Tax Type
Corporation Income Tax
Description
"Taxable income" defined; Net operating loss carryback
Topic
Computation of Income
Date Issued
04-05-1996
April 5, 1996
Re: Request for Ruling: Corporate Income Tax
Dear**************
This will reply to your letter of July 6, 1995, concerning the use of certain net operating loss deductions that would be available to ****** (the "Taxpayer") as the survivor to a merger with other affiliates.
FACTS
The Taxpayer is an HMO with operations entirely in Virginia and files a separate Virginia income tax return. The Taxpayer participates in the filing of a federal consolidated income tax return with its parent and other affiliates. The Taxpayer and other affiliates incurred net operating losses in prior years that were used in the federal consolidated return to offset the income of other members included therein. You request a ruling on the use of the net operating losses on a separate company basis if the other affiliates were merged into the Taxpayer.
RULING
Virginia income tax laws do not address net operating loss deductions (NOLD's). Since the starting point in computing Virginia taxable income is federal taxable income, however, Virginia allows NOLD's to the extent that they are allowable in computing federal taxable income.
When federal and Virginia income tax returns are prepared on a different basis, federal taxable income must be computed for Virginia tax purposes as if the federal income tax return was filed on the same basis as the Virginia income tax return (including NOLD's). In computing federal taxable income for Virginia purposes, NOLD's are allowable only if, and to the extent that, they would be allowable on a separate federal income tax return for a corporation filing a separate Virginia income tax return.
In the instant case, the Taxpayer has been filing separate Virginia income tax returns. Accordingly, federal taxable income must be computed for Virginia tax purposes as if a separate federal return was filed. You state that the Taxpayer as the survivor of the merger will succeed to certain tax attributes of the merged corporations under Internal Revenue Code (IRC) § 381(a), and that under IRC § 381(c)(1), any net operating loss deductions of the merged corporations will be available to the surviving corporation. Given these facts, the Taxpayer may use the separate company net operating loss deductions of the merged companies for Virginia tax purposes.
If you have any questions concerning this ruling, please contact****** at ****** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9940P
Rulings of the Tax Commissioner