Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 120 - Corporation Income Tax › Section 23VAC10-120-86 - Telecommunications companies; separate, combined or consolidated returns of affiliated corporations

Current through Register Vol. 40, No. 24, July 15, 2024
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