Document Number
Tax Type
General Provisions
Single Sales Factor Election for Manufacturers
Allocation and Apportionment
Date Issued

February 28, 2013

Re: Single Sales Factor Guidelines

Dear *****:

This is in response to your letter requesting clarification of Single Sales Factor Election for Manufacturers Guidelines, P.D. No. 13-6 (January 7, 2013). Specifically, you ask for clarification as to the specific method or methods that a manufacturer must use to calculate its average number of full-time employees for the base year (the taxable year before the election of single sales factor apportionment) and in each of the three years after the election. The Department of Taxation recognizes, as you point out, that there can be significant turnover among employees during a year, and that positions may be temporarily vacant or filled by employees who are full-time, part-time, participating in job sharing arrangements or working overtime.

Computing an Average

You propose that any of three methods be allowed in the calculation of average number of full-time employees:
  • 1. Average of the first day and last day numbers of qualifying employees;
    2. Average of the month-end;
    3. Total hours worked by all qualifying employees divided by 1,680.

Merriam-Webster's Collegiate Dictionary (11th Ed. 2006) defines average as "a single value (as a mean, mode, or median) that summarizes or represents the general significance of a set of unequal values." Therefore, using the number of qualifying employees as of the end of the year, or any other single day of the year without any representation of the other days of the year, does not come within the meaning of an average.

The first two options are consistent with the meaning of an average. Other variations may be used as long as the set of numbers represents the entire taxable year. Thus, for example, the manufacturer could use the number of qualifying employees as of the first and last days of the taxable year, the first (or last) day of 52 weeks, 12 months or 4 quarters, or even a daily average for 365 days.

The definition quoted above illustrates that there are three mathematical methods to compute an average: mean, median and mode. While the mean is the type of average most commonly understood by a reference to average, the use of the median is also frequently used. While the mode is less frequently used, and does not seem to be as rational a method for the purposes of the statute, there is no statutory basis to exclude use of the mode while allowing the mean and median.

Therefore, in computing the average number of qualifying employees, the manufacturer may use any set of numbers that represents qualifying employment for the entire taxable year, and may derive an average from the set of numbers using the mean, median or mode method. While this computation must be made for the base year (the taxable year before the single sales factor method is elected) and the first three taxable years in which the alternative single sales factor is used, the manufacturer is not required to use the same method each year.

The use of total hours worked divided by 1,680 would not fit within the statutory definition of full-time employee, which is:
    • "Full-time employee" means an employee of a manufacturing company who is employed for an indefinite duration in the Commonwealth for which the standard fringe benefits are paid by the manufacturing company, for which employment requires a minimum of either (i) 35 hours of an employee's time per week for the entire normal year of such manufacturing company's operations, which "normal year" shall consist of at least 48 weeks, or (ii) 1,680 hours per year. Va. Code § 58.1-422 D.

The 1,680 figure is derived from language in the definition that sets a minimum number of hours per year to qualify as a full-time employee. Reading the definition as a whole shows that the General Assembly intended it to apply to a real person, not a mathematical construct. Each human being employed by the manufacturer must meet two tests to be counted as a full-time employee: (i) he must receive standard fringe benefits, and (ii) he is required to work a minimum number of hours during the year. The proposal to divide total hours worked by 1,680 would convert the statutory minimum requirement into a maximum per employee, and the mathematically constructed number of employees could exceed the number of employees for which the employer is actually providing fringe benefits.

There is another reason that the statute cannot be interpreted to allow the proposed total hours worked method. The statute refers to an employee who is required to work a minimum number of hours. But the two options, 35 hours per week or 1,680 hours per year, do not account for holidays, sick days, vacation days or other time-off. If interpreted to refer to the actual number of hours worked by each employee, it would be impossible for some full-time employees to qualify, and would frustrate the intent of the General Assembly. So the definition must be interpreted not as counting hours actually worked, but hours scheduled to be worked in a normal week or year, without considering holidays, vacations, or other time-off. For example, a full-time employee who is on extended medical leave, but still receiving fringe-benefits, would be counted as a full-time employee for purposes of qualifying for the single sales factor even though he might not actually work 1,680 hours that year.

