Tax Type
Corporation Income Tax
Description
Capital were erroneously reported
Topic
Corporate Distributions and Adjustments
Taxability of Persons and Transactions
Date Issued
04-27-1982
April 27, 1982
Re: §58-1118 Application.
Capital Not Otherwise Taxed
For the Years 1979 and 1980
Dear ***********************
This ruling is issued in response to your application under §58-1118, Code of Virginia, a taxpayer hearing held December 10, 1981 and additional information submitted at the hearing.
Facts
******* is not a partnership as represented in audit, but is a division of *****. The audit on the real estate company is protested since the property taxed as capital actually belonged to ********** 50% and *****35% and **** trustee for ******* 15%.
The taxpayer's representative in conference traced the acquisition and disposal of the assets of the partnership and contends that the property should not be taxed as ***** and that the partners, ****** and ***** trustee, are individuals holding investments which were generated by the holding of real estate and subsequent disposal of the same.
Taxpayer contends that **** is a division of **** and should not be taxed as a separate trade or business and that the assets reported as capital were erroneously reported for the years under audit. In addition, taxpayer's position is that the assets should not be taxed as assets of a trade or business, but that they represent investments only.
The supplemental information provided in conference discloses that several individuals purchased undivided interests in a number of parcels of land in order to build a shopping center. Subsequently, the individuals transferred the land to a partnership which developed and operated the shopping center.
The partnership interests were bought out and the partnership ultimately was owned 50% by*****and 50% by*********. The real estate was then sold and a $ **** note was taken in the name of **** and *********.
The shopping center was the only asset of the partnership and for the years of audit the note for $ *** and accounts receivable for payments related to the note were the only assets.
Determination
I find that ******* a division of **** should not be taxed as a separate trade or business. However, I do find that the assets which were erroneously reported as capital and were taxed as part of the audit findings of ***** should be taxed as capital of a trade or business.
The taxable assets represent assets of the business which bought, developed, and operated the shopping center. The partnership interests changed through the acquisition of interests by the holders of the note, specifically ***** and *******.
The department has consistently held that the capital of a business remains subject to capital tax so long as any taxable assets remain even though it may have sold its operating business and is inactive except for collecting, holding or investing the proceeds of the sale.
The department has consistently held a partnership owning and operating such real estate is conducting a business subject to capital tax. See Colway Realty Corporation v. Commonwealth, 198 Va. 1 (1956). From the information presented, this business remain s a partnership subject to capital tax. Even if the partnership is not subject, each of the partners or former partners, *********** and ********** remain subject to capital tax on their respective shares of the $ **** note and the accounts receivable. The assessments will be revised in the name of ******* and ******but the tax liability remains unchanged. In the near future revised assessments will be issued accruing interest to date and these revised assessments should be paid.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner