Tax Type
Corporation Income Tax
Description
Consolidated corporation income tax return; nexus in Virginia
Topic
Accounting Periods and Methods
Corporate Distributions and Adjustments
Date Issued
05-02-2002
May 2, 2002
Re: Request for Ruling: Corporate Income Tax
Dear****
This will respond to your letter in which you request permission for your client (the "Taxpayer") to file a Virginia consolidated corporation income tax return with its affiliate beginning with taxable year ended December 31, 2001. I apologize for the delay in the department's response.
FACTS
The Taxpayer transacted business in Virginia in the 1995 and 1996 taxable years and filed separate Virginia corporation income tax returns. For the 1997 taxable year, the Taxpayer again filed a separate return. However, after a review of the Taxpayer's operations, you have determined that it did not have nexus in Virginia for that year and the Taxpayer should not have filed the return. Beginning in the 1997 taxable year, the Taxpayer's affiliate ("A") became subject to Virginia income tax and began filing separate Virginia returns. The Taxpayer anticipates doing business in Virginia in 2001 and, therefore, would again be subject to Virginia income tax. You request that the Taxpayer and affiliate be allowed to file using the consolidated return filing status for the taxable year ended December 31, 2001, because no valid election was made in previous years.
RULING
Code of Virginia § 58.1-442 allows corporations to elect to file as separate, combined, or consolidated entities regardless of how the corporations filed their federal income tax return. Once an affiliated group has made as election, all returns for subsequent years must be filed on the same basis and the group may not change its filing status unless permission is granted by the department. A taxpayer need not make a request to the department in order to make the initial filing status election. Rather, Virginia law requires written permission only when a taxpayer desires to change the initial election.
Title 23 of the Virginia Administrative Code ("VAC") 10-120-322 provides that a corporation cannot be included in a consolidated return if it is exempt from Virginia income tax under Code of Virginia § 58.1-401, exempt from Virginia income tax under U.S. Public Law (P.L.) 86-272, not affiliated as defined by § 58.1-302 of the Code of Virginia, not subject to Virginia income tax if separate returns were to be filed, or using different taxable years. You assert that the Taxpayer was exempt from Virginia income tax under P.L. 86-272 for the 1997 taxable year even though an income tax return was filed. Thus, the Taxpayer had made no valid prior election to file separate returns in 1997.
You further state that the Taxpayer has become subject to Virginia tax beginning with the taxable year ended December 31, 2001. You request that the Taxpayer and A be allowed to elect to file a consolidated return for this period. Based on the information provided, the 2001 taxable year will be considered the first year that all requirements have been met to make a filing election. As such, the Company and A may elect to file on the consolidated basis beginning with the 2001 taxable year. Any additional affiliates that become subject to Virginia income tax in succeeding years must conform to the election made by the Taxpayer and A.
This analysis is limited to the years and facts and circumstances identified in your letter. Any material changes in the facts could alter the results.
Copies of the Code of Virginia and the regulations cited, along with other reference documents, are available online in the Tax Policy Library section of the department's web site, located www.tax.state.va.us. If you have any questions regarding this ruling, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/37935P
Rulings of the Tax Commissioner