Tax Type
Corporation Income Tax
Description
Consolidated return; Mixed apportionment formulas
Topic
Allocation and Apportionment
Date Issued
01-11-1993
January 11, 1993
Re: Ruling request: Corporate Income Taxes
Dear ****
This will reply to your letter dated October 15, 1992 in which you request permission to file a Virginia consolidated return for **** ("Corporation A") and **** ("Corporation B") for the taxable year ended December 28, 1991.
FACTS
Corporations A and B are members of an affiliated group which file as part of a federal consolidated return. Previous Virginia income tax returns were filed on a separate basis. Corporation A is required by law to apportion income using a single factor formula. Corporation B uses the statutory three factor apportionment formula. Corporations A and B wish to file as a consolidated group pursuant to newly enacted law.
RULING
Permission to change to or from the consolidated filing method is generally not granted by the department, because this change can affect the 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).
However, effective for taxable years beginning on or after January 1, 1990, affiliated corporations using different apportionment factors are permitted to file as a Virginia consolidated group.
This assumes that all of the other requirements are met for consolidated group filings. This law change was intended to apply to affiliated groups previously denied the consolidated filing method because of differing apportionment factors.
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. Other members of the affiliated group of corporations which become subject to Virginia income tax in subsequent years must conform to the initial election made by the group unless permission to change is granted by the department. See VR 630-3442(A}
A consolidated return must include the net income and apportionment factors of all members of the affiliated group which would be subject to Virginia income tax if separate returns were to be filed. A consolidated return may not include corporations which are exempt from Virginia income tax under Va. Code §58.1-401 or U. 5. Public Law 86-272, or not subject to Virginia income tax if separate returns were to be filed. See VR 630-3-442(C).
Based upon the above, I hereby grant permission for Corporation A and Corporation B to file as a Virginia consolidated group for the year ended December 28, 1991 and thereafter. One of these two corporations should file as the "lead" corporation, rather than the group's parent which is not subject to Virginia income tax. All affiliated corporations subject to Virginia income tax must join in filing on a consolidated basis. Until final regulations are available which set forth the method of computing a consolidated apportionment factor for affiliates required to use different factors, please see Public Document 91-244 (10/7/91) (copy attached) for guidance in computing the consolidated apportionment factor for affiliated groups which include mixed factor companies.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/6508M
Rulings of the Tax Commissioner