Tax Type
Corporation Income Tax
Description
Request permission to file on consolidated basis; Affiliated corporations
Topic
Returns/Payments/Records
Date Issued
03-18-1993
March 18, 1993
Re: Ruling request; Corporate Income Taxes
Dear***********
This will reply to your letter dated August 25, 1992 in which you request permission for*************** and affiliate (the "Taxpayer") to change from filing separate Virginia income tax returns, to filing a consolidated return.
FACTS
The Taxpayer and its wholly owned subsidiary (the "Subsidiary") are corporations which operate solely in Virginia. Both corporations have filed on a separate basis since their inception, except for the 1990 and 1991 tax returns which were filed on a consolidated basis. Prior to calendar year 1990, the Taxpayer filed its income tax returns on the basis of a fiscal year ending on July 31. The Subsidiary files its income tax returns on a calendar year basis. As of December 31, 1990, Taxpayer and Subsidiary both have a calendar year. You ask that the affiliated group be allowed to file on a consolidated basis.
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.
Permission to change to or from the consolidated filing method is generally not granted by the department, because this change can affect the allocation and apportionment factors and possibly distort the reporting of the portion of business done in Virginia. See Virginia Regulation (VR) 630-3-442(E) (copy enclosed).
VR 630-3-442 (A) provides that in the first year two or more members of an affiliated group of corporations are required to file Virginia returns, the group may elect to file separate returns, a consolidated return, or a combined return. All returns for subsequent years must be filed on the same basis unless permission is granted by the Department of Taxation.
It is clear from the facts presented that the affiliated group (as defined by Va. Code §58.1-302) elected to file using a separate return filing status, based upon the initial Virginia returns filed.
Based on the facts as presented, I find no extraordinary circumstances to warrant the granting of permission for the taxpayer and subsidiary to change to filing on a consolidated basis. Accordingly permission is denied.
Va. Code §58.1-442 permits affiliated corporations to file a combined return. Permission to change between the separate and combined return filing methods generally be granted, because allocation and apportionment formulas are not affected by changes between these two statuses. See VR 630-3-442 (E).
However, the filing of combined returns retroactively causes a administrative burden for the department. In addition to auditing and reconciling the amended return, each separate account must be adjusted to transfer payments and credits to the combined account.
The filing of retroactive combined returns results in only a timing difference for Virginia tax purposes. Because of this, I am unwilling to grant permission in the absence of extraordinary circumstances. You have shown no such circumstances. However, permission is granted to file on a combined basis prospectively, beginning with returns for the 1992 taxable year.
The consolidated returns for the tax years 1990 and 1991 were improperly filed, because permission to change from separate to consolidated filing status was not obtained by the affiliated group. Therefore, the 1990 and 1991 returns must be amended to conform to the filing status previously elected by the group, which was separate returns.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6432M
Rulings of the Tax Commissioner