What did Virginia's 2009 retroactive legislation do to minimum taxes for noncorporate telecommunications companies and electric suppliers?

Subject

Historical minimum-tax legislation for telecom and electric pass-through entities

Plain-English summary

Virginia announced that emergency 2009 legislation restored minimum taxes on noncorporate telecommunications companies and electric suppliers retroactively for taxable years beginning on or after January 1, 2004. The law reversed the effect of Virginia Cellular, LLC v. Virginia Department of Taxation, which had held that the telecommunications minimum tax applied only to entities subject to corporate income tax.

The legislation covered limited liability companies, partnerships, S corporations, and other pass-through entities. It also clarified that pass-through entities themselves remained liable for taxes imposed directly on the entity, including minimum taxes, sales and use taxes, and withholding obligations.

Virginia said it would deny amended returns or refund claims based on the Virginia Cellular decision for the covered years. Telecommunications companies and electric suppliers were instructed to continue filing and paying under Forms 500T and 500EL, respectively.

What this means for you

• This bulletin explains a retroactive 2009 law change and is historical.
• Noncorporate entity form did not remove the minimum-tax obligations described in the legislation.
• Refund claims based solely on the superseded court result were to be denied.
• Verify current statutes, regulations, forms, entity classification, and tax years before acting today.

Common questions

What years did the legislation cover?

Taxable years beginning on or after January 1, 2004.

Which entity types were affected?

The bulletin listed LLCs, partnerships, S corporations, and other pass-through entities in the telecom and electric-supplier sectors.

What happened to Virginia Cellular-based refund claims?

The Department said it would deny them for the retroactively covered years.

Citations and references

• Va. Code § 58.1-400.1.
• 2009 Va. Acts chs. 37 and 152.
• 23 VAC 10-120-89.
• Virginia Cellular, LLC v. Virginia Department of Taxation, 276 Va. 486, 666 S.E.2d 374 (2008).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-27

Original ruling text

TAX BULLETIN 09-2
Virginia Department of Taxation

March 11, 2009

IMPORTANT INFORMATION REGARDING

TELECOMMUNICATIONS COMPANIES MINIMUM TAX

AND MINIMUM TAX ON CERTAIN ELECTRIC SUPPLIERS

Under emergency retroactive legislation, TAX’s longstanding treatment of non-corporate telecommunications companies has been restored effective for taxable years beginning on and after January 1, 2004. Non-corporate telecommunications companies and electric suppliers will continue to be subject to the Virginia Telecommunications Companies Minimum Tax (“Telecommunications Company Minimum Tax”) and the Virginia Minimum Tax on Certain Electric Suppliers (“Electric Suppliers Minimum Tax”), respectively.

Background

Under legislation enacted in the 1988 Session of the General Assembly (1988 Acts of Assembly , Chapter 899), telecommunications companies are subject to the Telecommunications Company Minimum Tax instead of the Corporate Income Tax if the Corporate Income Tax is less than the Telecommunications Company Minimum Tax. In 1990, the Department of Taxation (“TAX”) promulgated a regulation, 23 Virginia Administrative Code (“ VAC ”) 10-120-89 Noncorporate Telecommunications Companies, to reconcile the statute, which does not exclude non-corporate entities from the definition of “telecommunications companies,” with the fact that non-corporate entities are not liable for the Corporate Income Tax. The Virginia Supreme Court recently overturned the regulation by holding that Va. Code § 58.1-400.1 only applies the Telecommunications Company Minimum Tax to entities subject to the Corporate Income Tax in Virginia Cellular, LLC v. Virginia Department of Taxation , 276 Va. 486, 666 S.E.2d 374 (September 12, 2008).

2009 Legislation

Legislation enacted by the 2009 Session of the General Assembly, House Bill 2378 and Senate Bill 946 (2009 Acts of Assembly , Chapters 37 and 152), retroactively overturned the Virginia Supreme Court’s decision and continues the imposition of the Telecommunications Company Minimum Tax on non-corporate telecommunications companies effective for taxable years beginning on and after January 1, 2004. The legislation also clarifies the imposition of the Electric Suppliers Minimum Tax on non-corporate electric suppliers effective for taxable years beginning on and after January 1, 2004. This legislation is consistent with almost 20 years of administrative policy by TAX regarding the minimum taxes. Taxpayers affected by this legislation include all telecommunications companies and electric suppliers organized as limited liability companies, partnerships, corporations that have made an election under subchapter S of the Internal Revenue Code , and any other entity treated as a pass-through entity.

This legislation also provides that until such time as TAX promulgates a regulation for electric suppliers, the provisions of 23 VAC 10-120-89 shall similarly apply to the Electric Suppliers Minimum Tax.

The legislation also clarifies that pass-through entities are liable for any taxes imposed on the pass-through entity itself, including but not limited to, sales and use taxes, withholding taxes with respect to employees or nonresident owners, and minimum taxes in lieu of income taxes. The legislation provides that this clarification is effective September 1, 2004, and is declarative of existing law.

Results of 2009 Legislative Action

As a result of this legislation TAX will deny any amended returns or refund claims for either the Telecommunications Companies Minimum Tax or the Electric Suppliers Minimum Tax for taxable years beginning on and after January 1, 2004 based on Virginia Cellular, LLC v. Virginia Department of Taxation . Those companies that have filed amended returns or refund claims will receive separate notification.

Telecommunications companies and electric suppliers should continue to file and pay the Telecommunications Companies Minimum Tax and the Electric Suppliers Minimum Tax according to TAX’s forms and instructions in the same manner they have been. Both the Telecommunications Companies Minimum Tax form, Form 500T, and the Electric Suppliers Minimum Tax form, Form 500EL, can be found on TAX’s website, www.tax.virginia.gov .

If you have additional questions please contact TAX at (804) 367-8037.