Tax Type
Corporation Income Tax
Description
Inclusion of Nonstock Corporation in a Consolidated Return
Topic
Returns and Payments
Date Issued
03-29-1991
March 29, 1991
Request for Ruling: Inclusion of Nonstock Corporations in a Consolidated Return
Dear*****************
This is in response to your letter of November 3, 1989 in which you requested a ruling concerning the impact that ********* a nonstock corporation exempt from Virginia income tax, has on which corporations should be properly included in a Virginia consolidated return filed by ***********(the Parent).
FACTS
The nonstock corporation has a foundation as its sole member. The nonstock corporation owns 100% of the voting stock of several subsidiary corporations, and the Parent owns 100% of the voting stock of other subsidiary corporations. As a result of the Tax Reform Act of 1986, both the nonstock corporation and the foundation became taxable for federal tax purposes for the first time; however, the nonstock corporation remained exempt from Virginia income tax.
Based on a ruling by the IRS that the foundation's membership interest in the nonstock corporation is treated like stock, a federal consolidated return was filed including the foundation and its subsidiaries, the nonstock corporation and its subsidiaries. However for 1987 and 1988, two consolidated Virginia returns were filed: one for the subsidiaries of the nonstock corporation and one for another corporation and its subsidiaries owned by the foundation. The foundation and the nonstock corporation could not be included in either Virginia consolidated return because neither is subject to Virginia income tax.
You ask if one consolidated Virginia return should have been filed including the corporation and its subsidiaries owned by the foundation and the subsidiaries of the nonstock corporation.
RULING
Under certain conditions Virginia law permits a consolidated Virginia return to be filed by "affiliated" groups of corporations. The definition of "affiliated" in Va. Code §58.1-302 contains a requirement that each included corporation must itself be subject to Virginia income tax and an ownership requirement that is similar, but not precisely identical, to the detailed federal ownership requirements in Internal Revenue Code (IRC) §§1504 and 1563.
The General Assembly has clearly expressed its intent to tie the consolidated return provisions closely to federal provisions because Va. Code §58.1-442 B.1 expressly incorporates IRC §1502 and the regulations thereunder. Therefore, the fact that these corporations are includable in a federal consolidated return is very strong evidence that they satisfy the ownership requirement for purposes of a consolidated Virginia return. Therefore, a single consolidated Virginia return should have been filed that included every corporation included in the federal return except those that have no income from Virginia sources or are otherwise exempt from Virginia income tax.
Consequently, the subsidiaries of the nonstock corporation and the foundation's affiliated group should have been included in the Parent's Virginia consolidated income tax return, even though the nonstock corporation is exempt from Virginia income tax and is not an eligible member. (See VR 630-3-302, "Affiliated," paragraph 2). The Parent should continue to file a consolidated return with the eligible subsidiaries of the nonstock corporation as long as the foundation's membership interest in the nonstock corporation remains at least eighty percent.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner