Tax Type
Corporation Income Tax
Description
Sales Factor; Consolidated Returns
Topic
Allocation and Apportionment
Date Issued
11-19-1991
November 19, 1991
Re: Ruling Request: Corporate Income Tax
Dear********************
This will reply to Your letter dated February 7, 1991 in which You request advice regarding apportionment factor computation for a consolidated group (the "Taxpayer").
FACTS
The taxpayer is an affiliated group filing consolidated Virginia and federal income tax returns. Due to a change in circumstances, 100% of one subsidiary's payroll and property will be attributable to Virginia in 1991, while the subsidiary continues to make sales both within and without Virginia. Although you do not say so, I will assume for purposes of this ruling that the subsidiary's sales in other states would be exempt from taxation under P.L. 86-272. Thus, if the subsidiary were to file a separate Virginia return it would not be entitled to allocate and apportion income under Va. Code §§58.1-405 and 58.1-406.
You seek advice regarding whether only Virginia destination sales will be included in the taxpayer's consolidated sales factor numerator as determined under Va. Code §58.1-414.
RULING
Each member of a group of corporations must itself be subject to tax in Virginia in order to be included in a consolidated Virginia return. See Va. Code §58.1-302, "Affiliated". However, once consolidated filing is elected, the group as a whole determines if it is eligible to allocate and apportion income. Therefore, if any member is subject to tax in another state, then the entire group's taxable income is allocated and apportioned. With respect to a consolidated sales factor, all sales by any member into other states would be excluded from the numerator regardless of whether the member is actually subject to tax in another state or where its property and payroll are located.
The consolidated sales factor numerator would not include sales into other states made by the subsidiary in question. Under the assumed facts in this case, the subsidiary itself would not be eligible to allocate and apportion its income on a separate return basis. This illustrates the difference in the consolidated versus separate return Virginia tax liabilities, and is one of the reasons why permission is rarely granted to change to or from the consolidated filing method.
Although Virginia destination sales of tangible personal property are included in the numerator, sales of intangible property and services are included in the numerator only if a greater portion of the income producing activity is in Virginia than in any other state. If all of a subsidiary's property and payroll are in Virginia, it is very likely that the greater portion of its income producing activity will be in Virginia.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/496lG
Rulings of the Tax Commissioner