June 25, 2025
Re: § 58.1-1821 Application: Corporate Income Tax
Dear *****:
This will respond to your letter in which you seek reconsideration of the Department’s determination letter, issued as Public Document (P.D.) 24-120 (11/14/2024).
FACTS
In P.D. 24-120, the Department found that, even though certain pass-through entities (PTEs) were disregarded entities, they must conform to the election made by the ***** (the “Taxpayer”) affiliated group for purposes of determining their telecommunications company minimum tax. Thus, in calculating each PTE’s income tax as if it were a corporation, it would be treated as an affiliate in the combined group. Therefore, the PTEs’ separate minimum tax liabilities were properly compared to the group’s combined income tax liability and the additional minimum tax assessed for the 2018 through 2020 taxable years was upheld, subject to certain adjustments not relevant here. The Taxpayer seeks reconsideration of P.D. 24-120, asserting that the Department’s determination was incorrect.
DETERMINATION
Reconsideration
Title 23 of the Virginia Administrative Code (VAC) 10-20-165 F provides that a taxpayer who disagrees with the Department’s final determination issued pursuant to Virginia Code § 58.1-1822 may request a reconsideration of the determination. In order to grant a request for reconsideration, the Department must receive the request no later than 45 days after the date of the determination letter, and a taxpayer must meet one of four specific criteria set forth in that section:
1. The facts upon which the original determination is based are misstated by the Tax Commissioner or are inaccurate, and the determination would have a different result based on a correction of the Tax Commissioner’s misstatement of the facts presented or a clarification of the original facts presented in the taxpayer’s administrative appeal;
2. The law upon which the original determination is based has been changed by legislation, court decision, or other authority effective for the tax period(s) at issue;
3. The policy upon which the original determination is based is misapplied, and the determination would have a different result based on the application of the proper policy; or
4. The taxpayer has discovered additional evidence or documentation that was not available to the taxpayer at the time the original administrative appeal was filed with the Department, and the additional evidence or documentation could produce a result different from the original determination.
In this case, none of the reconsideration criteria have been satisfied. The Taxpayer should be aware that the Department interprets the third criterion to mean that the Department has not applied the correct law to the case. Here, there is no dispute that the statutory and regulatory provisions relating to the telecommunications minimum tax assessed by Virginia Code § 58.1-400.1 apply, and this was the law that the Department applied to the facts in P.D. 24-120. The Taxpayer simply believes that the Department reached the incorrect result. If the Department were to interpret the third criterion in that manner, there would be no reason to have criteria. Every taxpayer who asks for a reconsideration could simply say that the Department “misapplied” policy by not arriving at the result the taxpayer was seeking. See P.D. 20-188 (11/10/2020), P.D. 23-83 (7/13/2023), and P.D. 24-131 (12/13/2024).
In addition, the Taxpayer presented a new legal argument with its reconsideration request, asserting that the telecommunications company minimum tax violates the Dormant Commerce Clause of the United Sates Constitution. This argument was not raised in the first application for correction. The reconsideration criteria are in place to ensure an economical administrative adjudication process. The time for a taxpayer to raise legal arguments is when they first submit their application for correction to the Department, not after they receive an adverse determination. Even if the Department were to consider this argument, it is the Department’s policy to presume that all statutes enacted by the General Assembly and incorporated into the Code of Virginia are constitutional. See P.D. 24-80 (8/21/2024).
Conference
The Department acknowledges that the Taxpayer requested a conference with its reconsideration request. Title 23 VAC 10-20-165 F 3 provides that a conference to discuss issues raised in a request for reconsideration may be granted at the discretion of the Department. In this case, the Department granted a conference requested with the original application for correction, but determined not to grant an additional conference because, in the Department’s opinion, none of the reconsideration criteria have been met.
CONCLUSION
While the Department recognizes the Taxpayer’s disagreement with its determination in P.D. 24-120, the Taxpayer has not satisfied any of the four possible criteria for reconsideration. Consequently, P.D. 24-120 constitutes the Department’s final determination in this matter.
The assessments, therefore, are upheld. The Taxpayer will receive updated bills that will include accrued interest to date. The Taxpayer should remit the balances due within 30 days of the bill dates to avoid the accrual of additional interest and possible collection actions.
The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****.
Sincerely,
Kristin L. Collins
Deputy Tax Commissioner
Commonwealth of Virginia
AR/5100.X