Virginia: Combined Reporting Informational Reports Included in Budget Bill

Listen to a brief overview of state tax developments this week, including Virginia, or read full Virginia development below.

Detailed Virginia Development

For the last few years, Virginia lawmakers have introduced proposals to move the Commonwealth to mandatory unitary combined reporting. While these proposals failed to pass again this year, lawmakers intend to study the fiscal impacts of combined reporting. To do so, the budget bill, which was agreed to in conference committee, but has not yet been signed,  would require corporations that are members of a unitary business to file a report disclosing the unitary combined net income of the combined group. The report would be based on the 2019 tax year computations and would include, at a minimum, the difference in tax owed as a result of filing a unitary combined report compared to the tax owed under the current filing requirements. The report would be required to be submitted to the Department of Taxation on or before June 1, 2021. The penalty for noncompliance or filing a report that includes misstatements or materials omissions would be a penalty of $10,000. The Tax Commissioner, however, may waive such penalty upon a determination that the reporting requirement would cause an undue hardship. In terms of computing the unitary combined group’s income, the definition of a unitary business is broad and includes language similar to other states’ definitions of a unitary business. The unitary combined group would exclude entities subject to insurance premiums tax or the bank franchise tax. Foreign corporations would be excluded if the average of the corporation’s property, payroll and sales factors outside the United States was eighty percent or more. If a foreign corporation was treated as a combined group member, the corporation’s treaty-protected income would be excluded in computing combined group net income. Any expenses or apportionment factors attributable to treaty income would also be excluded. On or before December 1, 2021, the Commissioner would be required to submit a report based on the reported information to various legislative committees. Please stay tuned to TWIST for updates on the Virginia budget legislation.

This Week's Developments

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Sarah McGahan

Sarah McGahan

Managing Director, State & Local Tax, KPMG US