Tax Type
Corporation Income Tax
Description
Affiliated corporations included in consolidated return
Topic
Returns/Payments/Records
Date Issued
03-30-1987
March 30, 1987
Re: Request for Ruling; Corporation Income Tax
§58.1-442 Consolidated Return
§58.1-302 Income from Virginia Sources
Dear *****************
This is in response to your letter of April 29, 1986, requesting a ruling on whether certain subsidiaries of a corporation were required to be included in a consolidated Virginia return.
The parent corporation and a number of other affiliates file a Virginia consolidated return. A question has arisen as to whether the consolidated return must include one of its wholly owned subsidiaries (S1) and another affiliate which is a wholly owned subsidiary of S1 (S2).
Neither S1 nor S2 have an office in Virginia or employees located primarily in Virginia. Both S1 and S2 have various interests in property located in Virginia which produce rental or other income. The total value of the property in Virginia for each subsidiary is less than 1% of its total assets.
Because each subsidiary has property located in Virginia, as well as income produced by the property located in Virginia, each subsidiary clearly has "income and deductions from Virginia sources" as defined in §58.1-302 and regulation VR 630-3-302. Even though the apportionment factor is very small, each subsidiary is subject to the Virginia income tax and would be required to file a separate return (assuming that the affiliated group had not previously elected to file a consolidated return).
The department has ruled that property located in Virginia temporarily as part of an isolated transaction did not subject the corporation to Virginia income tax. See ruling dated December 13, 1985, P.D. No. 86-4 (copy enclosed) (Damaged property shipped to a Virginia contractor for repair did not subject the corporation to income tax). The facts presented indicate that this is not an isolated transaction but a regular and continuing part of the business of each subsidiary.
Under §58.1-442 a consolidated return is defined as a single return for the affiliated group. The subsidiaries in question are members of the affiliated group; each is subject to Virginia income tax; each uses the same apportionment factors as the rest of the affiliated group; and each has the same taxable year as the rest of the affiliated group. Therefore the two subsidiaries, S1 and S2, must be included in the consolidated Virginia return for every taxable year in which each subsidiary has income from Virginia sources.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner