Tax Type
Corporation Income Tax
Description
Filing Status
Topic
Returns/Payments/Records
Date Issued
06-01-1992
June 1, 1992
Re: Ruling Request -- Consolidated Income Tax Returns
Dear ****
This will reply to your letter dated December 2, 1991 in which you request permission for * * * (the "Taxpayer") and affiliates to change from filing a consolidated Virginia income tax return to filing on a separate basis.
FACTS
The taxpayer and affiliates are owned by a common parent, and participate in a consolidated federal income tax return with the parent. The common parent does not file in Virginia.
In 1990 the taxpayer and a subsidiary filing in Virginia were sold, leaving two affiliates of the common parent filing in Virginia. One affiliate, a financial corporation, is currently inactive in Virginia, although according to you, the operating status may change. The other affiliate, also a financial corporation, is currently active in Virginia, although it has little activity and may have none in the future.
You request permission to change to a separate filing status, citing the fact that only one original Virginia consolidated income tax return participant remains active in Virginia.
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.
It is well established that permission to change to or from the consolidated return filing status 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.
Your primary argument for changing to separate filing is that there is only one active affiliate filing in Virginia (the remaining affiliate is inactive in Virginia).
Even though the second affiliated company is inactive in Virginia (has no income from Virginia sources), it is still subject to Virginia income tax, and is required to file a Virginia income tax return. See VR 630-3-441. Therefore, there are still two affiliates remaining subject to Virginia income tax. Other affiliated group members becoming taxable in Virginia in future years are required to conform to the consolidated filing election originally made. See VR 630-3-442.
Accordingly, since I find no extraordinary circumstances to warrant the granting of permission for the two corporations to change from filing on a consolidated basis, permission to change is denied.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner