Virginia Combined Reporting Information Report
On April 7, 2021, Virginia enacted a budget that includes a requirement for corporations that are members of a unitary business group to file a corporate income tax informational report. Virginia lawmakers are trying to get insight into the amount of tax that would be collected under a combined reporting regime as opposed to its current separate reporting regime.
Section 3-5.23 of 2021 Va. HB 1800 defines a “unitary business” as a single economic enterprise made up of either separate parts of a single business entity or a commonly controlled group of business entities that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts. The definition of “unitary business” appears to be as broad as constitutionally permissible. The unitary business must exclude entities subject to Virginia’s insurance premiums tax, bank franchise tax, and water’s-edge corporations (corporations legally incorporated outside of the U.S. that have at least 80 percent of their property, payroll, and sales outside of the U.S.). Foreign corporation income protected by the provisions of a federal income tax treaty also is excluded.
The informational report is based on the combined group’s 2019 tax year data. The report must include the difference in tax owed that would result from filing a combined report compared to the tax owed pursuant to the current filing requirements.
The informational report is due by July 1, 2021, with no extension provided. Corporations that fail to file the report or make a material omission or misstatement will be subject to a $10,000 penalty. Virginia recently released guidance on this reporting requirement, including how to file the report and a sample of the report and preliminary technical instructions. More detailed instructions are being developed and will be posted to its website when available.
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