Tax Type
Corporation Income Tax
Description
Permission to file a combined 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 March 10, 1988, requesting permission for the above-referenced taxpayers to file a consolidated return for calendar year 1987 and subsequent years.
Facts
The taxpayers comprise a five-member affiliated group of corporations, all doing business entirely in Virginia. Each subsidiary has filed separate, accrual basis Virginia income tax returns since their inception (except for one subsidiary which was incorporated in 1987 and has not yet filed a return). The parent corporation originally kept its books and records on a cash basis and consequently always filed a separate income tax return using that method. Beginning with 1987, IRS regulations require the parent's federal return to be filed on the accrual basis. The five corporations use the same taxable year and 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 to file a consolidated Virginia return for calendar year 1987 and subsequent years is denied.
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 calendar year 1987 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