Tax Type
Corporation Income Tax
Description
Consolidated filing method denied; Domestic International Sales Corporation
Topic
Returns/Payments/Records
Date Issued
01-17-1986
January 17, 1986
Re: §58.1-441 Permission to file a consolidated return
§58.1-446 Domestic International Sales Corporations
Dear *********************
This is in response to your letter requesting that the department reconsider its denial of permission to file a consolidated return. The department has reconsidered and again denies permission to file a consolidated return on the basis requested by you.
FACTS
The parent corporation has substantial interest expense related to its investment in its subsidiaries, many of which are not subject to Virginia income tax. The parent wants to file a consolidated Virginia return which would include all of its subsidiaries and allow the interest expense to offset the income to the subsidiaries.
DETERMINATION
As stated in the department's earlier letter denying permission to file a consolidated return, permission is rarely granted to change to or from consolidated filing status. We do not find any compelling circumstances in your situation to justify granting permission.
Even if permission were granted, under no circumstances may a consolidated or combined return include a corporation which is not itself subject to Virginia income tax on a separate basis. The definition of an affiliated corporation in §58.1-302 requires that an ownership test be satisfied, and, in addition, requires that each corporation be subject to Virginia tax. Also, §58.1-442 prohibits the so called "world-wide combined" return.
As you state in your letter, Virginia is permitted, under current interpretations of the U.S. Constitution, to require that all subsidiaries engaged in a unitary business be included in a consolidated return. However, Virginia law expressly limits the use of a consolidated or combined return to corporations which are themselves subject to Virginia income tax because of their activity in Virginia. Accordingly, the department does not have the authority to allow the type of consolidated return that you seek.
Your reliance on the provisions of §58.1-446 and the department's policy on taxpayers which own a Domestic International Sales Corporation (DISC) is misplaced. That section is limited to situations in which the department finds that income subject to tax in Virginia has been improperly reflected due to some intercorporate arrangements. Under Virginia regulation 630-3-446 this section is only applied to DISCs.
Accordingly, your request to file a consolidated Virginia income tax return is denied.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner