Document Number
03-43
Tax Type
Corporation Income Tax
Description
Underpayment Rate
Topic
Computation of Tax
Penalties and Interest
Rate of Tax
Date Issued
04-24-2003
April 24, 2003


Re: § 58.1-1821 Application: Corporate Income Tax


Dear *****:

This will reply to your letter in which you seek correction of the corporate income tax assessment issued to ***** (the "Taxpayer") for the 1998 taxable year.
FACTS

The Taxpayer reported an overpayment on its 1998 Virginia corporate income tax return. Pursuant to the Taxpayer's instructions, the Department credited the entire overpayment to its 1999 liability. In addition, the Taxpayer failed to report an extension payment on its 1998 return, which the Department also credited toward the Taxpayer's 1999 tax liability in order to be consistent with the Taxpayer's request concerning the 1998 overpayment.

Prior to filing its 1999 income tax return, the Taxpayer discovered several errors in its 1998 return. The Taxpayer recomputed its 1998 income tax liability and determined that the overpayment reported on the original 1998 return was overstated.

The Taxpayer's 1999 return was filed in December 2001, showing the reduced amount credited to estimated payments from the 1998 overpayment. The Department issued a refund based on the Taxpayer's overpayment as reported on the original 1998 income tax return and included the unreported extension payment.

In March 2002, the Taxpayer filed a 1998 amended return that reported an additional liability. The Taxpayer paid the additional tax, but no interest. The Department assessed interest on the amount of the additional liability from the due date of the return.

The Taxpayer contends that the 1998 payments that were applied to 1999 should be used to offset the interest on the 1998 underpayment pursuant to Internal Revenue Code ("IRC") § 6621(d). As such, the Taxpayer contends that interest on the 1998 underpayment amount should only accrue from the date that it received its 1999 refund. The Taxpayer has remitted a payment for interest from the date of refund.
DETERMINATION

Estimated Payments

Title 23 of the Virginia Administrative Code (VAC) 10-120-420 requires every corporation that expects its income tax to exceed $1,000 for a taxable year to file a declaration of estimated tax and to pay the tax in installments during the taxable year. Title 23 VAC 10-120-440, further provides:
    • All payments of estimated tax shall be applied toward the income tax liability of the taxpayer for the taxable year ... [p]ayments of estimated tax may not be applied toward any other tax or taxable year unless and until an income tax return is filed showing a refund.

It has been the Department's policy that estimated taxes may be applied only toward the income taxes due for that taxable year. Once a return has been filed for that taxable year, any excess estimated payments may be returned to the taxpayer as a refund or applied to estimated payments toward the next tax year. Overpayments credited to a subsequent taxable year become estimated payments for that taxable year and may not be applied retroactively to a prior year's underpayment. See Public Document ("P.D.") 99-99 (5/6/99).

In the instant case, once the Taxpayer's 1998 overpayment and extension payments were credited to its 1999 estimated payment, they became payments toward the Taxpayer's 1999 tax liability and could not retroactively be used to offset the Taxpayer's additional 1998 liability.

Interest

The Taxpayer further contends that, pursuant to Va. Code § 58.1-15, the Department is required to apply a zero rate of interest on overlapping underpayment and overpayment tax amounts in conformity with Internal Revenue Code (IRC) § 6621(d). Va. Code § 58.1-15 sets the Virginia rates of interest for both the underpayment and overpayment of tax. It provides in pertinent part:
    • Unless otherwise specifically provided, interest on omitted taxes, assessments and refunds under this title shall be computed at the rates equal to the rates of interest established pursuant to § 6621 of the Internal Revenue Code. The rate of interest on omitted taxes and assessments under this title shall be the "Underpayment Rate" established pursuant to § 6621(a)(2) of the Internal Revenue Code plus two percent. The rate of interest on refunds under this title shall be the "Overpayment Rate" for noncorporate taxpayers established pursuant to § 6621(a)(1) of the Internal Revenue Code plus two percent. Separate computations shall be made by multiplying the deficiency or overpayment for each period by the rate of interest applicable to that period.

Virginia's conformity to federal law is set forth in Va. Code § 58.1-301, which provides that the terms used in the Virginia income tax statutes will have the same meanings as used in the IRC. As such, Virginia's conformity to federal law is limited to the actual use of a specific term in a Virginia statute. Conformity does not extend to terms, concepts, or principles not specifically provided in Title 58.1 of the Code of Virginia.

Va. Code § 58.1-15 establishes Virginia interest rates for assessments and refunds. This statute incorporates the interest rates set by IRC § 6621. Conformity with the IRC is limited to these rates. IRC § 6621 (d) sets no underpayment or overpayment rate. As such, Va. Code § 58.1-15 does not incorporate the provisions under IRC § 6621(d). See P.D. 02-166 (12/19/02). In this case, interest was properly computed in accordance with Va. Code § 58.1-15.

Conclusion

The Taxpayer remains liable for the interest on the 1998 underpayment, in accordance with Va. Code § 58.1-455, from the date the 1998 tax liability was due. The interest balance through the date of this determination is *****. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of this letter. Please remit your payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attention: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.

Copies of Code of Virginia sections, regulations, and public documents cited are available online in the Tax Policy Library section of the Department's web site located at www.tax.state.va.us. If you have any questions regarding this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.

                • Sincerely,

                • Kenneth W. Thorson
                  Tax Commissioner


AR/43530B


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46