Document Number
95-41
Tax Type
Corporation Income Tax
Description
Returns of affiliated corporations; First year election
Topic
Returns and Payments
Date Issued
03-17-1995
March 17, 1995



Re: Ruling Request: Corporation Income Tax


Dear**************

This will reply to your letter dated August 5, 1994 in which you request a ruling concerning the filing of a 1993 consolidated return by*********("Company A")and********("Company B").
FACTS

Prior to 1993, an individual owned 100% of the stock of Company A and 75% of the stock of Company B. An unrelated party owned the remaining 25% of the stock of Company B. Both Company A and Company B are calendar year taxpayers.

During 1993,, Company B acquired all 100% of the outstanding shares of Company A's stock;. As a result of this acquisition, Company A and Company B filed 1993 consolidated returns for federal and Virginia income tax purposes.

Company A and Company B believe a valid election to file a consolidated return was made with the filing of the 1993 Virginia corporate income tax return. You asked if permission is needed from the department in order to file on a consolidated basis.
RULING

Code of Virginia § 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. Once an affiliated group has made an election, all returns for subsequent years must be filed on the same basis and the group may not change its status unless permission is granted by the department. A taxpayer need not make a request with the department in order to make the initial election. Rather, Virginia law requires written permission when a taxpayer desires to change the initial election.

In order to file on a consolidated basis for Virginia purposes, the corporation must be affiliated, as defined by Code of Virginia §58.1-302. "Affiliated" means;
    • two or more corporations subject to Virginia income taxes whose relationship to each other is such that (i) one corporation owns at least eighty percent of the voting stock of the other or others, or (ii) at least eighty percent of the voting stock of two or more corporations is owned by the same interests.
It is clear from the facts presented that Company A and Company B became affiliated within the meaning of Code of Virginia §58.1-302 with respect to the 1993 tax year, and Company A and Company B filed a consolidated Virginia return for the first taxable year in which they became affiliated. Therefore, Company A and Company B made a valid election to file a Virginia consolidated return during the initial election year.

Please be aware that the department will not grant permission to change from a consolidated filing absent extraordinary circumstances. Such a change can affect allocation and apportionment factors and distort business done in Virginia and income arising from activity in Virginia. See Virginia Regulation 630-3-442 5 (A)(1), copy attached.

Should you have additional questions regarding this matter, please contact***************.

                        • Sincerely,


                          Danny M. Payne
                          Tax Commissioner

OTP/8371L



Rulings of the Tax Commissioner

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