Tax Type
Corporation Income Tax
Description
Net Operating Loss Carryback
Topic
Computation of Income
Date Issued
04-28-1989
April 28, 1989
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-1823 Reassessment and refund upon filing of amended return
Dear**************
This is in response to your letter of September 16, 1988, in which you applied for correction of the decision of the department denying your company's amended return claiming a refund for the fiscal year ending May 31, 1986.
Facts
The taxpayer had Virginia taxable income for the fiscal year ending May 31, 1986 and timely filed a return. For the fiscal year ending May 31, 1987, the taxpayer had no business activity in Virginia, thus no Virginia taxable income. The taxpayer suffered a federal net operating loss for this taxable year. After electing to carry the net operating loss back to the first preceding taxable year (FYE 5/31/86) for federal purposes, the taxpayer filed Virginia Form 500-NOLD claiming a refund for the fiscal year ending May 31, 1986 based upon the federal net operating loss.
On May 5, 1988 the department disallowed the company's claim for refund. You protest this action of the department and make application for reassessment and refund.
Discussion
There is no express statutory authority in the Code of Virginia for a separate Virginia net operating loss. However, since under Virginia Code §58.1-402 the starting point in the computation of Virginia taxable income is federal taxable income, and the federal carryback or carryover of a federal net operating loss is reflected in federal taxable income, Virginia taxable income is indirectly affected by a federal net operating loss to the extent that such a loss is reflected in federal taxable income.
Virginia Regulation (VR) 630-3-402 (A)(2)(e) provides:
-
- (ii) When a net operating loss is carried back to a prior year, the NOLD [Net Operating Loss Deduction] is treated as a change in federal taxable income for the year to which the loss is carried. The corporation may file an amended Virginia return claiming a refund due to the NOLD.
- (ii) When a net operating loss is carried back to a prior year, the NOLD [Net Operating Loss Deduction] is treated as a change in federal taxable income for the year to which the loss is carried. The corporation may file an amended Virginia return claiming a refund due to the NOLD.
Regardless of the fact that the taxpayer had no business activity in Virginia during the loss year, the taxpayer had a change in federal taxable income for the year to which the loss was carried.
Determination
Accordingly, the department will accept the taxpayer's claim for refund for the fiscal year ending May 31, 1986. Please allow the department 60 days to process the refund.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner