Tax Type
Corporation Income Tax
Description
Returns of affiliated corporations; Consolidated return
Topic
Returns and Payments
Date Issued
05-16-1997
May 16, 1997
Re: Request for Ruling: Corporate Income Tax
Dear****************
This will respond to your representative's request that the department reconsider its ruling of April 10, 1997, concerning the filing of a consolidated Virginia corporation income tax return for ******(the "Taxpayer").
FACTS
The Taxpayer by letter of March 11, 1997, requested permission from the department to file a consolidated Virginia corporation income tax return. After considering the facts set forth by the Taxpayer, this request was denied. Subsequently, the Taxpayer's representative furnished additional facts concerning why the Taxpayer should be considered in an election year for purposes of filing a consolidated return.
RULING
Code of Virginia § 58.1-442 allows corporations to elect to file returns as separate, combined, or consolidated entities regardless of how the corporations filed their federal income tax return. Once an affiliated group has made an election, the group may not change it status unless permission is granted by the department.
The election to use a certain filing status is determined by the affiliated group at the time such group meets the definition of affiliated as codified in § 58.1-302 of the Code of Virginia. In the case of an acquisition, the acquiring entity's election to use a certain filing status prior to the acquisition would be binding on the acquired affiliate or affiliates. In Public Document (P.D.) 92-75 (5/29/92) a parent corporation was formed for two affiliates who had been filing on a separate basis. A consolidated return request was denied by the department since an affiliated group was in existence at the time the parent was formed and had made an election to file separately. The mere formation of a parent corporation did not allow the group a new filing election since no acquisition occurred.
In the instant case, the Taxpayer purchased the affiliated group in a taxable transaction. Prior to the acquisition, the Taxpayer had no affiliates. When the Taxpayer acquired the group, the affiliates became members of a newly formed affiliated group. The new group had made no prior election, therefore it may elect to file using any of three methods allowable in Code of Virginia § 58.1-442. Accordingly, the group may elect to file a Virginia consolidated corporation income tax return, and this action does not require prior permission from the department.
It should be noted that the incorporation of a parent or holding company by an affiliated group with an existing election does not permit the group to make a new election. The department views this type of a transaction as a common business transaction that regularly occurs and does not create a new affiliated group.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12485P
Rulings of the Tax Commissioner