Tax Type
Corporation Income Tax
Description
Request to file consolidated return
Topic
Returns/Payments/Records
Date Issued
07-29-1994
July 29, 1994
Re: Ruling Request: Corporate income taxes
Dear**********
This will reply to letters of July 12, 1994, March 1, 1994, and February 22, 1994, in which a ruling is requested on behalf of*************(the "Taxpayer").
FACTS
The Taxpayer and affiliates have been filing Virginia income tax returns on a combined basis since 1981. Prior to 1989, certain members of the Taxpayer's affiliated group were required by Va. Code 58.1-418 to use a single factor apportionment formula. Other affiliated companies were required to use the statutory three factor apportionment formula. Pursuant to a Virginia tax audit for the 1981, 1982 and 1983 taxable years, the Taxpayer was prohibited from filing a consolidated return because of the mixed apportionment factors.
In 1989, certain members of the Taxpayer's affiliated group were required to change their method of accounting for long-term contracts pursuant to federal law. As a result of the federal change, these affiliates were no longer required to use the single factor apportionment factor for completed contracts, and the entire Virginia group was required to use the statutory three factor apportionment formula of property, payroll and sales.
The Taxpayer and affiliates wish to file a consolidated Virginia tax return retroactively beginning with the 1990 taxable year.
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.
Effective for taxable years beginning on or after January 1, 1990, Chapter 619 of the 1990 Acts of Assembly (HB 159) allows affiliated corporations utilizing different apportionment factors to be included in a Virginia consolidated return. Although permission to change to or from consolidated filing is rarely granted, HB 159 was intended to apply to affiliated groups previously denied Virginia consolidated filing status solely due to mixed apportionment factors between members.
Pursuant to its order of January 19, 1993 adopting VR 630-3-442, the department indicated that it would grant a timely request to change to consolidated filing by a group including corporations required to use different apportionment factors, retroactive to taxable years beginning on and after January 1, 1990. For this purpose, a request is considered timely if it is filed within one year of March 10, 1993, the effective date of the regulation.
Although the Taxpayer and affiliates did not have a mixed factor group as of 1989, this was the result of a change in federal law. Prior to such change, the Taxpayer and affiliates did constitute a mixed factor group, and in fact were prohibited from filing a consolidated return in 1981 because of the mixed apportionment factors.
Because of the legislative intent, and the facts and circumstances of this case, the Taxpayer and affiliates are hereby granted permission to file a consolidated return for the 1990 taxable year and thereafter.
The consolidated return must include the net income and apportionment factors of every member of an affiliated group which would be subject to Virginia income tax if separate returns were to be filed. The return may not include any corporation which is exempt from Virginia income tax under §58.1-401 of the Code of Virginia or U.S. Public Law 86-272. All of these are factual matters which must be established for each affiliated corporation. While this letter grants permission to file a consolidated return, it does not signify consent for the inclusion of any particular affiliate in such consolidated return.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7696M
Rulings of the Tax Commissioner