Virginia enacts requirement to file a pro-forma combined report

Virginia’s 2020 – 2022 budget includes a requirement for corporations that are members of a unitary group to file an informational pro-forma combined report by July 1st.

Corporations that are subject to Virginia corporate income tax and are members of a unitary group are required to file a one-time report by July 1, 2021, which shows the difference between the tax liability the corporation would pay if it filed as part of a unitary combined group and the tax liability based on the current filing requirements.

As the report is merely informational, there will be no tax liability due. However, the report is due by July 1, 2021, (no extensions allowed) and a $10,000 penalty will be imposed for failure to file or if there is a material misstatement or omission.

Information required

A designated member of the unitary group will be required to file the report using information from the 2019 tax year. The report should include the following information for the unitary group: (1) income, (2) apportionment computation, (3) tax credits, and (4) tax liability calculation.

The designated member will need to provide this information as if filing a unitary combined report under both the Joyce and Finnigan methods[1], as well as the same tax information under the current filing requirements for all the members of the group that have nexus with Virginia.

Members outside United States

Members incorporated outside the United States that have average property, payroll and sales factors outside the United States equal to 80% or more (i.e., 80/20 companies) are not required to be included in the report. In addition, members not subject to federal taxation due to the provisions of a federal tax treaty should exclude that income from the report, along with any associated apportionment factors or expenses.

Insurance companies and banks

For purpose of the informational report, corporations that are subject to the Virginia insurance premiums license tax or Virginia bank franchise tax are not considered part of the unitary combined group. Corporations that would be subject to those two taxes (if they were located in Virginia) should also not be considered part of a unitary group for purposes of this report.

Mazars Insight – Taxpayers will want to begin gathering and analyzing data as soon as possible to complete the informational report in order to meet the July 1st deadline and avoid the $10,000 penalty.

Please contact your Mazars professional for additional information.

[1]The difference between the “Joyce” and “Finnigan” methods is receipts factor calculation. Under “Joyce,” the receipts factor numerator of each member is calculated on its own. Under the “Finnigan” method, the numerator of the combined group is calculated as though the members of the combined group are a single entity.

Published on April 20, 2021

Authored by Harold Hecht and Harry Johnson