The guidelines allow two part-time employees, each receiving standard fringe benefits, to be counted as one full-time employee. This provision recognizes job sharing arrangements that some employers allow. You referred us to Va. Code § 59.1-279 A 4 that specifically includes job sharing arrangements with two or more employees in the definition of full-time employee for enterprise zone purposes. Although Va. Code § 58.1­422 D does not specifically address job sharing for single sales factor purposes, we are willing to accept two or more people in a job sharing arrangement as one full-time employee.

However, Va. Code § 58.1-422 D does require that each employee receive standard fringe benefits to be counted, and that the position two or more employees are sharing be scheduled to work a minimum of the same 35 or 1,680 hours as discussed above. This job sharing provision does not support allowing the total hours worked method because job sharing allows two or more part-time employees, each receiving standard fringe benefits, to be counted as one full-time employee. It cannot be interpreted to allow one human employee to be counted as more than one mathematically constructed employee.

Therefore, the proposed method of dividing total hours worked by employees by 1,680 cannot be accepted.

Base Year Employment

You propose that an additional method be allowed for determining the base year employment; specifically, the number of full-time employees at the end of the taxable year. Va. Code § 58.1-422 D provides the following definition:
    • "Base year employment" means the average number of full-time employees employed by the manufacturing company in the Commonwealth in the taxable year that ended immediately prior to the first taxable year in which the manufacturing company used the alternative apportionment set forth in this section.

While using the number of full-time employees on the last day of the taxable year is simple and convenient, the statute requires the use of an average. Thus, the base year employment must be determined using a set of numbers that cover the entire taxable year as discussed above. The manufacturer may use any of the methods discussed above to compute the base year employment. However, using one method for the base year employment will not bind the manufacturer to use the same method in subsequent years.


Your letter mentions the practical difficulties of calculating an average in a workforce that is constantly changing. One specific job, or position, may be filled by different people over the course of a year because of retirements, transfers, death, sickness, normal attrition, and may be vacant for a portion of the year while a replacement is being recruited.

Some of these difficulties are resolved by recognizing that the definition of full-time employees requires that the manufacturer count people, not positions. As long as each person receives standard fringe benefits and is required to work the minimum number of hours, he is counted regardless of his job title. For example, if the manufacturer has chosen to calculate the average based on the last day of each quarter, then a particular person may be counted on each of the four days used to compute the average even though he may have a different job title in each quarter.

Vacancies are partially covered in the case of sickness and holidays, as discussed above. A person may be counted as employed even though he is not actually working if he is receiving standard fringe benefits and is, or will be, required to work the minimum number of hours when he returns to work. Vacancies while recruiting replacement employees would not be counted because there is no person receiving standard fringe benefits during this period. However, the manufacturer has flexibility to address this issue.

First, the manufacturer can decide how aggressively it will recruit to fill the vacancy. Second, if there are seasonal patterns in vacancies, the manufacturer has the ability to select a method of calculating the average that reduces the impact of seasonal vacancies on the average number of qualifying employees. In any event, while vacancies may reduce the average number of employees during the first three taxable years of the single sales factor election, they will also have reduced the base year employment average. Moreover, the manufacturer's ability to choose the averaging method each taxable year allows it to select methods that maximize the impact of vacancies in the base employment year while minimizing it in subsequent years.


Therefore, the Department can accept a range of methods in calculating the average number of employees, but cannot accept methods that are not an average, or that do not count people who meet the fringe benefit and minimum hours requirements. The Code of Virginia sections cited are available online at in the Laws, Rules and Decisions section of the Department's website. If you have additional questions, please contact ***** in the Office of Tax Policy, Policy Development Division, at *****.
                • Sincerely,

                • Craig M. Burns
                  Tax Commissioner


Last Updated 08/25/2014 16:46