If my corporation changes its federal fiscal year to a calendar year, do I need Virginia's permission to make the same change on my Virginia corporate return?

Plain-English summary

A corporation had always filed both its federal and Virginia corporate income tax returns using a fiscal year ending June 30. In 2019 it changed its federal taxable year to a calendar year (ending December 31), filing a short-period federal and Virginia return to make that transition. But for its 2020 and 2021 tax years, the company filed its federal returns using the new December 31 year-end while its Virginia returns kept using the old June 30 fiscal year — and it then wrote to the Department asking for permission to switch its Virginia filing to a calendar year.

The Department's answer: no permission was needed in the first place. Virginia law requires a corporation's state taxable year to match its federal taxable year, and when the federal year changes, the Virginia year changes automatically along with it — the corporation should simply have kept filing Virginia returns on the calendar year once it made the switch federally. Because it didn't, its 2020 and 2021 Virginia returns were filed on the wrong taxable year and were effectively delinquent (not timely filed under the correct year-end deadline). The Department also flagged a second, separate problem it found while reviewing the file: the company had previously elected to file Virginia returns on a consolidated basis, but its 2020 return was filed as combined instead — and unlike the taxable year (which follows federal automatically), a filing status election is locked in from year to year unless the company specifically requests and receives the Department's permission to change it, which hadn't happened here. The company was directed to refile its 2020 and 2021 Virginia returns using the calendar year and the (already-elected) consolidated filing status.

What this means for you

Corporations changing their federal taxable year

You don't need to separately request Virginia's permission to follow suit — the change is automatic once your federal year changes, and you must file a Virginia short-period return alongside the federal one to mark the transition. Just make sure every subsequent Virginia return actually uses the new year-end; don't let the Virginia filing lag behind the federal one, since that produces a chain of technically-late Virginia returns.

Corporations with a consolidated, combined, or separate filing election

Unlike your taxable year, your Virginia filing status doesn't automatically track anything — it stays fixed year over year until you specifically ask the Department for, and receive, permission to change it. Don't assume switching your federal consolidation approach, or simply using a different label on a return, carries any authority to also change your Virginia filing status.

Accountants and tax professionals

This ruling is a useful two-part reference: it confirms the "automatic" nature of a Virginia taxable-year change tied to a federal change (no request needed, unlike some other states), while sharply distinguishing that from the "sticky" nature of the separate/combined/consolidated election, which requires affirmative Department permission to change. When a client changes its federal fiscal year, check both boxes — the year-end itself, and whether the filing status election is still being followed correctly.

Common questions

Q: Do I need Virginia's permission to change my corporate taxable year if I already changed it federally?
A: No. Once your federal taxable year changes, your Virginia taxable year changes automatically, and you should file a Virginia short-period return for the transition, just as at the federal level.

Q: Can I switch between separate, combined, and consolidated Virginia filing status on my own?
A: No. Once you've elected a filing status, you must continue using it on subsequent returns unless the Department grants permission to change.

Q: What happens if I file using the wrong taxable year or filing status by mistake?
A: As this ruling shows, the Department can direct you to file corrected or amended returns using the correct year-end and status, potentially going back multiple years.

Q: Does this ruling apply to my situation?
A: Not automatically. This is a published ruling based on this corporation's specific facts as of 2023; your own filing history and elections may differ.

Citations and references

• Va. Code § 58.1-440 (Virginia taxable year matches federal taxable year)
• 23 VAC 10-120-300 B (automatic Virginia year change; no permission required)
• Va. Code § 58.1-441 (Virginia return filing deadline)
• Va. Code § 58.1-442 (separate/combined/consolidated filing election)
• 23 VAC 10-120-320 B (filing status locked in absent Department permission to change)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-94

Original ruling text

August 9, 2023

Re: Request for Filing Status Change: Corporate Income Tax

Dear *:

This will respond to your letter in which you request permission for * (“Taxpayer”) and its subs to change its filing status from a fiscal year to a calendar year.

FACTS

The Taxpayer historically filed its federal and Virginia corporate income tax returns using a fiscal year ended June 30. It filed 2019 federal and Virginia corporate short-year returns for the taxable year period beginning with July 1, 2019 and ended December 31, 2019 to change its taxable year end to December 31. The Taxpayer filed its federal 2020 and 2021 taxable year returns using a December 31 year end, but continued to use a fiscal June 30 year end Virginia corporate returns. The Taxpayer has requested permission from the Department to file its corporate year returns using a calendar year end.

RULING

Taxable Year

Virginia Code § 58.1-440 requires corporations to use the same taxable year for Virginia tax purposes as for federal tax purposes. Under Title 23 of the Virginia Administrative Code (VAC) 10-120-300 B, when a corporation's taxable year is changed for federal income tax purposes, its taxable year for Virginia tax purposes also changed. No permission is required from the Department to change.

Under this rule, when a short period return is required for federal tax purposes, a similar return must be filed for Virginia tax purposes. The Taxpayer fulfilled this requirement by filing a 2019 short year return for the taxable year ended December 31, 2019.

The Taxpayer filed its 2020 and 2021 federal corporate returns using a calendar year end. As explained above, it then should have filed its Virginia returns using the same taxable year. However, it failed to follow through with the taxable year end change on its state returns and filed 2020 and 2021 Virginia corporate returns using a June 30 taxable year end. As such, the Taxpayer’s Virginia corporate returns for the 2020 and 2021 taxable years were not filed with a report to the Department on or before the fifteenth day of the fourth month following the close of its taxable year as required under Virginia Code § 58.1-441.

Filing Status

During the course of its review, the Department discovered that the Taxpayer filed its 2020 Virginia return using a combined filing status. According to Department records, the Taxpayer had previously elected to file Virginia returns on a consolidated basis.

Virginia Code § 58.1-442 allows corporations to elect to file returns as separate, combined, or consolidated entities regardless of how the corporations file their federal income tax returns. Title 23 VAC 10-120-320 B requires all returns for subsequent taxable years to be filed on the same basis unless permission to change is granted by the Department.

Here, the Taxpayer did not request or receive permission to change its filing status from consolidated to combined. Thus, in addition to filing a 2020 return using its taxable year, the Taxpayer must file using the elected consolidated filing status. All subsequent returns must also be filed using a consolidated filing status.

CONCLUSION

Based on this ruling, the Taxpayer is hereby requested to file 2020 and 2021 Virginia corporate income tax returns using the calendar as its taxable year and conforming its filing status to its election to file consolidated returns. In addition, the Taxpayer should review subsequent Virginia income tax filings to ensure that it filed using the correct methods. If it has not, it should file amended returns to conform to its federal taxable year and elected consolidated filing status as required under Virginia law.

The requested returns should be submitted within 60 days from the date of this letter to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23161-7203, Attention: *. Upon receipt, the returns will be reviewed and any appropriate adjustments will be made.

The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this letter, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4475.B

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