Tax Type
Corporation Income Tax
Description
Consolidated method denied
Topic
Returns/Payments/Records
Date Issued
05-29-1992
May 29, 1992
Re: Request for Ruling: Corporation Income Tax
Dear ****
This will reply to your letter of February 20, 1991, in which you request permission to file a consolidated Virginia income tax return for * **** * (the "Applicant") and its subsidiaries for the taxable year ended June 30, 1990.
FACTS
The applicant, the parent of the affiliated group, was formed in 1990 and filed its initial Virginia income tax return for the taxable year ended June 30, 1990. The return was filed on a consolidated basis with its subsidiaries, which are all 100% owned by the applicant. Prior to the formation of the applicant, the subsidiaries were brother/sister corporations and filed separate Virginia corporation income tax returns. You are requesting permission to file the affiliated group's Virginia income tax returns on a consolidated basis.
RULING
Va. Code § 58.1-442 allows corporations to elect to file returns on the basis of one of three filing statuses (separate, combined or consolidated) regardless of how the corporations filed their federal income tax return. Once an affiliated group has made an election, the group may not change its filing status unless permission is granted by the Department of Taxation.
Prior to the formation of the parent corporation, the other corporations maintained a brother/sister relationship and were "affiliated" within the meaning of Va. Code § 58.1-302. The affiliated corporations filed their Virginia corporation income tax returns on a separate basis, thereby electing separate filing status for all subsequent returns.
It is well established that permission to change to or from consolidated returns will generally not be granted, as the change affects the allocation and apportionment factors and distorts business done in Virginia and income arising from activity in Virginia. See Virginia Regulation (VR) 630-3-442(E) (copy enclosed). Based on the facts as presented, I find no extraordinary circumstances to warrant the granting of permission for the affiliated group to change to filing on a consolidated basis. Accordingly, permission is denied.
Va. Code §58.1-442 permits affiliated corporations to file a combined return. A change from separate returns to a combined return does not affect the allocation and apportionment formulas for each corporation.
Permission is granted for the taxpayer and its subsidiaries to file a combined return for the taxable year ended June 30, 1990, and for taxable years thereafter if the combined return includes all affiliated corporations subject to Virginia income tax and if they use the same taxable year. The return should be filed using the name and identification number of the parent.
The consolidated Virginia return for the taxable year ended June 30, 1990, was improperly filed, because permission to change from separate to consolidated filing status was not obtained by the affiliated group. Therefore, the return must be amended to conform to the filing status permitted by this ruling, i.e., a combined return.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner