The Virginia General Assembly passed legislation, House Bill 1800, to review the fiscal implications of changing the state’s corporate income tax to a unitary combined method of reporting. The Virginia Department of Taxation mailed notices to businesses of this reporting requirement. Do not ignore this notice if you have received one.
All corporations must submit their responses by July 1, 2021. The report is prepared based on information provided on the corporation’s 2019 Virginia income tax return. The Virginia Department of Taxation will not offer any extensions on this reporting and failure to report may result in a $10,000 penalty.
Certain corporations are exempt from the unitary business requirements. These corporations are still required to log in to the website and notify the Department of Taxation that the business does not fall under the requirement for additional reporting.
Per the Virginia Department of Taxation, pass-through entities and S-corporations are generally excluded from this requirement unless they have opted to be taxed as corporations and file a Virginia Form 500.
For additional information and answers to frequently asked questions, please visit the Virginia Department of Taxation here.
What is a Unitary Business?
A unitary business is a single economic enterprise made up of separate parts of a single business entity or of a commonly controlled group of entities that are determined to be interdependent, integrated, and interrelated through their business activities. A unitary business can include subsidiary corporations, corporations with common ownership, and partnerships owned directly by the designated entity or indirectly through a series of partnerships or other pass-through entities. Common control is typically defined as owning at least 50% of the voting power of the corporation or partnership. For stock held by various related individuals or entities, the constructive ownership rules do apply in determining control.
Who is Exempt from the New Requirements?
Corporations that are not included in a unitary business are exempt from the new reporting requirement. In addition, the Virginia Department of Taxation has listed the following exemptions for businesses that are otherwise part of a unitary group:
- Certain insurance and banking corporations
- Foreign corporations, whereby at least 80% of the average payroll, property, and sales are outside the United States
- Unitary businesses whereby every member solely operates in Virginia and does not operate in any other jurisdiction
As previously mentioned, even if the business is exempt from the new reporting requirement, corporations must still log into the website and notify the Virginia Department of Taxation that the business is exempt from the additional reporting by completing a brief questionnaire.
How to Report the Unitary Business Information
The Virginia Department of Taxation has developed a spreadsheet to provide various business and accounting information for each member of the unitary group. This information is required to be reported by the designated corporation, which is appointed by the unitary group. The designated corporation should provide the requested information for every member of the group, including businesses that may have no connections in Virginia and would not otherwise be required to file a Virginia income tax return. The information requested is based on the Virginia tax returns prepared for 2019. Also, the determination of the unitary group is based on the ownership and business structure for the 2019 tax year.
The filing of the unitary combined report does not substitute the filing of the corporate income tax return. If any member of the unitary group is required to file a Virginia income tax return for 2019 but has not done so, that corporation should first complete the Virginia income tax return prior to completing the unitary business report since the return information will be required to properly complete the report. As previously noted, the unitary combined report information is required to be submitted by July 1, 2021. Any late filed reports may result in a $10,000 penalty.
Due to the complexities associated with determining the unitary business rules and the information requirements to file the report, we recommend you contact us as soon as possible so we can assist you with this new reporting requirement.