Tax Type
Corporation Income Tax
Individual Income Tax
Description
Capital employed in business
Topic
Appropriateness of Audit Methodology
Penalties and Interest
Date Issued
04-21-1982
April 21, 1982
Re: Audit of Capital Not Otherwise Taxed
For the Years 1916, 1977 and 1978
Dear **************************
This is in response to your letter of June 1, 1981 submitted pursuant to §58-1118 of the Code of Virginia, explanations presented in conference on November 2, 1981, and supplementary data submitted by letter dated November 4, 1981.
FACTS
************** (Taxpayer) filed timely returns of Virginia tax on capital not otherwise taxed for the years 1976, 1977 and 1978, reporting taxable values as of January 1 of each year.
Certain audit adjustments were made in Taxpayer's filed returns resulting in tax deficiencies. Such deficiencies for the year 1976 and 1977 were assessed on June 23, 1980 and deficiencies for the year 1978 were assessed on March 16, 1981.
However, the specific audit adjustments and the assessments directly resulting therefrom are not the subject of your appeal. Rather, the subject of your appeal is the Department's failure to adjust taxable values by substituting the average amount of capital employed in business on January first and August first next preceding each taxable year. Accordingly, the only question to be resolved is whether a taxpayer, having filed a return based on the amount of taxable capital as of January first, may retroactively exercise the option to return the average amount of capital on January first and August first next preceding.
DETERMINATION
§58-423 provides that intangible personal property shall be returned for taxation as of January first of every year, except that the taxpayer may at his option make return of the average amount of capital employed in business on such date and August first next preceding.
The election provided by this section is exercised annually by a taxpayer upon filing a return and the Code provides no authority for changing an election once exercised. It has therefore been the longstanding consistent administrative position of the Department that the method used in filing constitutes a binding election for the taxable year for which filed.
In supplemental data submitted, you agree that the general rule in application of federal law is that once an election is made it cannot be changed. However, you point out the following two exceptions:
-
- 1. Case of a mistake of fact.
2. Case where the election was exercised in accordance with an existing regulation and correction was made as soon as the regulation is changed.
- 1. Case of a mistake of fact.
Instruction 5 for years prior to 1979 provided that "Capital is returnable as of January 1, 19 _ , unless the taxpayer elects to make return of the average of the total amounts of capital employed in business on January 1, 19_, and August 1, 19_."
Instruction E for 1979 and subsequent years is the same. The only change in 1979 in regard to alternative valuation dates is the addition of Instruction N, which reminds taxpayers that "If alternative valuation dates are elected under §58-423 (General Instruction E), all required data must be submitted for both January 1 of the tax year and August 1, next preceding."
I find no basis for exception to the general rule regarding elections and the Department's administrative position that the election provided in Code §58-423 is binding for the taxable year of election and I must accordingly deny your application for correction. The assessments for the years 1976, 1977 and 1978 should be paid with interest accrued to date of payment.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner