Henrico Times

Virginia Department of Taxation recently issued the following announcement.

Corporations subject to Virginia income tax may need to file a one-time report with Virginia Tax by July 1, 2021. This report will show the difference between the amount of tax the corporation would pay if it filed as part of a unitary combined group and the amount of tax based on how they currently file. Use your 2019 Corporation Income Tax calculations to complete this report. See Item 3-5.23 of the Enrolled Budget Bill (House Bill 1800) for more information, including the definition of a unitary business.

My corporation isn’t required to file a report. How can I let you know this?

If you received a letter from Virginia Tax about this new reporting requirement, please complete a brief questionnaire to tell us whether or not your corporation falls under this requirement.

Why is Virginia Tax collecting this information?

The Virginia General Assembly has required corporations to submit this report so that we can put together a report detailing the revenue impacts of combined corporate income tax reporting. 

Is this report related to 2021 HJ 563?

This reporting requirement is separate from 2021 House Joint Resolution 563, which establishes a work group to assess the feasibility of transitioning to a unitary combined reporting system for corporate income tax purposes.

Are insurance companies and banks required to be included on this report? 

For the purposes of this report, corporations that are required to file Virginia’s Insurance Premiums License tax or Virginia’s Bank Franchise Tax are not considered part of the unitary combined group. Corporations that would be liable for these two taxes if they were located in Virginia should also not be considered part of a unitary group.

My corporation is part of a unitary combined group, but some members are located outside of the United States. How do we treat them in this report?

Don't include in your calculations any information from members incorporated outside the United States whose average property, payroll, and sales factors outside of the United States equals 80% or more.

Members whose income is not subject to federal taxation because of the provisions of a federal tax treaty should exclude that income from the report, as well as any associated apportionment factors or expenses.  

Are real estate investment trusts (REITs) required to be included on this report? 

Yes. REITs are included if they are corporations and meet the other requirements for inclusion.      

Are nonprofit corporations required to be included on this report? 

It depends on the circumstances of the nonprofit corporation. Certain nonprofit corporations may not be subject to this requirement because they are not considered “unitary businesses.” For example, a nonprofit corporation would not be subject to this requirement if: 

It is not engaged in any activity that could reasonably be described as a “business,” or                  

It does not pay taxes because it has no unrelated business income or other taxable income, and it is not in a unitary business with a taxpaying member.    

Does this report need to be filed by a unitary business in cases where the unitary business is contained all in one corporate entity?

Yes. A report is required because the single corporate entity itself will likely constitute a “unitary business” based on the definition in the budget language. Any corporation currently filing in Virginia would generally be considered part of a unitary business, which may consist of a single corporate entity or multiple corporate entities. 

Does this report need to be filed by an in-state unitary business?

No, corporations that are members of an in-state unitary business are not required to file a unitary combined report. An in-state unitary business is one where none of the corporations in the unitary combined group do any business in any state other than Virginia. A unitary business operated through a single corporate entity would also be exempted from filing the report if it does not do business in any state other than Virginia.

Will I have to pay any tax with this report?

No. There’s no tax due with this report. However, if you don’t file the report, or if you make a material misstatement or omission on it, you may be subject to a $10,000 penalty.

When is the report due?

On or before July 1, 2021.

What information will I need to include in this report?

A designated member of your unitary group will need to file the report using Taxable Year 2019 information. 

The report will need to include information about the unitary group’s income, apportionment computation, tax credits, and tax liability calculation. The designated member will need to provide this information as if filing a unitary combined report under both the Joyce and Finnigan methods, as well as the same tax information as it is under the current filing requirements for all the members of the group that have nexus with Virginia.

How do I file this report?

You will be able to file your report using our Web Upload application beginning May 1. First time users will need to create an account.

What if a corporation filed two short period returns for Taxable Year 2019?

A corporation that filed two short period returns for Taxable Year 2019 should submit two separate reports to account for their two short period returns using our Web Upload application. 

Is there a way for tax preparers to upload the report on behalf of their clients?

Yes. Tax preparers can register and submit a report on behalf of their clients using our Web Upload application. Please see Page 4 of our Web Upload User Guide for more information on how to register as a tax preparer.  

Is there any attestation requirement when submitting the report? 

No, there is no attestation requirement. However, please complete this report carefully because a $10,000 penalty applies if a material misstatement or omission is made on the report. 

Additional Resources

A sample of the report and technical instructions can be found in our Unitary Report Template (Excel). 

More detailed instructions can be found in our Unitary Combined Report Reference Guide 

Original source: https://www.tax.virginia.gov/news/corporate-unitary