Tax Type
Corporation Income Tax
Description
Returns of affiliated corporations; Change in method of filing
Topic
Returns/Payments/Records
Date Issued
09-06-1990
September 6, 1990
Re: § 58.1-1821 Application; Corporation Income Tax
§58.1-442 Consolidated/Combined Returns
Dear
This is in response to your letter of November 3, 1989, in which you applied for correction of an assessment of corporation income tax.
Facts
The Taxpayer, together with the members of its affiliated group, were audited and the combined return filing status was disallowed for its Virginia corporation income tax returns for 1984 and 1985. The auditor assessed additional taxes, separating the returns filed for 1984 and 1985 into two consolidated returns because different apportionment factors were involved. The Taxpayer contends that on the 1984 return, the "consolidated return" box was marked inadvertently, but the Taxpayer prepared the return using the combined method of reporting, as it has been doing since the affiliated group came into existence in the early 1970's.
Discussion
Virginia law allows corporate taxpayers to elect one of three filing methods - separate, consolidated or combined. once an election has been made it is irrevocable, unless permission to change is granted by the Tax Commissioner. See VR §630-3-442(E).
Since 1972, the first year in which two or more affiliates were subject to Virginia income tax, the Taxpayer has filed a single return for the group prepared in accordance with the "combined" method now set out in Va. Code 58.1-442(b)(2). However, the filing of combined returns was introduced in 1981 for taxable years beginning on and after January 1, 1981. See 1981 Acts of Assembly, c. 402. Prior to 1981, Virginia law permitted only two methods of preparing income tax returns for an affiliated group of corporations: separate or consolidated. The returns filed by the Taxpayer clearly were not separate; therefore the Taxpayer is deemed to have elected consolidated filing in 1972. In fact, the consolidated box on page 1 was checked on each Virginia return. The fact that the returns were not properly prepared under consolidated principles does not alter the fact that the consolidated method was elected.
The policy requiring a taxpayer to get permission from the Tax Commissioner to change return filing status did not change when the 1981 act authorized the filing of combined returns. The Taxpayer had been filing consolidated returns prior to 1981. The Taxpayer has never received permission to change its method of reporting to the combined method. Therefore, the Taxpayer is required to continue filing on a consolidated basis pursuant to its 1972 election. The assessment based on a consolidated return is correct.
The Taxpayer asserts that, even if it is found that the returns filed prior to 1981 were consolidated, the 1981 change in the law made a new election available to the Taxpayer in 1981 to file a combined return without obtaining the Tax Commissioner's permission.
While the election to file combined returns was added in 1981, effective for taxable years beginning on and after January 1, 1981, the Department of Taxation has taken the position that prior elections continued in effect and could only be changed with the permission of the Tax Commissioner. The 1981 law had no retroactive effect and therefore, no new election was available in 1981 to affiliated groups of corporations that previously filed separate or consolidated Virginia returns. A change to combined return status required permission of the Tax Commissioner.
Determination
Accordingly, the assessment based on consolidated filing is correct as made and is now due and payable. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within thirty days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner