Tax Type
Corporation Income Tax
Description
DISC
Topic
Collection of Tax
Corporate Distributions and Adjustments
Date Issued
04-15-1982
April 15, 1982
Re: § 58-151.079; Permission to File a Consolidated Return
Dear *********************
The parent corporation has applied on behalf of eight of its affiliates for permission to file a consolidated return for 1980 and subsequent years. The parent does not do business in Virginia and is not required to file a Virginia return.
Corporations 1, 3, 4 and 6 are 100% owned by the parent. Corporation 2 is 100% owned by Corporation 1. Corporation 5 is owned by a corporation which does not do business in Virginia which is itself owned by the parent. Corporation 7 is owned by corporation 6. Corporation 8 is owned by corporation 7.
Corporations 1, 3, 4 and 5 filed separate Virginia returns. Corporation 2 does not do business in Virginia and is not required to file a Virginia return. It is a Domestic International Sales Corporation (DISC) under federal law and the Department has previously determined that its income must be consolidated with corporation l for Virginia income tax purposes under § 58-151.083.
Corporation 6 and its two subsidiaries (7 and 8) were recently acquired by the Parent. Before the acquisition corporations 6, 7 and 8 filed 2 consolidated Virginia return.
Ruling
§ 58-151.079, Code of Virginia, as it existed in prior years, allowed corporations to elect to file on a separate or consolidated basis in the first year in which two or more affiliated corporations (within the meaning of § 58-151.081) were required to file Virginia returns. Once such an election has been made all subsequent returns by members of the affiliated group must be made on the same basis unless permission to change has been granted by the Department. All eligible members of an affiliated group must join in a consolidated return; however, corporations using different apportionment formulas (such as financial corporations or motor carriers) may not join in a consolidated return with corporations using the normal three factor apportionment formula.
The election is made by the affiliated group as a whole not by the individual members of the affiliated group. When a new corporation becomes affiliated, within the meaning of § 58-151.081, with an affiliated group which has previously made an election under § 58-151.079, the new corporation must file its returns on the basis of that election. The new corporation does not "elect" to file on the same basis; it does not have any election to make. If the new corporation must change its method of reporting under these circumstances it is a change required by law and such change does not require permission of the Department of Taxation. The fact that the new corporation may have previously been a member of another affiliated group has no effect on the election previously made, or to be made, by the acquiring affiliated group.
In a consolidated return inter-affiliate transactions are eliminated and the apportionment factors of multi-state corporations are combined. As a result the income subject to Virginia income tax on a consolidated return may be significantly different the total shown on separate returns, especially if any of the affiliates do business in more than one state. For this reason the Department of Taxation very rarely grants permission for corporations to change to or from consolidated returns once the election has been made.
Accordingly permission to file a consolidated return for 1980 and subsequent years is denied.
§ 53-151.079 has been amended to permit affiliated corporations to file a combined return for taxable years beginning on or after January 1, 1981. A change from separate returns to a combined return does not affect the computation or apportionment of income except that losses of one corporation may offset the income of an affiliated corporation.
Permission is hereby granted to file a combined return. for taxable years beginning on or after January 1, 1981 for all affiliates doing business in Virginia upon the following conditions.
1. Schedules shall be filed with the combined return which contain all information which would be contained in a separate Virginia return for each and every eligible member of the affiliated group. See §§ 58-151.075 and 58-151,081.
2. In computing the Virginia Taxable Income of each eligible member of the affiliated group there shall be added to federal taxable income the amount of any net operating loss deduction or other deduction which has been recognized for Virginia income tax purposes and offset other income in a Virginia consolidated or combined return for other taxable years. See, for example, Federal Income Tax Regulation 1.1502-79.
This ruling does not affect the Department's previous determination under § 58-151.083 that the income of corporation 2 (the DISC) must be consolidated with the income of corporation 1.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner