Tax Type
Corporation Income Tax
Description
Intercompany payables and receivables
Topic
Corporate Distributions and Adjustments
Date Issued
05-05-1982
May 5, 1982
Re: §58-1118 Application
Capital Not Otherwise Taxed for the Years 1978, 1979 and 1980
Dear ***********************
This ruling is issued in response to your application under §58-1118, Code of Virginia, a taxpayer hearing held September 11, 1981, and your letter dated February 8, 1982.
FACTS
Taxpayer operates a muzak franchise in Virginia and is principally engaged in providing background music to subscribers for a monthly charge. Two audit adjustments protested by the taxpayer concern the following items: (1) "barter" accounts receivable, and (2) accounts receivable-parent and affiliate.
"Barter" Accounts Receivable
The receivables recorded on the taxpayer's books resulted from "barter" exchanges. The taxpayer contends that these "barter" accounts receivable and the corresponding deferred income were nominal accounts to assist in recording the exchange of air time services and goods to be received in the future.
Determination
In the taxpayer hearing additional information on the issue was requested. The taxpayer has made the determination that the item is not sufficiently material to justify. Therefore, no further adjustment will be made concerning this issue.
Accounts Receivable - Parent and Affiliate
Taxpayer contends that the accounts receivable between parent and affiliate represent intercompany transfers and, as intercompany payables and receivables, are exempt from capital tax. The Code of Virginia, §58-411 was amended in 1980 to exclude from taxable capital those intercompany advances which were not in the usual course of business. For the audit years 1977 and 1978 the Department treated the intercompany accounts receivable as all other property and in the 1980 audit year the intercompany receivable was excluded from the taxable capital of the taxpayer.
Determination
On the basis of the information available, I must deny any further adjustment to this item of capital.
Your application for correction on the two items discussed herein is therefore denied. The assessments should be paid with interest accrued to the date of payment.
I note in your application you request that amounts relating to intercompany payables and receivables be placed in suspense pending the outcome of related litigation. §58-1119.1, Code of Virginia, provides for the protective claim for refund of issues in litigation. In order to protect your claim for refund, you must pay the tax assessed and file amended returns reflecting your position on the intercompany payables and receivables.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner