New Virginia Filing Requirement for Certain Corporations July 1, 2021

The Virginia legislature is doing a study on unitary taxes for brother/sister or parent subsidiary corporations. https://www.tax.virginia.gov/news/corporate-unitary

This study requires corporations to file a special return by July 1, 2021 based upon their 2019 tax returns.

Corporations must be “unitary businesses”.

“”Unitary business” means 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. A “unitary business” includes that part of the business that meets the definition in this section and is conducted by a taxpayer through the taxpayer’s interest in a partnership, whether the interest in that partnership is held directly or indirectly through a series of partnerships or other pass-through entities. A “unitary business” shall not include persons subject to, or that would be subject to if doing business in the Commonwealth, the insurance premiums license tax under Chapter 25 (§ 58.1-2500 et seq.), Code of Virginia, or the bank franchise tax under Chapter 12 (§ 58.1-1200 et seq.)”

So, talk to your tax advisor if this applies to you.

Post COVID Surprises

What have we learned during the COVID crisis? People can telework (except me). When people stay home, restaurants that depend on lunch business, die. When restaurants can’t fill all their tables they die. What does this mean in general. All these businesses rent commercial space in commercial buildings. There will be a glut of commercial space starting in 2021. Empty buildings mean foreclosures. Foreclosures mean depressed values on commercial real and personal property. This means tax revenues for localities will be tight. Look for localities to get creative by raising licensing taxes and fees. Planning for these increases is difficult, because fees are random and license taxes are on gross receipts. So, businesses are advised to not book receipts until earned and establish escrow accounts for unearned money that may have to be returned to customers. For example if something has a one year money back guarantee, escrow the money until the year has passed and don’t book it as earned until guarantee period has expired.

Given that some states unemployment insurance funds were stretched to their limits during COVID, and that some states passed higher minimum wage laws (which will lead to layoffs), expect unemployment insurance premiums to rise in the coming months. Be prepared to contest claims for justified firings. Larger employers should consider hiring a UI cost control company to audit your practices. Consider retraining instead of laying off. Its very hard to move employees into a contractor status. So, look at IRS Form W-8 to see what the test looks like. So, that will not be a panacea.
2021 may not be as weird as 2020, but it will still have its shocks.

Teeny Tiny breaks from Virginia.

On March 19, 2020, Governor Northam made the following announcement:
“Businesses impacted by COVID-19 can also request to defer the payment of state sales tax due tomorrow, March 20, 2020, for 30 days. When granted, businesses will be able to file no later than April 20, 2020 with a waiver of any penalties.

The Governor has requested that the Department of Taxation to extend the due date of payment of Virginia individual and corporate income taxes. While filing deadlines remain the same, the due date for individual and corporate income tax will now be June 1, 2020. Please note that interest will still accrue, so taxpayers who are able to pay by the original deadlines should do so.”

So, business can request sales tax deferral for 30 days and avoid penalties (not interest). Query whether they will grant it quickly or you won’t find out for 60 days. Individuals still have to file on time, but now have an automatic 30 day extension to pay as well. Still accrues interest. I guess a slice of bread is better than no bread at all.

No Tax Holiday’s Yet

The IRS has NOT issued any guidance allowing for late filing or payment. We are waiting to see if there was anything in the newly passed COVAD relief bill once it is passed. Neither Virginia nor DC have allowed extensions for any taxes as yet. That means despite pledges to assist small businesses, Sales Tax filings, Withholding tax filings, and payments will all be due as usual. Remember that intentional failure to pay withholding tax liabilities or sales tax liabilities creates personal liabilities to those making that decision be they owners, or employees. It does not matter if the business is a limited liability company or a corporation, the liability attaches if you prefer other creditors to the tax authorities. So, don’t ignore or put off those obligations.

Democrats control Virginia Government

What does that mean for your taxes? Will they try and roll back the 2017 Federal Tax cuts by decoupling from the Federal Income tax? Or will they simply raise rates on sales, income and gasoline taxes? Budget desires include increased Medicaid funding, infrastructure, and schools. Because the Virginia Constitution requires a balanced budget, the only solution will be to raise taxes. There are really no other states to flee to from Virginia if you work here. Perhaps Tennessee and Kentucky. West Virginia, Maryland and DC all have higher tax rates than Virginia. Retirees may start spending 184 days in Florida. And for high wage earners most of these tax increases will not be deductible on your Federal income taxes. So, if you live in Virginia be prepared.