On April 7, 2021, Virginia H.B. 1800 was passed by the Virginia General Assembly. Included in the Budget Bill was a one-time combined unitary return reporting requirement (“Reporting Requirement”) that is intended to allow the Virginia Department of Taxation (“Department”) the ability to study the tax impact of combined reporting. Specifically, corporations that are subject to Virginia income tax are required to file a one-time combined unitary report (“Report”) which shows the difference between the amount of tax the corporation would pay if it filed a unitary combined return and the amount of tax based on its current Virginia filing methodology. A workgroup that was established as part of House J.R. 563 will use this Report to assess the feasibility of transitioning to a unitary combined reporting system in the Commonwealth.
Until recently, there was virtually no guidance on how the Report, due July 1, 2021, must be prepared and filed with the Department. On April 29, 2021, the Department released guidance that provides some additional detail regarding the preparation of the Report. The guidance provides that the following entities are excluded from the Report:
- Corporations that are required to file a premiums license tax or bank franchise tax return;
- Corporations that are incorporated outside the United States and that have 80% or more of the average of their property, payroll and sales factors outside the United States; and
- Corporations not subject to federal income tax because they have federal tax treaty protection.
Additionally, the guidance provides that the Report should include the following information for the 2019 tax year:
- Number of unitary group members not currently filing in Virginia;
- Details regarding the calculation of federal taxable income, including net operating loss deduction and eliminations;
- Details regarding the calculation of Virginia taxable income, including modifications, nonapportionable business income tax (both allocated to or outside of Virginia) and business income;
- Apportionment factor method, including whether the taxpayer files using a single sales factor or multi-factor method;
- Details regarding the composition of each apportionment factor;
- Amount of tax credits claimed; and
- The amount of certain other taxes paid in the Commonwealth (telecommunications company tax, electric suppliers company tax, etc.)
Based on the above details, taxpayers must submit a Report computing Virginia corporate income tax using both a Joyce and Finnigan apportionment method and compare the amount of tax due under both methods with the amount of tax that would be due using its current Virginia filing method.
The Report is for informational purposes and no tax is required to be paid with the return. However, there is a $10,000 penalty for failing to file the report. The report is due by July 1, 2021 and no extensions of time are permitted.