Corporation Income Tax
- General Filing Information
- Corporation Electronic Filing and Payment Requirement
- Domestic Corporations
- Foreign Corporations
- Filing by Affiliated Groups
- Net Operating Losses
- Extensions and Estimated Payments
- Extension Penalty
- Late Filing Penalty
- Late Payment Penalty
- Other Penalties
- Responsible Parties
- Postpaid E-911 Fee
- What's New for Tax Credits
General Filing Information
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.
- Corporations that have elected S status for federal purposes are automatically treated as S corporations for Virginia purposes, and must file their returns on Form 502 by the 15th day of the fourth month following the close of their taxable year. All other corporations file on Form 500. The Virginia Form 500 must be filed by the 15th day of the fourth month following the close of the taxable year, except for nonprofit organizations, which file by the 15th day of the sixth month following the close of their taxable year.
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.
The 2012-2014 Appropriations Act requires all corporations to file their estimated tax payments, annual income tax returns and payments electronically beginning January 1, 2013. This takes affect beginning with Taxable Year 2012 returns, tax due payments and extension payments, and Taxable Year 2013 estimated payments. Corporations that are unable to file and pay electronically by the effective date should request a hardship waiver.
The Department requires that annual corporate income tax returns be filed through the Fed/State e-File program.
If a tax due payment is required, the payment can be made through the e-File system as a direct debit or with an ACH Credit transaction established through the corporation’s bank.
Corporations must be able to create PDF files of all required attachments. This means you must either have a scanner that allows you to scan documents into a PDF file or another tool such as a version of Microsoft Office that allows you to save a Word or Excel file in a PDF format.
- The e-File system is supported by numerous commercial software programs. View a list of approved e-File software.
Corporations that have elected S status for federal purposes are automatically treated as S corporations for Virginia purposes, and file their annual return on Form 502. At this time, S-corporations must file a paper return.
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 Laws, Rules & Decisions.
Filing by Affiliated Groups
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:
- One corporation must own 80 percent of the voting stock of another or others; or
- At least 80 percent of the voting stock of the corporations included in the Virginia affiliated group must be owned by a common interest.
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 tax computed under the affiliated group's requested return basis would be equal or greater than the tax for the full taxable year immediately preceding the taxable year for which the requested return basis would be applicable; and
- The affiliated group agrees to compute its tax liability under both the requested return basis and the elected return basis and pay the greater of the two amounts for the taxable year in which the requested return basis is effective and the immediately succeeding taxable year.
The new provision applies to applications for change of filing method submitted to the Tax Commissioner on or after July 1, 2003.
Net Operating Losses
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.
Extensions and Estimated Payments
Beginning January 1, 2013 for Corporations (Form 500 filers), all estimated tax payments and extension payments must be paid electronically. The Department provides two secure online options for electronically submitting estimated and extension payments: eForms and Business iFile.
|Online System||eForms||Business iFile|
|Computer Skill Needed||Basic||Intermediate|
|Able to Schedule Payments for a Future Date||Yes||Yes|
|Able to View History||No||14 months|
|Requires Log-In and Password||No||Yes|
|Requires Payment by Debit EFT||Yes||Yes|
In addition, a corporation may also pay its estimated tax and extension payments using an ACH Credit transaction through its bank. However, some banks may charge a fee for this service. An Electronic Payment Guide is available with information on how to submit ACH Credit payments to the Department.
Estimated Tax Payments
Every corporation subject to state income taxation must make a declaration of estimated income tax for the taxable year if the corporation’s state income tax for the same period, reduced by the allowable tax credits, can be expected to exceed $1,000.
Taxpayers filing on a fiscal year or calendar year basis should follow the declaration and payment schedule in the table shown below. A declaration of estimated income tax is not required for a period of less than twelve months, if:
- the period is less than four months, or
- the filing requirements are first met after the first day of the last month in the short taxable year.
Compute taxable income for the short taxable period on an annual basis by multiplying the income amount by twelve and dividing the result by the number of months in the short period. Refer to the table shown below to determine the date the declaration is to be filed and the number and the dollar amount of installments to be paid. You are not required to annualize your income if the short taxable year does not change your accounting period.
|If the requirements are first met….||The declaration shall be electronically paid on or before…||The number of installments to be paid is…||The Following Percentage of the estimated tax shall be paid on or before the 15th day of the …|
|4th month||6th month||9th month||12th month|
|before the 1st day of the 4th month of the taxable year||the 15th day of the 4th month of the taxable year||4||25%||25%||25%||25%|
|after the last day of the 3rd month and before the 1st day of the 6th month of the taxable year||the 15th day of the 6th month of the taxable year||3||-||33%||33%||33%|
|after the last day of the 5th month and before the 1st day of the 9th month of the taxable year||the 15th day of the 9th month of the taxable year||2||-||-||50%||50%|
|after the last day of the 8th month and before the 1st day of the 12th month of the taxable year||the 15th day of the 12th month of the taxable year||1||-||-||-||100%|
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 percent of their final tax liability by the original due date for filing the return.
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 percent 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 percent 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 percent per month or part of a month, from the original due date until the date the return is filed. The maximum penalty is 12 percent of the tax due.
If the return is not filed, or the full amount of tax due is not paid on or before the extended due date, the late file penalty or the late payment penalty shall apply as if no extension had been granted. (The late payment penalty will not be applied for any month in which a late filing penalty has been assessed.)
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 percent 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.
Late Filing Penalty
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 percent 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 percent has accrued.
Late Payment Penalty
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 percent per month, with a maximum penalty of 30 percent. 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 percent. For the current daily interest rate, contact us at (804) 367-8031, or at email@example.com.
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 percent 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.
Any corporate, partnership or limited liability officer may be held personally liable for unpaid taxes assessed against a corporation or partnership.
The term “corporate, partnership or limited liability officer” includes any officer or employee of a corporation, or a member, manager or employee or a partnership or limited liability company, whose duty is to collect, account for and pay the assessed tax, who had knowledge of the failure to pay the tax, and who had the authority to prevent the failure. Code of Virginia § 58.1-1813
Service providers remit the E-911 fee they have collected from their customers to the Department of Taxation monthly with their Communications Sales and Use Tax returns. Learn more.
Last Updated 11/6/2013 8:42