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Subject-to-tax exception

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In a 4-3 decision, the Virginia Supreme Court found that royalty payments from a related party must be “actually taxed by another state” to qualify for the “subject-to-tax” exception to Virginia’s addback statute. In Kohl’s Dep’t Stores Inc. v. Virginia Dep’t of Taxation, Record No. 160681 (Va. 2017), the court read Virginia’s “subject-to-tax” exception to apply on a post-apportionment, rather than a pre-apportionment, basis.