Reed Smith In-depth

Update: March 31, 2021

Northam Proposes Delaying Informational Report to July 1

On March 31, 2021, Governor Northam proposed an amendment to move the informational report due date by one month, from June 1, 2021, to July 1, 2021, to allow time for the Department of Taxation “to contract for services required to create the applicable changes related to this new requirement” and to provide businesses more time “to become aware of and to understand the reporting requirements.”

The General Assembly will vote on the proposed amendment on April 7, 2021. The amendment will likely be approved.

During the 2021 Regular Session, legislation was proposed that presented the most serious threat to date to change Virginia’s corporate tax filing methodology from separate entity reporting to mandatory unitary combined reporting (“MUCR”). Although the bill that would have enacted MUCR ultimately died in committee, it had more momentum this year than in previous sessions, and it prompted the General Assembly to pass two pieces of related legislation. The first, a budget bill amendment, requires taxpayers to file a combined report for informational purposes by June 1, 2021. The second, a House Resolution, commissions a study on MUCR to be completed by November 1, 2021. These bills increase the risk that during the 2022 legislative session the Commonwealth will become the 30th state to adopt MUCR. 


Under existing Virginia tax law, corporations generally are required to file returns on a separate entity basis.1 During the 2021 session, the General Assembly considered a bill (SB 1353) that would have enacted MUCR beginning in 2022.2 Although SB 1353 received more consideration than previous combined reporting bills, it ultimately died in committee. For now, Virginia remains one of less than 20 states that still requires separate entity filing.

Although SB 1353 failed to advance from committee, the General Assembly quietly enacted two pieces of legislation relating to combined reporting that could have big implications for taxpayers.

Informational Reports due June 1, 2021

The amendments to the budget bill (HB 1800) included an item that would require corporations that are members of a unitary business to file a combined report with the Department of Taxation on or before June 1, 2021.3 The amendment specifically states that no extensions will be allowed, and any corporation that fails to submit the required informational report by June 1, 2021, will be subject to a $10,000 penalty. The Tax Commissioner will have authority to waive the penalty if he determines that the requirement to submit the informational report would cause an undue hardship. 

The informational report must be based on 2019 computations and disclose the difference in tax owed under combined reporting, compared to the tax owed under the current filing requirements. However, aside from defining “unitary business” and addressing the treatment within the combined group of certain foreign corporations, the budget amendment provides almost no guidance on how taxpayers should compute the tax liability for the combined group. The remaining details are left to the discretion of the Tax Commissioner.  We can speculate that the Tax Commissioner’s guidance will track the requirements of SB 1353 (including, for example, the requirement to follow the Finnigan Method of apportionment). But to be sure, taxpayers will need to wait for the Tax Commissioner to issue guidance, which cannot occur until after the Governor signs the bill and it is enacted into law, likely in mid-April. That would leave taxpayers with very little time to review the guidance, address any issues that might arise, and prepare the informational report by the June 1 deadline.