Tax Type
Corporation Income Tax
Description
Permission to file a combined return
Topic
Returns/Payments/Records
Date Issued
01-06-1984
January 6, 1984
Re: Virginia Code § 58-151.079
Permission to File Combined Return
Dear ****
This is in response to the correspondence and conference regarding permission for the above reference taxpayers to file a combined Virginia income tax return.
FACTS
The parent is a holding company which is subject to taxation only in Virginia. The subsidiaries do most of their business in Virginia but are subject to taxation in other states as well.
Approximately ten years ago the affiliated group elected to file a consolidated Virginia return. Since that time, some of the operating subsidiaries have been divested. Recently, the parent acquired the assets of a new business and formed a new subsidiary to operate the business. The acquisition was primarily debt financed and as a result the parent incurred a loss for 1981 and expects to continue to do so for the foreseeable future. The operating subsidiaries are profitable.
The property, payroll and sales of the parent do not have a substantial impact upon the apportionment factors of the consolidated group. The result is that the loss of the parent corporation is apportioned to Virginia in a consolidated return. In a combined return the entire loss of the parent would be used to offset the apportioned income of the subsidiaries. The other states in which the subsidiaries are subject to taxation have provisions similar to Virginia Code § 58-151.081 in that they prohibit the inclusion of the parent corporation in a consolidated return because the parent is not subject to taxation in the other states.
DETERMINATION
The Department has a long standing policy of not allowing corporations to change their method of reporting to or from consolidated returns once the initial election has been made, unless extraordinary circumstances have been shown. As the facts in this case demonstrate, the method of reporting can have an impact upon Virginia tax liability and the most advantageous method of reporting can change from year to year.
While there may be justification for permitting corporations to change their method of reporting, I do not find clear and convincing evidence in this case to justify granting permission. The change in the nature of the affiliated group is clearly not extraordinary. The group is still organized as a holding company with operating subsidiaries. The acquisition and divestiture of various subsidiaries and taking on debt are not unusual events in corporate affairs. Furthermore, the present situation is a result of the parent's own election to file a consolidated return and its subsequent conduct.
Accordingly, permission to file a combined return is denied.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner