Tax Type
Corporation Income Tax
Description
How Intercompany Transactions Impact Sales Factor Ratio
Topic
Basis of Tax
Computation of Income
Date Issued
12-03-2001
December 3, 2001
Re: Request for Ruling: Corporate Income Tax
Dear *****
This will respond to your letter in which you request a ruling regarding the treatment of intragroup or intercompany transactions in the sales factor when computing the overall apportionment factor for a Virginia consolidated return.
FACTS
The Virginia sales factor is a fraction, the numerator of which is the total sales in Virginia during the taxable year. The denominator is the total sales of the corporation everywhere during the taxable year. Such sales must be effectively connected with a trade or business within the United States and the income therefrom includable in federal taxable income. You request a ruling as to whether intragroup transactions, which are be eliminated for purposes of filing a Virginia consolidated return, would be included in the computation of the sales factor of the Virginia three factor apportionment formula.
RULING
The term sales is defined in Code of Virginia § 58.1-302 as all gross receipts of the corporation except those allocated under Code of Virginia § 58.1-407. This includes all receipts whether or not they would be generally considered sales as customarily defined.
Virginia relies on the amount and character of each receipt included on the federal return and supporting schedules to determine gross receipts in the computation after the elimination of intercompany items as provided in Title 23 of the Virginia Administrative Code 10-120-322. Consequently, such receipts would be included in the computation of the sales factor only to the extent they are included in a consolidated return. Accordingly, intercompany receipts eliminated in determining consolidated income would not be included in the computation of the consolidated sales factor.
I trust this information will answer your request. If you have any further questions, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/24643P
Rulings of the Tax Commissioner