Pursuant to 2021 House Joint Resolution 563, the Virginia General Assembly established a working group to assess the feasibility of transitioning to a unitary combined reporting system for corporate income tax purposes. The working group was composed of government officials and representatives from various multistate businesses such as Amazon, Anheuser-Busch, Capital One, Northrup Grumman, Verizon and others. The resolution directed the work group to release its findings this month. A 174 page report was released as RD605 (Report Document 605). The work group made recommendations regarding several issues with the Virginia Corporate Income Tax including and beyond unitary combined reporting.
The recommendation for unitary combined reporting is that Virginia should not proceed with further study into the implementation of unitary combined reporting. The group also addressed market-based sourcing and single sales factor apportionment that affects many corporations. It was acknowledged that while there may be reasons to adopt market-based sourcing and single sales factor apportionment, any future legislation should address each sector individually to ensure equity and fairness. Other recommendations were made regarding the § 163(j) intercompany interest deductibility limitation, the ability of corporations to change filing elections, whether forced unitary combined reporting audit resolution can be used, and codifying intangible holding company add-back budget language. If it is possible that any of these topics affect your corporation, I recommend reading the document.
Regarding the issue of unitary combined reporting, the recommendation in this report is not surprising. The Virginia General Assembly deserves credit for including representatives from various multistate businesses in the work group. The reason is that unitary combined reporting is generally unfriendly to businesses. I am unaware of any business that wants unitary combined reporting. By saying that Virginia should not proceed with further study into the implementation of unitary combined reporting, it is a clear signal to businesses that want to expand into the Commonwealth that this is one less barrier to entry in Virginia that other states have enacted. Other states have enacted a policy of unitary combined reporting to the detriment of the businesses located there. Virginia sought opinions from businesses and drafted a report that recognizes the issues cited by the businesses. This report is good for Virginia.
Christian Tennant is a Virginia tax attorney and former employee of the Virginia Department of Taxation. Mr. Tennant regularly speaks and writes on Virginia taxation. In his private practice he advises and represents businesses and individuals on a range of tax matters.