Virginia Requires New Unitary Filing Information Report by July 1

Corporations with nexus in Virginia and that are members of a unitary group must file a one-time information report that shows the tax difference between filing separately and filing as part of a unitary combined group. The new requirement was approved in the 2021 budget bill passed in April.

Corporations subject to the new requirement must file the report with the Virginia Department of Taxation by July 1, 2021 or face a $10,000 fine. There are no filing extensions. Virginia is sending corporate taxpayers a questionnaire to determine if they fall under the new requirement.

Report Requirements

A designated member of the unitary group must file the report and include information about the unitary group’s income, apportionment computation, tax credits, and tax liability calculation based on tax year 2019 information. The report will need to provide this information as if the group was filing a unitary combined report under both the Joyce and Finnigan methods. The report will also need to provide the same tax information under the current filing requirements for all the members of the group that have nexus in Virginia. The reporting member can file the report using Virginia’s tax web upload application.

Unitary Businesses

The Virginia budget bill defines a “unitary business” for purposes of the requirement 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.” This also includes “that part of the business that meets the definition in this section and is conducted by a taxpayer through the taxpayer’s interest in a partnership, whether the interest in that partnership is held directly or indirectly through a series of partnerships or other pass-through entities.”

Organizations Excluded from a Unitary Group

Corporations that are not part of a unitary group can respond to the questionnaire, informing the state that they are not part of a unitary business and not subject to the requirement. No further action is required for those entities. Corporations that are members of an in-state unitary business are not required to file a unitary combined report.

Additionally, corporations that are required to file Virginia’s Insurance Premiums License tax or Virginia’s Bank Franchise Tax are not considered part of a unitary combined group and are not required to be included on this report. 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.

Members of a unitary combined group that have an average property, payroll, and sales factors of 80 percent or more located outside of the United States are not included in the calculations. Members whose income is not subject to federal taxation because of the provisions of a federal tax treaty should exclude that income and any associated apportionment factors or expenses from the report.

Preparing for the Report

Virginia is collecting this information for a report on the revenue impacts of combined corporate income tax reporting. The report is part of a study on whether to change the state’s corporate tax reporting requirement from its current separate entity reporting to mandatory unitary combined reporting. Corporations that likely fall under the requirement should begin gathering the required information now and begin assessing the tax impact of possibly filing as a unitary combined group in the future.

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© 2021