Tax Type
Corporation Income Tax
Description
Exempt organizations; Nonprofit organizations
Topic
Taxpayers' Remedies
Date Issued
09-29-1994
September 29, 1994
Re: Ruling Request: Corporate Income Taxes
Dear *************
This will reply to your letter dated August 1, 1994 in which you request an advanced ruling concerning the Virginia income tax treatment of your client, who desires to form a corporation (the "Taxpayer") that qualifies for exemption from the federal income tax.
FACTS
The Taxpayer will apply to the Internal Revenue Service for exempt status as an Internal Revenue Code ("I.R.C.") §501(c)(25) organization. The Taxpayer will incorporate in another state but will qualify to do business in Virginia. The sole shareholder of the Taxpayer will be a government agency of another state which operates and manages the pension and retirement systems of state and county employees.
The exclusive purpose of the Taxpayer will be to hold title to certain real property consisting of an apartment project located in Virginia, to collect income from the project and remit the entire income, less expenses, to the sole shareholder.
RULING
Va. Code § 58.1-401 and Virginia Corporation Income Tax Regulation § 630-3-401 (F) exempt from the state income tax nonprofit corporations which are exempt from federal income tax under I.R.C. §501(c).
Based on the determination by the Internal Revenue Service that the Taxpayer qualifies for exemption from federal income tax under I.R.C. §501(c)(25), and the Virginia statute and regulation cited, the Taxpayer qualifies for exemption from Virginia income tax. However, if the Taxpayer has unrelated business taxable income as defined in l.R.C. § 512, it must file a Virginia return and pay Virginia income tax on such income.
Qualification for tax exempt status in Virginia is dependent upon continued status as a tax exempt organization by the Internal Revenue Service. Loss of the exempt federal status would result in the loss of the Virginia exemption.
I trust this will answer the questions posed in your letter; however, please contact the department if you have additional questions or if we may be of any further assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8328L
Rulings of the Tax Commissioner