23 Va. Admin. Code § 10-120-86

Current through Register Vol. 40, No. 22, June 17, 2024

Section 23VAC10-120-86 - Telecommunications companies; separate, combined or consolidated returns of affiliated corporations

A. Generally. The requirements set forth under § 58.1-442 of the Code of Virginia and 23VAC10-120-320 et seq. regarding the income tax filing status of affiliated corporations are applicable to telecommunications companies. Accordingly, if two or more affiliates of a telecommunications company previously elected to file separate returns or a consolidated or combined return, the telecommunications company must conform to the filing election previously made by other members of their affiliated group. If the first year in which a telecommunications company is subject to taxation by the Department of Taxation is the first year two or more members of an affiliated group of corporations, including the telecommunications company, are required to file Virginia income tax returns, the group may elect to file separate returns, a consolidated return or a combined return. All returns for subsequent years must be filed on the same basis unless permission to change is granted by the Department of Taxation.

B. Special computations required for consolidated and combined returns. When affiliated corporations file a consolidated or a combined income tax return the losses of one corporation may be used to offset the income of another corporation. The tax paid by the affiliated group on a consolidated or combined return is the net amount of tax due from the affiliated group after losses and gains are netted. Because of the minimum tax and tax credit requirements applicable only to telecommunications companies, a special computation is required to determine the portion of the tax of the affiliated group that is attributable to the telecommunications company or upon the amount of gross receipts of a telecommunications company will be acted upon by the Department of Taxation.

1. Determination of separate tax. To determine the portion of the tax liability shown on the consolidated or combined return that is attributable to the telecommunications company, each corporation included in the consolidated or combined filing must recompute its tax liability as if it was filing a separate return. The separate income tax liability of the telecommunications company is compared to the total tax liability shown on the consolidated or combined return.

The lesser amount is deemed to be the income tax imposed by § 58.1-400 of the Code of Virginia on the telecommunications company.

2. Minimum tax. If this amount is less than the minimum tax of the telecommunications company, as computed in 23VAC10-120-83, the company is subject to the minimum tax in lieu of the tax imposed under § 58.1-400 of the Code of Virginia. The portion of the tax imposed under § 58.1-400 of the Code of Virginia paid by the affiliated group shall be credited toward the company's minimum tax liability.

If the telecommunications company's portion of the consolidated or combined tax imposed under § 58.1-400 of the Code of Virginia (as computed above) exceeds the minimum tax of the telecommunications company, the company is not required to pay any amount of minimum tax.

3. Corporation income tax credit. It the telecommunications company's portion of the affiliated group's corporate income tax exceeds the minimum tax, the affiliated group may be allowed a credit against its tax. If the telecommunications company's separate tax, as computed above exceeds 1.3% of the gross receipts of the company, the affiliated group is eligible to claim a credit against the portion of the consolidated or combined tax attributable to the telecommunications company. In no case shall the amount of credit claimed exceed the lesser of the consolidated or combined income tax shown on the return or the amount of income tax deemed to be imposed on the telecommunications company.

EXAMPLE 1: In taxable year 1992 Telecommunications Company (TC) files a calendar year consolidated income tax return with three other affiliated corporations: A, B, and C. TC's calendar year 1992 gross receipts are $200,000 and its minimum tax is equal to $1,800 ($200,000 X .9%). The corporate income tax return shows a consolidated taxable income of $ 33,333 and the tax due on the consolidated return is $2,000. TC must make the following computations to determine if it is subject to the minimum tax.

Step 1: Determine TC's Portion of the Consolidated Tax.

Company	Taxable Income if Companies Separately File	Income Tax if Companies Separately File
A	(100,000)	0
B	(11,667)	0
C	125,000	7,500
TC	20,000	1,200
Total	33,333	8,700

TC's Portion of the Consolidated Tax = $1,200. The lesser of TC's separate tax ($1,200) or the consolidated tax ($2,000).

Step 2: Determine Whether the Minimum Tax is Due.

Since the minimum tax of $1,800 exceeds TC's portion of the affiliated corporate income tax ($1,200), the minimum tax is applicable.

Step 3: Compute Additional Tax Due.

Minimum tax Less TC's portion of the consolidated tax Additional Tax Due

$1,800 -1,200 $600

EXAMPLE 2. In taxable year 1992 Telecommunications Company (TC) files a calendar year consolidated income tax return with three other affiliated corporations: A, B, and C. TC's calendar year 1992 gross receipts are $200,000 and its minimum tax is equal to $1,800 ($200,000 X .9%). The corporate income tax return shows a consolidated taxable income of $33,333 and the tax due on the consolidated return is $2,000. TC must make the following computations to determine if it is subject to the minimum tax.

Step 1: Determine TC's Portion of the Consolidated Tax.

Company	Taxable Income if Companies Separately File	Income Tax if Companies Separately File
A	(50,000)	0
B	(11,667)	0
C	55,000	3,300
TC	40,000	2,400
Total	33,333	5,700

TC's Portion of the Consolidated Tax = $2,000. The lesser of TC's separate tax ($2,400) or the consolidated tax ($2,000).

Step 2: Determine Whether the Minimum Tax is Due.

Since the minimum tax of $1,800 is less than TC's portion of the affiliated corporate income tax ($2,000), the minimum tax is not applicable and TC is subject to the income tax instead.

Step 3: Determine if Income Tax Credit is Allowable.

Gross Receipts 1.3% of Gross Receipts

$200,000 x 1.3% $2,600

Since TC's separate tax ($2,400) is less than 1.3% of gross receipts, no credit is applicable.

EXAMPLE 3. In taxable year 1992 Telecommunications Company (TC) files a calendar year consolidated income tax return with three other affiliated corporations: A, B and C. TC's calendar year 1992 gross receipts are $200,000 and its minimum tax is equal to $1,800 ($200,000 X .9%). The corporate income tax return shows a consolidated taxable income of $83,333 and the tax due on the consolidated return is $5,000. TC must make the following computations to determine if it is subject to the minimum tax.

Step 1: Determine TC's Portion of the Consolidated Tax.

Company	Taxable Income if Companies Separately File	Income Tax if Companies Separately File
A	0	0
B	(11,667)	0
C	5,000	300
TC	90,000	5,400
Total	83,333	5,700

TC's Portion of the Consolidated Tax = $5,000. The lesser of TC's separate tax ($5,400) or the consolidated tax ($5,000).

Step 2: Determine Whether the Minimum Tax is Due.

Since the minimum tax of $1,800 is less than TC's portion of the affiliated corporate income tax ($5,000), the minimum tax is not applicable and TC is subject to the income tax instead.

Step 3: Determine if Income Tax Credit is Allowable.

Gross Receipts 1.3% of Gross Receipts

$200,000 x 1.3% $2,600

Since TC's portion of the consolidated tax is more than the 1.3% of gross receipts, the credit is applicable.

Step 4: Determine Amount of Credit.

TC's Separate Tax 1.3% of Gross Receipts	$5,400 -2,600
Credit Base Credit percentage for 1992	$2,800 x 50%
Corporate Income Tax Credit	$1,400

23 Va. Admin. Code § 10-120-86

Derived from VR630-3-400.1 § 7, eff. January 3, 1990.

Statutory Authority

§§ 58.1-203 and 58.1-400.1 of the Code of Virginia.