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In general, every corporation that is incorporated under Virginia law, or that has registered with the State Corporation Commission for the privilege of conducting business in Virginia, or that receives income from Virginia sources must file a Virginia corporation income tax return. Nonprofit organizations are required to file a Virginia corporation income tax return only if they incurred unrelated business taxable income at the federal level.
The tax rate is 6 percent of the computed Virginia taxable income. Corporations that conduct business in more than one state must allocate and apportion their income, using Virginia Schedule A.
A domestic corporation is any corporation that is organized and incorporated (chartered) under the laws of Virginia. A domestic corporation must file a Virginia income tax return each year, even if it has no income to report.
A foreign corporation is any corporation that is incorporated in another state or country. A foreign corporation that has registered with the State Corporation Commission for the privilege of conducting business in Virginia must file a Virginia income tax return each year, even if the company has not conducted business in the Commonwealth or has no income to report. Other foreign corporations must file Virginia returns for taxable years in which they receive income from Virginia sources.
Nexus for foreign corporations is determined under the provisions of Public Law 86-272. For rulings on nexus, visit our Tax Policy Library.
In order for corporations to be considered affiliated for purposes of filing a consolidated or combined return, one of the following conditions must be met:
The election to file on a separate, consolidated or combined basis is made in the first year in which a group of affiliated corporations becomes eligible to file a consolidated or combined return in Virginia. The filing of the Virginia corporation income tax return constitutes an election to file under the chosen basis. As a general rule, once the election is made, subsequent returns must be filed on the same basis, unless the Tax Commissioner grants permission to change. The election is also binding for any members that subsequently join the affiliated group.
Because the initial filing is an election on the part of the group, the corporations involved do not need permission from the Tax Commissioner to file on their elected basis. Also, since other corporations who later join the group or become subject to Virginia income tax are required to file under the group's established basis, they do not need permission to be included in the original election. Only an affiliated group that wishes to change its basis after an election has been made must request permission from the Tax Commissioner. Requests for permission to change from the elected method must be made on or before the due date of the return for the taxable year for which the change will be effective. Changes in method of filing to or from a consolidated status will not generally be granted on a retroactive basis, except as explained in the note below.
NOTE: Legislation enacted by the 2003 General Assembly changed Virginia's longstanding position with respect to binding elections for filing by affiliated groups. The new law allows a group of affiliated corporations that have filed Virginia income tax returns on the same basis for at least the preceding 20 years to be granted permission by the Tax Commissioner to change the basis of the type of return filed from consolidated to separate or from separate or combined to consolidated if:
The new provision applies to applications for change of filing method submitted to the Tax Commissioner on or after July 1, 2003.
There is no Virginia net operating loss, as such, available for carryback or carryover. However, since the starting point (Line 1, Form 500) is federal taxable income, there is statutory authority for net operating loss deductions to the extent that such losses are included in federal taxable income.
Since federal taxable income must be modified for Virginia additions and subtractions, the additions and subtractions of the loss year follow the federal loss to the year the loss is utilized. Thus, if the federal net operating loss is fully utilized in carryback or carryover to one year, the net amount of additions and subtractions will be applied to such year. If, however, the federal net operating loss is partially utilized in each of several years, the net amount of additions and subtractions will be applied in the same ratio to the several years.
The federal net operating loss deductions may be used only to reduce federal taxable income, and a federal net operating loss deduction cannot create or increase a federal operating loss.
For further information, refer to Form 500-NOLD. For information on fixed date conformity provisions for net operating losses incurred after December 31, 2001, view Advancement of Virginia's Fixed Date Conformity to the Internal Revenue Code.
A corporation can schedule an estimated tax payment, or make an extension payment at VATAX Online for Businesses. Payments are made by the electronic transfer (withdrawal) of an authorized payment amount from the corporation's bank account. Our warehousing feature allows the corporation's authorized representative to schedule the payment in advance by entering the payment information, then selecting a future date (up to the due date) for the actual transfer of funds to take place. Once a payment is warehoused, the amount can be changed up to one business day prior to the date selected for the corporation's bank account to be drafted.
