Tax Type
Corporation Income Tax
Description
Miscellaneous income should be included in sales factor
Topic
Assessment
Date Issued
05-06-2005
May 6, 2005
Re: § 58.1-1821 Application: Corporation Income Tax
Dear *********:
This will reply to your letter in which you seek correction of the corporation income tax assessment issued to***** (the "Taxpayer") for the taxable year ended August 31, 1999.
FACTS
The Department audited the Taxpayer and made several adjustments to the Taxpayer's corporation income tax return. The auditor removed miscellaneous income from the denominator of the sales factor on the basis that miscellaneous income is not a specific type of income that is to be included in the sales factor.
The Taxpayer contends that the miscellaneous income should be included in the sales factor. In the alterative, if this income is not included in the denominator of the sales factor, it should also be excluded from the numerator. Further, the Taxpayer maintains that if the miscellaneous income is to be excluded from the sales factor, such receipts should also be excluded in taxable income.
DETERMINATION
Virginia Code § 58.1-302 defines the term "sales" as the gross receipts of the corporation from all sources (except dividends, which are allocated), whether or not such gross receipts are generally considered sales. Sales are to be included in the sales factor if the gross receipts are included in Virginia taxable income and are connected with the conduct of the taxpayer's trade or business within the United States. Virginia Code § 58.1414 provides:
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- The sales factor is a fraction, the numerator of which is the total sales of the corporation in the Commonwealth during the taxable year, and the denominator of which is the total sales of the corporation everywhere during the taxable year, to the extent that such sales are used to produce Virginia taxable income and are effectively connected with the conduct of a trade or business within the United States and income therefrom is includable in federal taxable income.
Virginia relies on the amount and character of each item reported on the federal return and supporting schedules to determine gross receipts for purposes of computing the sales factor. The Department has previously ruled that receipts of an unknown or unspecified nature may not be included in the denominator of the sales factor. See Public Document 92-45 (4/27/92). Likewise, receipts of an unknown or unspecified nature may not be included in the numerator of the sales factor.
The Taxpayer has provided information regarding the transactions included in the "miscellaneous account" for both the numerator and denominator of the sales factor. Based on this information, I agree that some of the items listed in the miscellaneous account are gross receipts for purposes of the sales factor. However, the description of the items is insufficient to determine which of the items are gross receipts.
Based on this determination, the documentation provided by the Taxpayer will be forwarded to the Department's audit staff to make the necessary adjustments to the audit. A member of the audit staff will contact you regarding the documentation provided and any additional information needed to review and verify the miscellaneous receipts. The auditor will provide audit revisions to you. Any outstanding balance remaining after the revisions are made should be paid within 30 days to avoid the accrual of additional interest and penalties. Payment may be mailed to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P. O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****.
The Code of Virginia sections and public document cited, as well as other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's web site located at www.policylibrary.tax.virginia.gov. If you have any have any questions regarding this determination, you may contact ***** at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/51991B
Rulings of the Tax Commissioner