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A Smorgasbord of State Tax Issues: Virginia Addresses Entity Classification, Nexus and Subject-to-Tax Add-Back Exception




by:
Andrew D. Appleby
Sutherland Asbill & Brennan LLP - New York Office

Kathryn E. Pittman
Sutherland Asbill & Brennan LLP - Washington Office

 
July 3, 2014

Previously published on June 27, 2014

In a post-audit challenge by a taxpayer, the Virginia Tax Commissioner addressed entity classification, nexus and royalty add-back issues. The Commissioner found that the taxpayer did not provide sufficient evidence that its single member LLC was a disregarded entity or that certain entities were financial institutions. Turning to nexus, the Commissioner determined that certain entities did not have positive apportionment factors or nexus in Virginia—and their exclusion did not distort income—so they could not be included in the Virginia consolidated group. Finally, the Commissioner determined the subject-to-tax exception to Virginia’s royalty add-back provision applied, but only to the extent that the income was subject to tax in other states. Va. P.D. No. 14-62 (May 6, 2014).

 

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Andrew D. Appleby
Kathryn E. Pittman
Sutherland Asbill & Brennan LLP
 
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Washington Office
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Taxation
 
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