Did an affiliated corporate group need permission to include a newly acquired corporation in its Virginia consolidated return?

Subject

Request for Change of Filing Status

Plain-English summary

Virginia ruled that an acquired corporation had to join its new affiliated group's existing consolidated return. The group did not need permission to include it.

Virginia treats the filing-method election as belonging to the affiliated group as a whole. A change in group membership does not reopen the election, and a new member must use the group's previously selected separate, combined, or consolidated method even if that corporation had filed differently before acquisition.

The Department agreed to correct Corporation A's registration. The nonfiler notice arose because the taxpayer had not reported the filing-status change, and the Department instructed it to notify the Registration Unit when future acquisitions change an entity's status.

Citations and references

• Va. Code §§ 58.1-442 and 58.1-302.
• 23 VAC 10-120-320 and 23 VAC 10-120-324(C).
• P.D. 01-209 and P.D. 13-241.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-183

Original ruling text

October 17, 2017

Re: Corporate Income Tax: Request for Filing Status Change

Dear *:

This will respond to your letter in which you request permission for * (the “Taxpayer”) to include *** (“Corporation A”) in its consolidated return for the 2015 taxable year.

FACTS

The Taxpayer historically filed Virginia corporate income tax returns on a consolidated basis. In 2014, the Taxpayer acquired Corporation A and included it in the consolidated filing for the taxable year ended December 31, 2015.

Prior to the acquisition, Corporation A filed its Virginia corporate income tax return on a separate basis. When a separate 2015 return was not filed, the Department issued a nonfiler assessment to Corporation A. The Taxpayer contacted the Department about the assessment and was advised that permission was required to include Corporation A in the consolidated filing because Corporation A previously filed under the separate method. In response, the Taxpayer submitted a request to include Corporation A in its consolidated return.

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 of the Virginia Administrative Code (VAC) 10-120-320 provides that in the first full taxable year, two or more members of a group of c orporations affiliated pursuant to V a. Code § 58.1-302 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.

Title 23 VAC 10-120-324 C provides that filing methods are deemed to be made by the affiliated group as a whole. Changes in the membership of an affiliated group do not affect the original election by the affiliated group. If a new corporation becomes a member of the affiliated group, the new corporation must follow the filling method previously elected by the group. See also Public Document (P.D.) 01-209 (12/10/2001), and P.D. 13-241 (12/31/2013).

Based on Virginia's policy, Corporation A was required to be included in the consolidated return with the Taxpayer and other affiliates. Accordingly, no permission was required in order to include Corporation A. Pursuant to this determination, the Department will adjust Corporation A's registration to reflect its proper filing status.

The Taxpayer, however, failed to notify the Department of Corporation A's change in filing status resulting in a nonfiler notice. The Taxpayer should be advised that if it acquires additional entities in the future, it should send information concerning the change in filing status to the Department's Registration Unit, Post Office Box 1114, Richmond, VA 23218-1114.

The Code of Virginia section, regulation, and public document 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 ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1334.D