Virginia’s General Assembly has considered legislation for mandatory unitary combined reporting for corporate income tax purposes over the last several years, but the requirement has never been enacted into law. Similarly, this year, a mandatory unitary combined reporting bill (S.B. 1353) died in the Senate Finance and Appropriations Committee. However, the legislature (per H.B. 1800) is requiring the creation of a working group to consider the feasibility of transitioning to a unitary combined reporting system AND is requiring all corporations that are members of a unitary combined group to file an informational report (i.e., pro forma combined return) with the Department of Taxation containing the unitary combined net income of the group. The informational report is due on or before July 1, 2021.
The required informational reports will be based on taxable year 2019 and will require taxpayers to include the difference in corporate income tax owed under the combined reporting method as compared to the tax owed under Virginia’s current filing requirements (i.e., separate filing regime). The legislation includes little detail on the combined reporting method to be used in preparing the informational report and includes no information pertaining to the logistics of filing the reports. The law has tasked these issues to the Tax Commissioner. Details that are included in the legislation are:
- the informational report must be submitted by July 1, 2021, with no extensions.
- failure to file the report will subject corporations to a $10,000 penalty; and
- a unitary combined group does not include corporations incorporated in a foreign country if:
- the foreign corporation is an “80/20” corporation (i.e., the average of its property, payroll and sales factor is 80% or more outside the United States); or
- the foreign corporation’s income is subject to the provisions of a federal income tax treaty.
The informational report is only required for C corporations that are part of a “unitary combined group” (i.e., group of one or more corporations that are part of a commonly controlled group), so any “standalone” corporation will not be required to file the informational report.