09-30 | Virginia Tax

Tax Type

Corporation Income Tax

Description

Ruling on the correct corporate income tax filing status "Taxpayer and its affiliates

Topic

Filing Status

Records/Returns/Payments

Date Issued

03-31-2009

March 31, 2009

Re: Ruling Request: Corporate Income Tax

Dear *****:

This will reply to your letter in which you request a ruling concerning the correct corporate income tax filing status of ***** (the "Taxpayer") and its affiliates.

FACTS

In 2001, the Taxpayer acquired ***** (S1), a Virginia based corporation that filed a separate Virginia income tax return. With the exception of S1, neither the Taxpayer nor any other member of its corporate family had nexus with Virginia for 2001.

During 2002, the Taxpayer began conducting sufficient business in Virginia to become subject to Virginia income tax. In addition, the Taxpayer acquired ***** (S2) and ***** (S3). S2 and S3 both operated in Virginia prior to 2001, but were not affiliated for Virginia income tax purposes prior to their acquisition by the Taxpayer.

In June 2002, the Taxpayer requested permission from the Tax Commissioner to change its filing status from separate to combined filing status for Virginia corporate income tax purposes. Permission was granted in August 2002.

For the 2002 taxable year, the Taxpayer checked the box for "consolidated" on the return and filed a consolidated income return that included S1, S2, and S3. The Taxpayer has continued to file Virginia income tax returns on a consolidated basis for all subsequent taxable years.

The Taxpayer now believes it was eligible to elect the consolidated Virginia filing status for 2002, made such an election, and has followed that election consistently since that time. You request a ruling that the Taxpayer's election and actual filing method take precedent over the Tax Commissioner's granting permission to file on a combined basis.

RULING

Virginia Code § 58.1-442 allows corporations to elect to file returns as separate, combined or consolidated entities regardless of how the corporations file their federal income tax returns. Title 23 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 Department has issued numerous rulings concerning filing status elections since Public Document (P.D.) 87-230 (10/14/1987) and filing status change requests beginning with P.D. 82-174 (12/10/1982). When a corporation makes a request to change its filing status, there is a presumption that the corporation will present sufficient facts to help make an informed decision. In addition, the Department typically researches its records to determine if a group of affiliated corporations is entitled to an election instead of requiring permission to change. In a number of these cases, the Department has been able to identify that an affiliated group was entitled to an election and did not need to request permission to change.

In fact, the Department has previously addressed this issue in P.D. 99-214 (8/2/1999). In that case, an affiliated group requested permission to change its filing status. Based on the information provided, the Department was able to determine that the taxable year for which the affiliated group was requesting permission to change was, in fact, the first full taxable year the affiliated group would be required to file income tax returns. The Tax Commissioner concluded that the affiliated group was eligible to elect as separate, combined or consolidated entities and no permission to change was required.

In this case, the information supplied with the Taxpayer's initial request for change in filing status in 2002 did not indicate that the Taxpayer and its affiliates were eligible to make an election on the 2001 income tax return. The policy established in P.D. 99-214, however, still applies. The Taxpayer and its affiliates were eligible to make an election on the 2001 income tax return. The affiliated group elected to file on a consolidated basis. No permission was needed to make the election. Therefore, the actual election and filing method are controlling, and the Department's letter granting permission to change filing status is disregarded.

I would like to point out that this ruling does not signify any change in the Department's policy concerning "retroactive" permission to change. See P.D. 91-271 (10/23/1991) and P.D. 93-153 (7/23/1993). The Taxpayer in this case had the authority to elect a filing status for the 2001 taxable year. No permission, retroactive or otherwise, was required for the Taxpayer to make its election.

This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulations, and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/1-2933460575.o

Rulings of the Tax Commissioner