For taxable years beginning on or after January 1, 2005, an automatic six-month filing extension is allowed for corporations filing on Form 500 or Form 502. No paper application or online application for extension is required. The extension provisions do not apply to payment of any tax that may be due with Form 500. To avoid penalties, Form 500 filers must pay at least 90% of their final tax liability by the original due for filing the return. The payment must be submitted on Form 500CP by the due date indicated in the table above.
For additional information on estimated payments, please refer to Form 500ES and instructions. For information on extension provisions and payments, see Form 500CP. and the filing requirements for business taxes.
Electronic Funds Transfer (EFT) involves the transfer of funds from your bank account to the State's bank account. Over the last several years, many taxpayers have voluntarily chosen this efficient and cost effective method for making their tax payments. Currently this program is only available for Sales and Use Tax, Employer Withholding Tax, and Corporation Income Tax. For complete information on EFT, view the Electronic Funds Transfer page.
Beginning with taxable year 2005, Virginia law provides an automatic filing extension of six months for the filing of income tax returns. There is no extension of time granted for payment of taxes due. To avoid an extension penalty, at least 90% of the final tax liability must be paid by the original due date for filing the return. If you file your return within six months of the original date, but the balance of tax due with the return exceeds 10% of your total tax liability, you will be subject to an extension penalty.
The extension penalty is assessed on the balance of tax due with the return at a rate of 2% per month or part of a month, from the original due date until the date the return is filed. The maximum penalty is 12% of the tax due.
If you file your return more than six months after the due date, the automatic extension provision will not apply, and you will be subject to the late filing penalty on any balance of tax due with the return. If you file your return within six months after the due date but do not pay the tax due until after the extension expires, the extension penalty will apply for the period of the extension, then the late payment penalty will apply for the remainder of the period for which the tax is unpaid.
Example: Combined Extension/Late Payment Penalty Assessment
Linda's individual income tax return was due to be filed on May 1. She filed on July 15, which is within six months of the due date, but she did not pay the tax due of $2,000 until July 25th. The tax due was more than 10% of her total tax liability for the year, so she is subject to the extension penalty for May, June and July. Because she failed to pay the tax with her return, a late payment penalty will also be imposed for July. The extension penalty and late payment penalty will be assessed as follows:
| Tax due reported on return | $2,000.00 |
| Extension penalty (3 months @ 2% per month) | 120.00 |
| Late payment penalty (1 month @ 6%) | 120.00 |
NOTE: Interest applies to any balance of tax due that is not paid by the due date, even if the associated return is filed under extension.
If you file your return more than six months after the due date and you owe tax, you will be subject to a late filing penalty. The penalty is assessed at a rate of 6% per month or part of month from the due date of the return until the return is filed, or until the maximum penalty of 30% has accrued.
If you file your return within six months of the due date but do not pay the tax due until after that time, you will be subject to a late payment penalty. Like the late filing penalty, the late payment penalty is assessed at a rate of 6% per month, with a maximum penalty of 30%. The late payment penalty will not be applied for any month in which a late filing penalty has been assessed. In addition, the late payment penalty is generally not assessed when an additional balance of tax is assessed as the result of an audit of an income tax return that was filed in good faith.
Virginia law requires the Department of Taxation to assess interest on any balance of unpaid tax, from the due date for payment through the date the tax is paid. Interest charges apply to late payments and payments made with returns filed on extension, as well as to additional balances due with amended returns or assessed as the result of audit adjustments.
Interest is assessed at the federal underpayment rate established under Internal Revenue Code Section 6621, plus 2%. For the current daily interest rate, contact us at (804) 367-8031, or at tax-geninfo@tax.virginia.gov.
In addition to the penalties discussed above, Virginia law also provides for civil and criminal penalties in cases involving fraud and failure to file. The civil penalty for filing a false or fraudulent return, or for failing or refusing to file a return with intent to evade the tax is 100% of the correct tax. In addition, criminal penalties of imprisonment for up to one year or a fine of up to $2,500, or both, can apply in cases of fraud and failure to file.
Last Updated 12/23/2008 15:11
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