August 9, 2023
Re: Request for Filing Status Change: Corporate Income Tax
Dear *****:
This will respond to your letter in which you request permission for ***** (“Taxpayer”) and its subs to change its filing status from a fiscal year to a calendar year.
FACTS
The Taxpayer historically filed its federal and Virginia corporate income tax returns using a fiscal year ended June 30. It filed 2019 federal and Virginia corporate short-year returns for the taxable year period beginning with July 1, 2019 and ended December 31, 2019 to change its taxable year end to December 31. The Taxpayer filed its federal 2020 and 2021 taxable year returns using a December 31 year end, but continued to use a fiscal June 30 year end Virginia corporate returns. The Taxpayer has requested permission from the Department to file its corporate year returns using a calendar year end.
RULING
Taxable Year
Virginia Code § 58.1-440 requires corporations to use the same taxable year for Virginia tax purposes as for federal tax purposes. Under Title 23 of the Virginia Administrative Code (VAC) 10-120-300 B, when a corporation's taxable year is changed for federal income tax purposes, its taxable year for Virginia tax purposes also changed. No permission is required from the Department to change.
Under this rule, when a short period return is required for federal tax purposes, a similar return must be filed for Virginia tax purposes. The Taxpayer fulfilled this requirement by filing a 2019 short year return for the taxable year ended December 31, 2019.
The Taxpayer filed its 2020 and 2021 federal corporate returns using a calendar year end. As explained above, it then should have filed its Virginia returns using the same taxable year. However, it failed to follow through with the taxable year end change on its state returns and filed 2020 and 2021 Virginia corporate returns using a June 30 taxable year end. As such, the Taxpayer’s Virginia corporate returns for the 2020 and 2021 taxable years were not filed with a report to the Department on or before the fifteenth day of the fourth month following the close of its taxable year as required under Virginia Code § 58.1-441.
Filing Status
During the course of its review, the Department discovered that the Taxpayer filed its 2020 Virginia return using a combined filing status. According to Department records, the Taxpayer had previously elected to file Virginia returns on a consolidated basis.
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 B requires all returns for subsequent taxable years to be filed on the same basis unless permission to change is granted by the Department.
Here, the Taxpayer did not request or receive permission to change its filing status from consolidated to combined. Thus, in addition to filing a 2020 return using its taxable year, the Taxpayer must file using the elected consolidated filing status. All subsequent returns must also be filed using a consolidated filing status.
CONCLUSION
Based on this ruling, the Taxpayer is hereby requested to file 2020 and 2021 Virginia corporate income tax returns using the calendar as its taxable year and conforming its filing status to its election to file consolidated returns. In addition, the Taxpayer should review subsequent Virginia income tax filings to ensure that it filed using the correct methods. If it has not, it should file amended returns to conform to its federal taxable year and elected consolidated filing status as required under Virginia law.
The requested returns should be submitted within 60 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *****. Upon receipt, the returns will be reviewed and any appropriate adjustments will be made.
The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this letter, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/4475.B