HB 1153 was enacted by the Governor of Virginia on March 22, 2012 which provides that, for taxable years beginning on and after January 1, 2013, the entire amount of the deduction allowed for domestic production activities pursuant to Code Sec. 199 may be deducted for Virginia income tax purposes.
In tax years 2010-2012, Virginia allows eligible taxpayers to receive only two-thirds of the federal deduction.
Affiliated groups of corporations that file a Virginia consolidated return including retailers and manufacturers along with other non-retailers and non-manufacturers, may still benefit from electing the single sales factor method for manufacturers.
Manufacturers, starting with tax years beginning after 7/1/2011, may elect to use the single sales factor method. The election is phased-in over three years. For more info, check out my previous post.
Retail companies, starting with tax years beginning after 7/1//2012, will be required to use the single sales factor method. For more info, check out my previous post.
How Do These Changes Impact a Virginia Consolidated Return
In a Virginia consolidated return, retailers and manufacturers would still get to make the election. If the consolidated return includes non-retailers and non-manufacturers who are required to use the standard double-weighted sales factor formula, then the mixed apportionment method would come into play.
The mixed apportionment method would still allow a retailer and manufacturer to benefit from their single sales factor apportionment percentages. This result coupled with some additional planning may provide significant benefit to taxpayers filing a Virginia consolidated return.
If you would like to analyze your company's situation for planning opportunities, please contact me.
HB 154 was signed by the Governor of Virginia on March 6, 2012 requiring retail companies to use the single sales factor apportionment formula.
The single sales factor for retail companies is phased-in as follows: (1) from July 1, 2012 until July 1, 2014, the apportionment formula is the property factor, the payroll factor, and triple the sales factor with a denominator of five; (2) from July 1, 2014 until July 1, 2015, the apportionment formula is the property factor, the payroll factor, and quadruple the sales factor with a denominator of six; and (3) from July 1, 2015 and thereafter a single sales factor formula applies. During the phase-in period, the denominator will be adjusted if the taxpayer does not have one of the factors.
For purposes of this provision, a retail company is defined using the North American Industry Classification System.
Will This Impact Your Company Negatively?
Retail companies who will be negatively affected by this legislation, should conduct analysis to determine if any planning can be done prior to the single sales factor formula becoming effective.
In a previous post, I wrote about the Indiana Rent-A-Center court case and the South Carolina Carmax court case regarding who has the burden of proof when an audit assessment is issued, or more specifically, when the state attempts to require a taxpayer to use an alternative apportionment method or combined reporting.
In regards to the Indiana Rent-A-Center case, the Indiana Supreme Court has ruled that the notice of proposed assessment issued by the Indiana Department of Revenue against Rent-A-Center East, Inc., based both on the Department's reasonable belief that the taxpayer had not reported the proper amount of tax due and on the best information available, was prima facie evidence that the Department's claim for the unpaid tax was valid, with the burden of proving the proposed assessment incorrect resting with the taxpayer against whom the assessment was made. In so holding, the Supreme Court reversed and remanded the Indiana Tax Court decision. Indiana Department of State Revenue v. Rent-A-Center East, Inc., Ind. S. Ct., Dkt. No. 49S10-1112-TA-683, 03/09/12
In regards to the South Carolina Carmax case, the South Carolina Court of Appeals has held that Carmax did not bear the burden of proving that an alternate apportionment method, proposed by the Department of Revenue was not reasonable, and that the Department was required to establish that its proposed method was "not only appropriate, but more appropriate than any competing methods." The Court did deny Carmax's assertion that the standard of proof was clear and convincing evidence, and remanded the case for reconsideration under a preponderance of evidence standard. CarMax Auto Superstores West Coast, Inc., v. South Carolina Department of Revenue. No. 4953 (S.C. Ct. App. Mar. 14, 2012).
These cases seem to be going in opposite directions. We will have to wait and see how they play out.
Planning, provision, compliance and controversy - all the stages of the Tax Lifecycle. Each stage contains its own trials and tribulations, as well as opportunities.
My questions are:
Which stage do you spend the most time on?
Which stage would you like to spend more time on?
Depending on your answers to the questions, the next question is, why or why not. Why do you spend the most time on a certain stage? Internal or external pressures? Cost-benefit analysis? Resources?
Why do you want to spend more time on a certain stage than others? Requirements or desire? Strength or weakness?
What am I trying to say? Well, each company either endures each stage or thrives in each stage. Each company most likely focuses on one stage (usually compliance) than any other. Although, the provision stage is a close second (maybe first) for public companies. Controversy and planning - ahhh, the fun stages (at least I think so). This is the area that most companies seem to neglect or focus on less. Less focus on these stages is often a result of the lack of resources (financial and people).
Answer the questions above for yourself, then re-prioritize based on what is most important to your company and to yourself. Make a difference. Make your state tax lifecycle fun! You might as well, we only live once. Let's not just endure or survive, let's thrive (at work and at home).
Corporations may be missing out on refund opportunities if they do not act prior to March 15th!
If it was determined that your corporation overpaid state tax in prior years, and this same error was made each year for several years, then your corporation may want to file amended returns to obtain refunds. However, the number of years for which your corporation could file amended returns would be limited by the statute of limitations.
Most state's statute of limitations (or time period for filing refund claims) last either three or four years from the later of the original due date or the date the return was filed, or some other variation. Each state is different, so it is important to confirm the statute of limitations for the states you are dealing with.
For example, New York's statute of limitations is the later of three years from the date filed or two years from the date paid. The original tax return for calendar tax year 2008 would have been due March 15, 2009. Therefore, if the original return for 2008 was filed (and the tax was paid) by March 15, 2009, New York's statute of limitations for filing refund claims for the 2008 tax year would expire on March 15, 2012.
This analysis should be done for each state for which a refund claim (amended return) is desired to be filed.