Tax Type
Intangible Personal Property Tax
Description
Intercompany receivables
Topic
Taxability of Persons and Transactions
Date Issued
08-24-1984
August 24, 1984
Re: Application for Correction of Assessments
Tax on Capital Not Otherwise Taxed
For Tax Years 1975 through 1981
Dear ****
This determination is issued in response to an application for correction submitted on behalf of the above taxpayers pursuant to § 58-1118 of the Code of Virginia.
Facts
Taxpayers, together with other affiliated corporations not herein involved, are engaged in the operation of a poultry production business in Virginia.
Both ***** (Parent) and ***** (Subsidiary) are located in Virginia and conduct business subject to Virginia tax on capital not otherwise taxed. Taxpayer's returns of capital not otherwise taxed were audited by the Department of Taxation and tax deficiencies were assessed Parent in the total amount of ***** and Subsidiary in the total amount of $*****.
In respect of Parent, all issues have been resolved except the department's audit treatment of intercompany receivables. In audit, the department classified intercompany receivables as a part of "all other taxable personal property," a category of property not subject to offset by bills and accounts payable. Taxpayer contends in protest that the intercompany receivables here involved are properly subject to offset by bills and accounts payable and are includible in "the excess of bills and accounts receivable over bills and accounts payable."
In respect of Subsidiary, all issues have been resolved except that the department in its audit did not include amounts payable by Subsidiary to Parent and other affiliated corporations as payables in offset of receivables in "the excess of bills and accounts receivable over bills and accounts payable." Taxpayer contends in protest that such payables should have been allowed in offset of receivables.
Determination
Parent
The intercompany receivables here involved consist primarily of cash advances from Parent to Subsidiary and charges made by Parent to Subsidiary for Subsidiary's income tax liability included in consolidated income tax returns filed and paid by Parent on behalf of its affiliated corporations.
From the facts presented, I am unable to conclude that such advances to and payments on behalf of Subsidiary represent transactions in the "usual course" of Taxpayer's business.
However, you have contended in protest that such advances to Subsidiary and payments on behalf of Subsidiary were made from the proceeds of joint loans for which Parent and Subsidiary were jointly liable and which were made to provide working capital for both Parent and Subsidiary.
In substantiation of this contention, you have submitted copies of loan agreements which show that loans from the******and from the ***** were 1) joint loans to Parent and its subsidiaries, 2) that Parent and its subsidiaries were jointly liable for the repayment of such loans and 3) that the loans were made to meet the working capital requirements of Parent and its subsidiaries and would be avail-able to subsidiaries as well as Parent.
Under these circumstances, I will recognize Subsidiary's obligation to The ***** and to the ***** to the extent of Parent's intercompany receivables from Subsidiary. The application of this recognition is reflected in Schedule A, attached.
Subsidiary
You have contended and I agree that the amounts shown on books of Subsidiary as liabilities to Parent and other affiliated corporations for advances represent payables in offset of receivables in "the excess of bills and accounts receivable over bills and accounts payable."
The adjustment to reflect this offset and also adjustments to reflect changes previously agreed by the department are shown in Schedule B, attached.
Corrected assessments reflecting changes in accordance with this determination will be mailed to you.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner