At the present time Virginia income tax law differs from the federal income tax law in many significant respects. As a result, taxpayers in Virginia must each year comply with two different sets of rules in preparing their income tax returns and determining their tax liability. Furthermore, under present circumstances, the administration of the Virginia income tax system fails to receive the full benefits of programs providing for exchange of data and audit results between the federal government and the state because the respective income lax bases of the two systems are not sufficiently similar.

Many other states which have faced this situation have revised their state income tax laws to conform to the federal by referencing their state income tax base to the federal definition of adjusted gross income or to the federal definition of taxable income.

In 1966 the General Assembly, recognizing the advantages to the taxpayer that might result from the coordinating of state and federal income tax laws, established an independent commission to study the matter. This commission, which was designated the Virginia Income Tax Study Commission, (hereinafter sometimes referred to as our predecessor commission), was created pursuant to House Joint Resolution No. 64, which charged the commission, in pertinent part, to:

"study and report to the Governor and General Assembly as to the desirability or need by the State to adopt basic federal income tax concepts, especially the definition of taxable income, for the taxation of individuals, fiduciaries and corporations, including estimates of the effect on revenues, consideration of constitutional questions as to incorporation by reference of federal tax legislation and the incorporation of future federal legislation, appropriate adjustments to be made lo any federal definition and all related matters."

During the course of its study our predecessor commission held a public hearing to which all interested parties were invited. It received and considered the views of representatives of the Virginia State Chamber of Commerce the Virginia Society of Certified Public Accountants and the Accountants Society of Virginia as well as the views of other interested individuals and organizations. It examined the statutes of other states which had conformed their income tax system with that of the federal government, and considered the experience of these states under their conforming statutes. Discrepancies between the Virginia income tax system and the federal were noted and studied. Extensive revenue data pertinent to the question of conformity was assembled and revenue studies of the various alternative approaches to conformity were made.

The Virginia Income Tax Study Commission concluded its work with a report lo the Governor and General Assembly entitled "Toward a Simplified Income Tax System for Virginia Taxpayers." The Report of the Commission, which was presented on January 2, 1968, recommended the enactment of a statute which would, with few exceptions, provide conformity between the Virginia income tax system and the federal with no change in the Virginia rate structure.

Legislation reflecting the recommendations of the Commission was introduced in both the 1968 and 1970 sessions of the General Assembly but was not enacted. One of the barriers to favorable action in each of the sessions was concern over the constitulionality of incorporating by reference in a Virginia law the lax law of the federal government. A further barrier to favorable action in the 1970 session was the federal enactment in late December of 1969 of the Tax Reform Act of 1969 which rendered questionable the revenue estimates of the cost of conformity developed by the Virginia Income Tax Study Commission.

The constitutional issues received a favorable resolution when the 1970 General Assembly approved for submission to the voters the revised Constitution, which, in Article IV, Section 11, expressly permits incorporation by reference of federal income, gift and estate tax laws. The Constitution, as revised, was approved in the referendum conducted at the general election this past November and has become effective.

The interest expressed by the General Assembly in 1966 in the simplification of the Virginia income tax law and in the resulting convenience to the taxpayer continued. In 1970 the General Assembly expressed its desire to consider conformity legislation when it adopted House Joint Resolution No. 91, which established the present Commission.