CHAPTER 488

An Act to amend and reenact § 58-78, as amended, of the Code of
Virginia, relating to determination of gross income for State income

tax purposes.
“pe [H 356]
Approved April 4, 1966

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. (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, businesses, commerce or sales
or dealings in property, whether real or personal, growing out of the own-

ip, use or interest in such property; also from rent, interest, dividends,
securities or transactions of any business 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 bene-
ficiaries thereof, whether as distributive 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
inka in gross income and shall be exempt from taxation under this

pter:

(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.

(3) The value of property acquired by gift, bequest, devise or inher-
itance, 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 ren-
dered by the recipient of the pension or by a relative by blood or marriage.

(6-a) 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 apply after the taxpayer has recov-
ered his own contributions tax-free.

(7) 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.

(8) Benefits received under federal and State social security acts.

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

(10) 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 furnished for the conven-
ience of the employer, the provisions of an employment 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 sepa-
rate maintenance, periodic payments (whether or not made at regular inter-
vals) received subsequent to such decree in discharge of, or attributable
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 payment, 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 applying the preceding
sentence, such payment, to the extent of such sum payable for such sup-
port, shall be considered a payment for such support. Installment pay-
ments 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 pay-
ments) does not exceed ten per centum of such principal sum. For the
purposes of the preceding sentence, the portion of a payment of the prin-
cipal sum which is allocable to a period after the taxable year 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 pay-
ments 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 employment.—
The deductions allowed by § 58-81 which consist of expenses of travel,
meals, and lodging while away from home, paid or incurred by the tax-
payer in connection with the performance by him of services as an
employee;

(3) 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 arrange-
ment with his employer;

(3a) 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;

(5) 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) to a life
tenant of property or to an income beneficiary of property held in trust;

(6) Losses from sales or exchange or 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 i ) 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-five.