Tax Type
Intangible Personal Property Tax
Description
Short-term investments
Topic
Appropriateness of Audit Methodology
Date Issued
07-31-1984
July 31, 1984
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, the information obtained in the original audit, and the supplemental information you provided.
FACTS
Taxpayer for the period under audit is a fabricator, wholesale merchant, retail merchant, computer lessor, and computer repair service operator. Taxpayer contends that certain items the Department taxed as capital are a part of the mercantile operations of its business. The Department in audit allocated total capital of Taxpayer in determining taxable capital and did not specifically identify individual customer accounts subject to capital tax. Taxpayer also contends that double taxation exists since the locality taxed gross receipts from service operations and gross purchases on wholesale mercantile operations.
The Department in audit included master notes in the other taxable property category for capital tax purposes. Taxpayer contends the master notes represent money and are exempt from taxation.
DETERMINATION
State tax on capital not otherwise taxed is a property tax measured by the value of property defined by Virginia Code § 58-411, prior to repeal thereof, as capital for purposes of this tax. As a property tax, it is imposed on the property of a business. The Department in its original audit included all the taxable capital of Taxpayer and prorated such capital to obtain the capital subject to state taxation. Taxpayer has failed to substantiate specific accounts receivable and payable attributable to its mercantile operation. The Department must deny any further adjustment to the receivables and payables since no further evidence substantiating the Taxpayer's position has been presented.
In its audit, the Department included inventory in capital subject to proration. Taxpayer has identified all inventory as items for resale in its mercantile business. The necessary adjustment will be made to eliminate inventory in the computation of capital.
§ 58-411(4) exempts money on deposit from capital tax, but this is a very restricted exemption and does not include short-term or long-term investments. The item in question is described in audit as short-term investments. We realize that in many circumstances such investments may be considered by taxpayers as the equivalent of cash, but the law nevertheless makes no provision for exemption. The Department must deny any further adjustment to this item.
Taxpayer also requests relief of late filing and late paying penalties. In consideration of the circumstances surrounding the audit and the assessment of the audit findings, we will relieve one-half of the late filing and all of the late paying penalties.
A revised report and assessments will be issued which reflect the adjustments as outlined above and your previous payment of will be credited against the outstanding balance.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner