Tax Type
Corporation Income Tax
Description
Real Estate
Topic
Appropriateness of Audit Methodology
Property Subject to Tax
Date Issued
07-14-1982
July 14, 1982
Re: §58-1118 Application for 1979, 1980 and 1981
Capital Not Otherwise Taxed
Classification of Notes Receivable
Taxpayer:
Dear ****************
This ruling is issued in response to your application under §581118, Code of Virginia.
Facts
Taxpayer is a corporation conducting business in Virginia as a highway construction contractor. The taxpayer's appeal under §58-1118, Code of Virginia, is limited to the classification of the notes receivable from real estate sales.
Taxpayer acquires land for use as dirt pits. The dirt from these pits is sold or used in the highway construction business. After the taxpayer has excavated all usable dirt, the residual real estate is sold. In some instances, taxpayer accepts notes receivable from the real estate sales.
The Department of Taxation, in audit, classified the notes receivable from the sale of land as a receivable not in the usual course of business and included it in the other taxable property category.
Taxpayer-contends that the land was acquired and used in the corporation's usual course of business. Likewise the receivable for the sale of the residual land should be considered in the usual course of business and included in the excess of receivables over payables category for capital tax purposes.
DETERMINATION
The taxpayer in its usual course of construction business utilizes dirt, whether it purchases it by the load from a third party, or excavates it from its own pits. The taxpayer purchased the pit to provide the needed inventory in its usual course of business. The subsequent sale of the residual real estate in this taxpayer's situation is in the usual course of business, and the notes receivable generated from such sale are considered to be contracted in the usual course of business. Therefore, the notes receivable generated from the sale of real estate will be included in the excess of receivables over payables category for capital tax purposes. A revised report and assessments will be issued which reflect the adjustment as outlined above and the assessments should be paid with interest accruing to date.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner