Tax Type
Corporation Income Tax
Description
The elimination of the ACRS subtractions.
Topic
ACRS Modifications
Appropriateness of Audit Methodology
Date Issued
06-17-2002
June 17, 2002
Re: § 58.1-1821 Application: Corporate Income Tax
Dear *****:
This is in reply to your letter in which you contest an adjustment to the computation of refund for ***** ("ACRS") modifications submitted by ***** ("the Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer requested a refund of unrecovered taxes paid on the outstanding balance of excess cost recovery under the provisions of Title 23 of the Virginia Administrative Code ("VAC") 10-120-66. In computing this refund, the Taxpayer took into account the increased recycling tax credit pursuant to Code of Virginia § 58.1-439.7 resulting from the elimination of ACRS subtractions. In reviewing the request for refund, the Department adjusted the computations to disallow the impact of recycling tax credits. The Taxpayer contends that Title 23 VAC 10-120-66 does not provide a detailed methodology for computing each year's tax liability and requests approval of its computation.
DETERMINATION
Under Title 23 VAC 10-120-66(A), a taxpayer may apply for a refund of unrecovered taxes paid on the outstanding balance of excess cost recovery by any taxpayer who can demonstrate that the entire outstanding balance of the excess recovery has not been recovered. Specifically, Title 23 VAC-120-66(B)(2)(a) provides that:
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- The refund shall be limited to the amount by which (i) the sum of the difference between the tax actually paid and the tax computed without the ACRS addition and ACRS subtraction for each taxable year beginning on and after January 1, 1982, and before January 1, 1988, exceeds (ii) the sum of the difference between the tax actually paid and the tax computed without the post-1987 ACRS subtraction for each taxable year beginning on and after January 1, 1988.
The intent of the regulation was to provide refunds only for unrecovered taxes actually paid as a result of Virginia's ACRS modifications. Because the ACRS modifications affected the computation of Virginia taxable income, the full effect of the ACRS modifications will be reflected in the tax liability of a taxpayer before consideration of any tax credits or payments. The fact that an ACRS modification would have changed the amount of an income tax credit that a taxpayer could have claimed does not affect the amount of tax actually paid as a direct result of the ACRS modifications.
In its application for refund, the Taxpayer recomputed the recycling tax credit for the 1991, 1995, 1996 and 1997 taxable years, based on the higher taxable income computed without the post-1987 ACRS subtractions. The recycling credit, earned in 1991, is limited by statute to 40% of the tax liability. The Taxpayer recomputed the credit to determine the amount of tax that would have to be paid without post-ACRS subtractions.
While you assert that the regulation does not detail the method of this calculation, the regulation clearly indicates that the refund is limited to the actual tax related to the ACRS modifications, not the tax that would have resulted without the ACRS modifications. The regulatory examples clearly show that each year's computation is based on the difference in the original tax and that computed without the specific ACRS modifications claimed on the applicable return. None of the examples reflect or allude to "after the tax" modifications or other adjustments to historical data.
Based on the above, it is clear that the intent of the regulation was to provide a refund of additional tax paid due to ACRS additions based on the returns as filed, not based on "what if" scenarios involving recalculating tax credits as if an ACRS adjustment had not been required. Accordingly, the adjustments made by the Department are upheld.
Copies of the Code of Virginia, regulations and public documents cited are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions concerning this determination, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/33006E
Rulings of the Tax Commissioner