Tax Type
Corporation Income Tax
Description
Change to combined filing status; Purchase of subsidiaries
Topic
Returns/Payments/Records
Date Issued
08-26-1993
August 26, 1993
Re: Request to Change to a Combined Virginia Income Tax Return Filing Status
Dear***************
This will reply to your letter dated January 14, 1993 in which you request permission to change from the separate to combined basis for filing the Virginia income tax return for********(the "Taxpayer") and subsidiaries.
FACTS
The taxpayer and subsidiaries have filed Virginia income tax returns on a separate basis for a number of years. The taxpayer recently purchased 100% of the stock of several Virginia companies, all of which have 100% of their activity in Virginia. These companies filed on a consolidated basis before their purchase by the taxpayer.
DETERMINATION
In the first year two or more members of an affiliated group are subject to Virginia taxes, the group elects to file on either a separate, combined or consolidated basis. See Virginia Regulation (VR) 630-3-442. This election may not be changed without the Department's approval.
Permission to prospectively change between the separate and combined return filing methods will generally be granted, because the separate company allocation and apportionment formulas are unaffected by changes between the two statuses. See VR 630-3-442, §5.B.
When a company, or group of companies, is purchased, they must adopt the filing status of the purchasing corporation. In the instant case, these companies would be required to begin filing on a separate basis, without permission from the Department to do otherwise.
After considering all of the above factors, permission is granted for the taxpayer and subsidiaries to begin to file using a combined basis, for the taxable year ending 9/30/92 and thereafter. However, §58.1-442 of the Code of Virginia requires each affiliate included in a combined return to compute its separate federal taxable income, Virginia modifications, allocable income, and apportionable income. Therefore, your proposed method of combining the separate incomes of the taxpayer's group with the consolidated income of the purchased group is not allowable under Virginia law.
Please note that any affiliate which is subject to Virginia income tax if a separate return were to be filed must be included in the combined filing group. Any affiliates becoming subject to Virginia income tax after 9/30/92 must conform to the combined filing election.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6655G
Rulings of the Tax Commissioner