Tax Type
Corporation Income Tax
Description
Consolidated return; 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 a letter dated July 21, 1992 in which************* requested permission for **********(the "Taxpayer"), *************("Subsidiary A"), *********** ("Subsidiary B") to change from filing separate Virginia income tax returns, to filing a consolidated return.
FACTS
The Taxpayer and its wholly owned subsidiaries are Virginia corporations which operate solely in Virginia. The Taxpayer and Subsidiary A filed on a separate basis through the taxable year ended June 30, 1989. On July 1, 1989 the Taxpayer acquired Subsidiary B. For the taxable year ended June 30, 1990, the taxpayer filed a consolidated federal income tax return with Subsidiaries A and B. A Virginia income tax return for the fiscal year ended June 30, 1990 was filed on a consolidated basis. 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. 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 its 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 will 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 an 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.
After considering all of the factors, I decline to grant permission to file combined returns for the years ended June 30, 1990 and 1991. Because the request to change was filed before the extended due date for the June 30, 1992 tax return, permission is granted to file a combined return for this taxable year and thereafter. This is consistent with Public Document 91-271 (10/23/91), a copy of which is enclosed.
The consolidated returns for the tax years ended June 30, 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 returns must be amended to conform to the filing status previously elected by the group, which was separate returns. Because the existing affiliated group did not have permission to file a consolidated return, Subsidiary B may not join the Taxpayer in filing a consolidated return, and must file a separate return.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/6321M
Rulings of the Tax Commissioner