Tax Type
Corporation Income Tax
Description
Returns of Affiliated Corporations; Change in Filing Status
Topic
Returns and Payments
Date Issued
03-18-1991
March 18, 1991
Re: Request for Ruling: Corporation Income Tax
Dear****************
This will reply to your letter of November 2, 1990, in which you request a ruling on behalf of ************** (the "Taxpayer") that the taxpayer and its subsidiary be permitted to file consolidated Virginia income tax returns.
FACTS
The taxpayer and its wholly owned subsidiary are Virginia corporations which operate solely in Virginia. The subsidiary used an October fiscal year and the taxpayer used a calendar tax year through 1987, and each filed separate Virginia returns. Beginning January 1, 1988, the subsidiary changed to a December 31 taxable year. The taxpayer filed consolidated federal and Virginia returns with the subsidiary for calendar year 1988. You ask that the affiliated group be permitted to continue filing consolidated Virginia returns.
RULING
Va. Code §58.1-442 allows corporations to elect to file returns on the basis of one of three filing statuses (separate, combined or consolidated) regardless of how the corporations filed their federal income tax return. once an affiliated group has made an election, the group may not change its filing status unless permission is granted by the Department of Taxation.
Permission to change to or from consolidated returns will generally not be granted, as the change affects the allocation and apportionment factors and distorts business done in Virginia and income arising from activity in Virginia. Virginia Regulation (VR) 630-3-442(E) (copy enclosed).
You contend that the two corporations first became eligible to file a consolidated Virginia return on January 1, 1988, when the subsidiary adopted the same taxable year as the taxpayer after filing a short year return (November - December 1987), and that the filing of the separate short year return by the subsidiary is not an election of filing status for the affiliated group.
VR 630-3-442(A) provides that the election of return filing status is made the first year two or more affiliated corporations are required to file Virginia tax returns. The time at which the corporations become eligible to file a consolidated return is not controlling. In this case, the two corporations have been affiliated since 1982 and were required to file Virginia income tax returns at that time. The first 12 month return following affiliation determined their filing status; the affiliated group elected to file separate returns.
In the ruling letter which you cite to support your position (Ruling of the Tax Commissioner dated December 20, 1982), the affiliated group was permitted to file a consolidated return for the first return for a 12 month taxable year following the creation of the affiliated group. This is consistent with the policy set forth in the current regulations, promulgated after that ruling. See VR 630-3-442(E)(1). In the taxpayer's case, the short year return was the result of the change of a taxable year for the convenience of financial and tax reporting. A new election was not available merely because the existing affiliated group became eligible to file a Virginia consolidated return.
Based on the facts as presented, I find no extraordinary circumstances to warrant the granting of permission for the two corporations to change to filing on a consolidated basis. Accordingly, permission is denied. In addition, the Virginia consolidated return for 1988 was improperly filed, because permission to change from separate to consolidated filing status was not obtained by the affiliated group. Therefore, the 1988 return must be amended to conform to the filing status previously elected by the group, i.e., separate returns.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner