Tax Type
Corporation Income Tax
Description
Permission to file a consolidated return
Topic
Returns/Payments/Records
Date Issued
06-23-1988
June 23, 1988
Re: Virginia Code §58.1-442
Permission to File a Consolidated Return
Dear******************
This is in reply to your letter of April 20, 1988, requesting permission for the above-referenced subsidiary to file a consolidated return with its parent for the fiscal year ended August 31, 1986, and subsequent years.
Facts
The subsidiary filed a separate Virginia income tax return until the fiscal year ended August 31, 1986. The parent filed a separate Virginia income tax return until the fiscal year ended August 31, 1985, when it filed a consolidated return with another of its other subsidiaries and a subsidiary of that subsidiary. The parent filed a consolidated Virginia return with all of its subsidiaries for the fiscal year ended August 31, 1986. The parent and each of the subsidiaries use the same taxable year and conduct all of their business in Virginia. They represent all of the members of the affiliated group which are subject to Virginia income tax.
Discussion
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 than the total shown on separate returns, particularly 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.
Determination
Accordingly, permission for the above-referenced subsidiary to file a consolidated return with its parent for the fiscal year ended August 31, 1986, and subsequent years is denied.
The consolidated return for the fiscal year ended August 31, 1985, was improperly filed because permission to change from separate to consolidated was not obtained and the consolidated return did not include all affiliates. Therefore, the August 31, 1985, and August 31, 1986, returns must be amended to conform to the filing status previously elected by the group, i.e., separate returns.
However, §58.1-442 of the Code of Virginia permits 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 for the above-referenced taxpayers to file a combined return for the fiscal year ended August 31, 1985, and subsequent years if the combined return includes all affiliated corporations subject to Virginia income tax and if they use the same taxable year. The return should be filed using the name and identification number of the parent. The combined return is to be filed in accordance with the requirements set forth in the Virginia Corporation Income Tax Regulations 630-3-442 (copy enclosed).
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner