annuities, or similar allowances
for personal injury or sickness resulting from active service in the armed
forces of the United States or of this State.

(10) Benefit received under federal and State social security acts.

(11) The rental value of a dwelling house and appurtenances thereof
furnished to a minister of the gospel as part of his compensations.

(12) The value of any meals or lodging furnished to an employee
by his employer for the convenience of the employer, but only if, in the
case of meals, the meals are furnished on the business premises of the
employer, or in the case of lodging, the employee is required to accept
such lodging on the business premises of his employer as a condition
of his employment. In determining whether meals or lodging are fur-
nished for the convenience of the employer, the provisions of an employ-
ment contract or of a State statute fixing terms of employment shall
not be determinative of whether the meals or lodging are intended as
compensation.

(c) Alimony, etc., income.—In the case of a wife who is divorced
or legally separated from her husband under a decree of divorce or of
separate maintenance, periodic payments (whether or not made at regular
intervals) received subsequent to such decree in discharge of, or attri-
butable to property transferred (in trust or otherwise) in discharge of,
a legal obligation which, because of the marital or family relationship
is imposed upon or incurred by such husband under such decree or under
a written instrument incident to such divorce or separation shall be
includible in the gross income of such wife, and such amounts received
as are attributable to property so transferred shall not be includible in
the gross income of such husband. This subsection shall not apply to that
part of any such periodic payment which the terms of the decree or written
instrument fix, in terms of an amount of money or a portion of the pay-
ment, as a sum which is payable for the support of minor children of
such husband. In case any such periodic payment is less than the amount
specified in the decree or written instrument, for the purpose of apply-
ing the preceding sentence, such payment, to the extent of such sum pay-
able for such support, shall be considered a payment for such support. In-
stallment payments discharging a part of an obligation the principal sum
of which is, in terms of money or property, specified in the decree or
instrument shall not be considered periodic payments for the purposes
of this subsection; except that an installment payment shall be considered
a periodic payment for the purposes of this subsection if such principal
sum, by the terms of the decree or instrument, may be or is to be paid
within a period ending more than ten years from the date of such decree
or instrument, but only to the extent that such installment payment for
the taxable year of the wife (or if more than one such installment for
such taxable year is received during such taxable year, the aggregate of
such installment payments) does not exceed ten per centum of such prin-
cipal sum. For the purposes of the preceding sentence, the portion of
a payment of the principal sum which is allocable to a period after the
taxable years of the wife in which it is received shall be considered an
installment payment for the taxable year in which it is received. (In
cases where such periodic payments are attributable to property of an
estate or property held in trust, see § 58-121.1.)

(d) Definition of “adjusted gross income’’.—As used in this chapter
the term “adjusted gross income” means the gross income minus:

(1) Trade and business deductions.—The deductions allowed by
§ 58-81 which are attributable to a trade or business carried on by the
taxpayer, if such trade or business does not consist of the performance
of services by the taxpayer as an employee;

(2) Expenses of travel and lodging in connection with employ-
ment.—The deductions allowed by § 58-81 which consist of expenses of
travel, meals, and lodging while away from home, paid or incurred by
the taxpayer in connection with the performance by him of services as
an employee;

(8) Reimbursed expenses in connection with employment.—The de-
ductions allowed by § 58-81 (other than expenses of travel, meals, and
lodging while away from home) which consist of expenses paid or incurred
by the taxpayer, in connection with the performance by him of services
as an employee, under a reimbursement or other expense allowance
arrangement with his employer;

(8a) Outside salesman.—The deductions allowed by § 58-81 which
are attributable to a trade or business carried on by the taxpayer, if
such trade or business consists of the performance of services by the
taxpayer as an employee and if such trade or business is to solicit, away
from the employer’s place of business, business for the employer;

(4) Deductions attributable to rents and royalties —The deductions
(other than those provided in paragraphs (1), (5), or (6) ) allowed by
§ 58-81 which are attributable to property held for the production of
rents or royalties ;

Certain deductions of life tenants and income beneficiaries
of property.—The deductions (other than those provided in paragraph
(1) ) for depreciation and depletion, allowed by § 58-81 (i) and (j) toa
life jenant of property or to an income beneficiary of property held in
trust ;

(6) Losses from sales or exchange of property.—The deductions
(other than those provided in paragraph (1)) allowed by § 58-81 as losses
from the sale or exchange of property ; and

4 iy Dividend deductions.—The deductions allowed by § 58-81 (k)
an .
(e) This section, as amended, shall be in force for the taxable years
beginning after December thirty-one, nineteen hundred sixty- * nine.