Tax Type
Corporation Income Tax
Description
Regulated investment companies and real estate investment trusts; Subsidiaries
Topic
Taxpayers' Remedies
Date Issued
04-27-1994
April 27, 1994
Re: Ruling request: Corporate income taxes
Dear**********
This will reply to your letters of April 11, 1994, and April 18 1994, in which you have requested a ruling regarding corporate income taxes on behalf of ********** (the "Taxpayer").
FACTS
The Taxpayer is a real estate investment trust (REIT) as defined by §856 of the Internal Revenue Code (IRC). The REIT has certain wholly owned subsidiaries which, pursuant to IRC §856(i), are not treated as a separate corporations for federal income tax purposes. All corporations which are affiliated with the Taxpayer within the meaning of Va. Code §58.1-302 qualify for federal treatment pursuant to §856(i). You have requested a ruling as to the Virginia income tax treatment of the REIT and these subsidiaries.
RULING
A REIT is an entity which, but for the exceptions of IRC §856 et seq., would be taxed as a corporation. Virginia conforms to the federal income tax treatment of these entities; to the extent a REIT is treated as a pass through entity for federal income tax purposes it is treated as a pass through entity for Virginia purposes. To the extent a REIT is subject to tax at the entity level, it is subject to the Virginia corporate income tax. Pursuant to VR 630-3-402 §1 B 2, copy attached, the taxable income of a REIT for Virginia purposes is the sum of: (i) real estate investment trust income as defined in IRC §857(b)(2); (ii) capital gains as defined in IRC §857(b)(3); (iii) income from foreclosure property as defined in IRC §857(b)(4) and income from prohibited transactions as defined in IRC §857(b)6.
Accordingly, so long as the Taxpayer has no income subject to federal taxation at the entity level, and has no additions to federal taxable income as defined in Va. Code §58.1-402(B), it will have neither Virginia taxable income nor a tax liability pursuant to Va. Code § 58.1-400.
For federal income tax purposes, IRC §856(i) treats all assets, liabilities, and items of income, deduction, and credit of a qualified REIT subsidiary as assets, liabilities, and such items, as the case may be, of the REIT. Accordingly, qualified REIT subsidiaries do not file separate federal income tax returns, and are not taxed as a separate corporation or as a part of a federal consolidated return. For federal income tax purposes, a single return is filed by the REIT which includes the taxable income of all qualified REIT subsidiaries.
Virginia law does not specifically address qualified REIT subsidiaries. However, in determining Virginia taxable income, the starting point is federal taxable income. The federal taxable income of a REIT, determined pursuant to IRC §857, includes the income of any qualified REIT subsidiaries. Therefore, for Virginia purposes the taxable income of a REIT and qualified REIT subsidiaries would be determined in accordance with federal treatment.
Accordingly, for purposes of the-Virginia corporate income tax, any subsidiary of the Taxpayer that is a qualified REIT subsidiary as defined in IRC §856(i) shall not be treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of such qualified REIT subsidiary shall be treated as assets, liabilities, and such items, as the case may be, of the Taxpayer.
The Taxpayer shall be required to file a Virginia income tax return in accordance with VR 630-3-441, copy attached. In any year that the income of a qualified REIT subsidiary is included the Taxpayer's federal taxable income and reported on the Taxpayer's Virginia income tax return, the filing requirements of Va. Code §58.1-441 and the regulations thereunder for such subsidiary shall be deemed to be satisfied if the name, address, and federal identification number of such corporation is included in the Virginia income tax return of the Taxpayer.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7828M
Enclosures
Rulings of the Tax Commissioner