Virginia Unitary Business Report Applies to Some Exempt Organizations

INSIGHT ARTICLE  |  May 18, 2021

Earlier this year, the Virginia Department of Taxation began requiring certain one-time informational reporting by corporations – including certain exempt organizations.

Corporations that are members of a unitary business must file an informational report by July 1, 2021. The report, based on tax year 2019 tax computations, must show the difference between the newly computed tax and the tax remitted under the current filing method. The purpose of the reporting is for the state to study the adoption of mandatory unitary combined reporting.

No tax is due with this informational report. However, taxpayers should be aware that the commonwealth will impose a $10,000 penalty for late filing of the report or making a material omission or misstatement in the report.

Application to tax-exempt organizations

Virginia defines a ‘unitary business’ as a single economic enterprise made up either of separate parts of a single business entity or of a commonly controlled group of business entities that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts.

Essentially, if the activities of one business either contributes to the activities of another business or are dependent upon the activities of another business, those businesses are part of a unitary business.

Currently, Virginia has not issued any guidance explicitly exempting tax-exempt organizations or nonprofit corporations from this requirement. The informational reporting applies to any taxpayer that has filed a 2019 Corporation Income Tax return, even to report Unrelated Business Income.

Procedure

Some taxpayers have begun to receive New Reporting Requirement notices from the Virginia Department of Taxation requesting that the taxpayer complete an online questionnaire. Upon completion of the questionnaire, the department will confirm whether a taxpayer must file the informational report. The online questionnaire is not the same as the information report filing.

The notice also provides instructions on filing the report, including that the report must be submitted by a single designated entity on behalf of the entire unitary business, must include all entities within the unitary business, be filed electronically through a spreadsheet template provided by the department using tax year 2019 information, and include several different calculations of taxable income.

It is anticipated that the department will continue to provide additional guidance and instructions to complete the filing. Taxpayers with questions about the notices, questionnaire or the informational filing should contact their Virginia state tax advisers for more information.