Tax Type
Corporation Income Tax
Description
Returns of Affiliated Corporations
Topic
Returns and Payments
Date Issued
10-28-1998
October 28, 1998
Re: Sec. 58.1-1821 Application: Corporate Income Tax
Dear *****
This will respond to your letter in which you protest the disallowance of a consolidated Virginia corporation income tax return filed by ***** (the ``Taxpayer') and affiliated companies for the taxable year ending December 31, 1995. Also included in your protest is the department's denial of retroactive consolidated filings for 1993 and 1994.
FACTS
The Taxpayer and affiliates filed separate returns in Virginia prior to 1995. Beginning in 1995, the Taxpayer changed filing status from separate to consolidated without first requesting permission to change from the department. On field audit, the consolidated return was dissolved and the Taxpayer was assessed additional tax and interest. The Taxpayer requests that the consolidated return for 1995 be accepted and further requests that retroactive permission to file consolidated be granted for the years 1993 and 1994. As basis for the change, the Taxpayer states that the unitary relationship that exists between the companies better reflects the income subject to Virginia tax when a consolidated return is filed.
DETERMINATION
Code of Virginia Sec. 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 returns. Title 23 VAC 10-120-320 of the Virginia Administrative Code (copy enclosed) provides that in the first year two or more members of an affiliated group of corporations are required to file Virginia returns, the group may elect to file separate returns, a combined return, or a consolidated return. All returns for subsequent years must be filed on the same basis unless permission to change is granted by the department. The department will generally not grant permission to change to a consolidated filing status absent extraordinary circumstances.
The Taxpayer was a member of an affiliated group of corporations within the meaning of Code of Virginia Sec. 58.1-302 for the taxable year ending December 31, 1993. These corporations filed their Virginia returns on a separate basis, thereby electing the separate filing status for all subsequent years. In accordance with 23 VAC 10-120-320, the members of the group must follow the filing method previously elected by the group.
You state that the unitary relationship between the members of the group necessitate the filing of a consolidated return. A unitary relationship between corporations is not a prerequisite under Virginia law for affiliated corporations to file a consolidated return. Rather, Virginia law requires that corporations be affiliated as defined in Code of Virginia Sec. 58.1-302 and each corporation be subject to corporate income tax if separate returns were filed. As such, the department does not view a unitary relationship as an extraordinary circumstance that would warrant granting permission to change to filing on a consolidated basis. Accordingly, permission to change to the consolidated filing basis cannot be granted.
In your September 22, 1998, letter you request permission to file a combined return on a prospective basis beginning with the taxable year ending December 31, 1997. It is my understanding that in a telephone conversation with a member of my staff, you were instructed on how a Virginia combined return was filed and that you requested permission to use that method since the consolidated method was denied. Because your request to change was filed prior to the due date or extended due date of the return, permission is hereby granted for the Taxpayer and its affiliates to file a combined return for the taxable year ending December 31, 1997, and subsequent years.
The balance of the assessment, ***** should be paid within the next 30 days to avoid the accrual of additional interest. Please remit your check to *****, Virginia Department of Taxation, Office of Tax Policy, Post office Box 1880, Richmond, Virginia 23218-1880.
If you have any questions regarding this ruling, you may contact ***** at***.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13399P
Re: Sec. 58.1-1821 Application: Corporate Income Tax
Dear *****
This will respond to your letter in which you protest the disallowance of a consolidated Virginia corporation income tax return filed by ***** (the ``Taxpayer') and affiliated companies for the taxable year ending December 31, 1995. Also included in your protest is the department's denial of retroactive consolidated filings for 1993 and 1994.
FACTS
The Taxpayer and affiliates filed separate returns in Virginia prior to 1995. Beginning in 1995, the Taxpayer changed filing status from separate to consolidated without first requesting permission to change from the department. On field audit, the consolidated return was dissolved and the Taxpayer was assessed additional tax and interest. The Taxpayer requests that the consolidated return for 1995 be accepted and further requests that retroactive permission to file consolidated be granted for the years 1993 and 1994. As basis for the change, the Taxpayer states that the unitary relationship that exists between the companies better reflects the income subject to Virginia tax when a consolidated return is filed.
DETERMINATION
Code of Virginia Sec. 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 returns. Title 23 VAC 10-120-320 of the Virginia Administrative Code (copy enclosed) provides that in the first year two or more members of an affiliated group of corporations are required to file Virginia returns, the group may elect to file separate returns, a combined return, or a consolidated return. All returns for subsequent years must be filed on the same basis unless permission to change is granted by the department. The department will generally not grant permission to change to a consolidated filing status absent extraordinary circumstances.
The Taxpayer was a member of an affiliated group of corporations within the meaning of Code of Virginia Sec. 58.1-302 for the taxable year ending December 31, 1993. These corporations filed their Virginia returns on a separate basis, thereby electing the separate filing status for all subsequent years. In accordance with 23 VAC 10-120-320, the members of the group must follow the filing method previously elected by the group.
You state that the unitary relationship between the members of the group necessitate the filing of a consolidated return. A unitary relationship between corporations is not a prerequisite under Virginia law for affiliated corporations to file a consolidated return. Rather, Virginia law requires that corporations be affiliated as defined in Code of Virginia Sec. 58.1-302 and each corporation be subject to corporate income tax if separate returns were filed. As such, the department does not view a unitary relationship as an extraordinary circumstance that would warrant granting permission to change to filing on a consolidated basis. Accordingly, permission to change to the consolidated filing basis cannot be granted.
In your September 22, 1998, letter you request permission to file a combined return on a prospective basis beginning with the taxable year ending December 31, 1997. It is my understanding that in a telephone conversation with a member of my staff, you were instructed on how a Virginia combined return was filed and that you requested permission to use that method since the consolidated method was denied. Because your request to change was filed prior to the due date or extended due date of the return, permission is hereby granted for the Taxpayer and its affiliates to file a combined return for the taxable year ending December 31, 1997, and subsequent years.
The balance of the assessment, ***** should be paid within the next 30 days to avoid the accrual of additional interest. Please remit your check to *****, Virginia Department of Taxation, Office of Tax Policy, Post office Box 1880, Richmond, Virginia 23218-1880.
If you have any questions regarding this ruling, you may contact ***** at***.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13399P
Rulings of the Tax Commissioner