Tax Type
Corporation Income Tax
Description
Combined Return, Affiliated Corporations
Topic
Returns and Payments
Date Issued
10-15-1999
October 15, 1999
Re: Request For Ruling: Corporate Income Tax
Dear***
This will respond to your letter in which you requested a ruling regarding ***** (the "Taxpayer') and affiliates to change from filing separate Virginia corporation income tax returns to a combined return for the short taxable year ending December 31, 1997. You further state that you intend to change from the combined filing status to a consolidated return effective for the taxable year ending December 31, 1998.
FACTS
The Taxpayer and its affiliates have filed separate Virginia corporation income tax returns for several years. During 1997, ***** ("Company A') was formed along with two other affiliates. In September 1997, one of the affiliates acquired the Taxpayer in a taxable purchase and was merged into the Taxpayer. Prior to the acquisition, Company A and its affiliates had made no prior filing election because they were a newly formed affiliated group. You request permission to file on a combined basis for the short taxable year ending December 31, 1997, and to file on the consolidated basis for the first full taxable year, 1998.
Company A and its affiliated group are owned by a foreign parent corporation, Company B. Company B also owns Company C which has affiliates that have nexus with Virginia. Three affiliates of Company C have nexus in Virginia and have previously filed on a separate return basis. These two groups request to file separate Virginia consolidated returns because their parent corporation cannot participate in filing one consolidated return under federal law because it would not qualify as an includable corporation for purposes of Internal Revenue Code (IRC) Sec.1504.
RULING
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 of the Virginia Administrative Code (VAC) 10-120-320 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 Company C affiliated group filed separate returns in Virginia prior to the acquisition of the Taxpayer by Company A. By filing on a separate basis, they elected the separate filing status for all subsequent years. In accordance with 23 VAC 10-120-320, the new affiliates of the group, the Taxpayer and Company A must follow the filing method previously elected by the Company C affiliates.
You state that you believe that because two federal consolidated returns would be required due to foreign ownership, no affiliation exists for purposes of making a Virginia election and each group may make a separate election. The department does not agree with this conclusion. Code of Virginia Sec. 58.1-302 only requires that an 80% ownership exist whether in a parent-subsidiary relationship or a brother-sister relationship to be affiliated. Clearly the parent-subsidiary relationship exists because the 80% ownership requirement is met. Further, as stated above, Code of Virginia Sec. 58.1-442 allows corporations to file on a different basis than for federal income tax purposes. In Public Document (P.D.) 91-35 (3/18/91), copy enclosed, the U.S. affiliates of a foreign corporation were granted permission to file a combined return and were required to include all U.S. affiliates of the common foreign parent. In the instant case, all U.S. corporations involved are affiliated but on different tier levels of common ownership. There are no requirements set forth by Virginia law or regulations that all affiliates be on the same tier levels of ownership to be included in a combined or consolidated return. Consequently, the department does not agree with the conclusions reached in your request.
It is well established that permission to change to or from a consolidated return will generally not be granted absent extraordinary circumstances. Based on the facts presented, I find no extraordinary circumstances exist to warrant granting permission to change to filing on a consolidated basis. Accordingly, permission to file a consolidated return cannot be granted.
You request that the Taxpayer and Company A be allowed to file a combined return for the short taxable year ending December 31, 1997. Code of Virginia Sec. 58.1-442 permits affiliated corporations to file a combined return. Permission to change between the separate and combined return filing methods generally will be granted, because allocation and apportionment formulas are not affected by changes between these two statuses. Because your request to change was filed prior to the due date or extended due date, permission is hereby granted for the Taxpayer and Company A to file a combined return for the taxable year ending December 31, 1997. Beginning with the taxable year ending December 31, 1998, the affiliates of Company C must be included in the combined return.
If you have any questions regarding this ruling, please contact ***** of the Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
Re: Request For Ruling: Corporate Income Tax
Dear***
This will respond to your letter in which you requested a ruling regarding ***** (the "Taxpayer') and affiliates to change from filing separate Virginia corporation income tax returns to a combined return for the short taxable year ending December 31, 1997. You further state that you intend to change from the combined filing status to a consolidated return effective for the taxable year ending December 31, 1998.
FACTS
The Taxpayer and its affiliates have filed separate Virginia corporation income tax returns for several years. During 1997, ***** ("Company A') was formed along with two other affiliates. In September 1997, one of the affiliates acquired the Taxpayer in a taxable purchase and was merged into the Taxpayer. Prior to the acquisition, Company A and its affiliates had made no prior filing election because they were a newly formed affiliated group. You request permission to file on a combined basis for the short taxable year ending December 31, 1997, and to file on the consolidated basis for the first full taxable year, 1998.
Company A and its affiliated group are owned by a foreign parent corporation, Company B. Company B also owns Company C which has affiliates that have nexus with Virginia. Three affiliates of Company C have nexus in Virginia and have previously filed on a separate return basis. These two groups request to file separate Virginia consolidated returns because their parent corporation cannot participate in filing one consolidated return under federal law because it would not qualify as an includable corporation for purposes of Internal Revenue Code (IRC) Sec.1504.
RULING
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 of the Virginia Administrative Code (VAC) 10-120-320 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 Company C affiliated group filed separate returns in Virginia prior to the acquisition of the Taxpayer by Company A. By filing on a separate basis, they elected the separate filing status for all subsequent years. In accordance with 23 VAC 10-120-320, the new affiliates of the group, the Taxpayer and Company A must follow the filing method previously elected by the Company C affiliates.
You state that you believe that because two federal consolidated returns would be required due to foreign ownership, no affiliation exists for purposes of making a Virginia election and each group may make a separate election. The department does not agree with this conclusion. Code of Virginia Sec. 58.1-302 only requires that an 80% ownership exist whether in a parent-subsidiary relationship or a brother-sister relationship to be affiliated. Clearly the parent-subsidiary relationship exists because the 80% ownership requirement is met. Further, as stated above, Code of Virginia Sec. 58.1-442 allows corporations to file on a different basis than for federal income tax purposes. In Public Document (P.D.) 91-35 (3/18/91), copy enclosed, the U.S. affiliates of a foreign corporation were granted permission to file a combined return and were required to include all U.S. affiliates of the common foreign parent. In the instant case, all U.S. corporations involved are affiliated but on different tier levels of common ownership. There are no requirements set forth by Virginia law or regulations that all affiliates be on the same tier levels of ownership to be included in a combined or consolidated return. Consequently, the department does not agree with the conclusions reached in your request.
It is well established that permission to change to or from a consolidated return will generally not be granted absent extraordinary circumstances. Based on the facts presented, I find no extraordinary circumstances exist to warrant granting permission to change to filing on a consolidated basis. Accordingly, permission to file a consolidated return cannot be granted.
You request that the Taxpayer and Company A be allowed to file a combined return for the short taxable year ending December 31, 1997. Code of Virginia Sec. 58.1-442 permits affiliated corporations to file a combined return. Permission to change between the separate and combined return filing methods generally will be granted, because allocation and apportionment formulas are not affected by changes between these two statuses. Because your request to change was filed prior to the due date or extended due date, permission is hereby granted for the Taxpayer and Company A to file a combined return for the taxable year ending December 31, 1997. Beginning with the taxable year ending December 31, 1998, the affiliates of Company C must be included in the combined return.
If you have any questions regarding this ruling, please contact ***** of the Office of Tax Policy at *****
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner