Tax Type
Individual Income Tax
Description
Taxation of Nonresidents
Topic
Taxpayers
Date Issued
11-04-1998
November 4, 1998
Re: Ruling Request: Individual Income Tax
Dear *****
This is in reply to your letter in which you request a ruling as to Virginia's treatment of a qualified Subchapter S subsidiary and permission on behalf of your client, ***** (the ``Taxpayer') to file a unified nonresident individual income tax return on behalf of its nonresident shareholders.
FACTS
The Taxpayer, which has elected to be treated as an S corporation for federal income tax purposes, has two subsidiaries that have elected to be treated as a qualified Subchapter S subsidiaries pursuant to Internal Revenue Code (IRC) Sec.1361 as amended by the Small Business Job Protection Act of 1996. You wish to know what impact these elections will have on the Taxpayer's and the subsidiaries' corporation income tax filing requirements in Virginia.
The Taxpayer's headquarters are located outside Virginia and all the shareholders are nonresidents of Virginia. You request permission for the Taxpayer to file a unified Virginia nonresident individual income tax return on behalf of all of its shareholders, thus relieving the shareholders of the responsibility of having to file separate Virginia returns.
DETERMINATION
Qualified Subchapter S Corporation Subsidiaries
In Public Document (P.D.) 97-341 (8-27-97), copy enclosed, the department ruled that for Virginia purposes the taxable income of an S corporation and qualified S corporation subsidiaries would be determined in accordance with federal treatment. In this case, the two qualified S corporation subsidiaries will be treated as divisions of the Taxpayer and be included on the Taxpayer's Virginia S corporation income tax return (Form 500S).
Unified Return
Title 23 of the Virginia Administrative Code (VAC) 10-130-20 C 2 provides that the Tax Commissioner may grant permission to nonresident partnerships to file a statement of combined partnership income attributable to nonresident partners. This provision of the regulations relieves the nonresident partners of the responsibility of having to file nonresident individual income tax returns. Similarly, the department has granted permission to nonresident S corporations to file unified nonresident individual income tax returns. See P.D. 84-260 (12/28/84), copy enclosed. As such, the department will allow the Taxpayer to file a unified individual income tax return on behalf of the nonresident shareholders under the following conditions:
If the above is acceptable, the Taxpayer may commence the unified filing under the above conditions effective for taxable year ending September 30, 1998. However, we reserve the right to withdraw or modify the foregoing authorization upon reasonable notice to you.
If the above is not acceptable, please note that each nonresident shareholder having taxable income for a taxable year must file a Virginia return, unless the individual meets the filing exceptions described in Code of Virginia Sec. 58.1-321. Failure to file an individual nonresident return would subject the nonresident shareholder to penalty and interest, which could not be mitigated by the fact that a unified filing had been made unless the unified filing was in accordance with the conditions set forth above.
Please attach a copy of this letter to the unified nonresident individual income tax return. Contact ***** at ***** if you have additional questions or if we may be of further assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/16240O
Re: Ruling Request: Individual Income Tax
Dear *****
This is in reply to your letter in which you request a ruling as to Virginia's treatment of a qualified Subchapter S subsidiary and permission on behalf of your client, ***** (the ``Taxpayer') to file a unified nonresident individual income tax return on behalf of its nonresident shareholders.
FACTS
The Taxpayer, which has elected to be treated as an S corporation for federal income tax purposes, has two subsidiaries that have elected to be treated as a qualified Subchapter S subsidiaries pursuant to Internal Revenue Code (IRC) Sec.1361 as amended by the Small Business Job Protection Act of 1996. You wish to know what impact these elections will have on the Taxpayer's and the subsidiaries' corporation income tax filing requirements in Virginia.
The Taxpayer's headquarters are located outside Virginia and all the shareholders are nonresidents of Virginia. You request permission for the Taxpayer to file a unified Virginia nonresident individual income tax return on behalf of all of its shareholders, thus relieving the shareholders of the responsibility of having to file separate Virginia returns.
DETERMINATION
Qualified Subchapter S Corporation Subsidiaries
In Public Document (P.D.) 97-341 (8-27-97), copy enclosed, the department ruled that for Virginia purposes the taxable income of an S corporation and qualified S corporation subsidiaries would be determined in accordance with federal treatment. In this case, the two qualified S corporation subsidiaries will be treated as divisions of the Taxpayer and be included on the Taxpayer's Virginia S corporation income tax return (Form 500S).
Unified Return
Title 23 of the Virginia Administrative Code (VAC) 10-130-20 C 2 provides that the Tax Commissioner may grant permission to nonresident partnerships to file a statement of combined partnership income attributable to nonresident partners. This provision of the regulations relieves the nonresident partners of the responsibility of having to file nonresident individual income tax returns. Similarly, the department has granted permission to nonresident S corporations to file unified nonresident individual income tax returns. See P.D. 84-260 (12/28/84), copy enclosed. As such, the department will allow the Taxpayer to file a unified individual income tax return on behalf of the nonresident shareholders under the following conditions:
- 1. A schedule must be provided containing the total income of the Taxpayer and the amount attributable to Virginia under either the applicable state apportionment formula, as provided in Code of Virginia Secs.58.1-408 through 58.1-421, or by using an approved alternative method.
- 2. The unified return must reflect only the income or loss attributable to Virginia nonresident shareholders who have no income from Virginia sources other than income attributable to the Taxpayer.
- 3. All nonresident shareholders without other income from Virginia sources must elect to join in the filing of such a return and a statement to such effect will be included in the return.
- 4. The return will include each nonresident shareholder's name, address, social security number and Virginia taxable income attributable to each nonresident shareholder.
- 5. The Virginia income tax will be computed at the rates specified under Code of Virginia Sec. 58.1-320 on the Taxpayer's income attributable to the nonresident shareholders without benefit of itemized deductions, standard deductions, personal exemptions or credit for income taxes paid to states of residence.
- 6. The return will contain a statement indicating the responsibility of each nonresident shareholder for his share of the total tax and any statements made on his behalf. The statement will be signed by each nonresident shareholder.
- 7. A similar unified return will be filed and payment made for the declaration of estimated tax, if required.
If the above is acceptable, the Taxpayer may commence the unified filing under the above conditions effective for taxable year ending September 30, 1998. However, we reserve the right to withdraw or modify the foregoing authorization upon reasonable notice to you.
If the above is not acceptable, please note that each nonresident shareholder having taxable income for a taxable year must file a Virginia return, unless the individual meets the filing exceptions described in Code of Virginia Sec. 58.1-321. Failure to file an individual nonresident return would subject the nonresident shareholder to penalty and interest, which could not be mitigated by the fact that a unified filing had been made unless the unified filing was in accordance with the conditions set forth above.
Please attach a copy of this letter to the unified nonresident individual income tax return. Contact ***** at ***** if you have additional questions or if we may be of further assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/16240O
Rulings of the Tax Commissioner