Tax Type
Intangible Personal Property Tax
Description
Unbilled receivables
Topic
Basis of Tax
Date Issued
10-16-1984
October 16, 1984
Re: Capital Not Otherwise Taxed
Dear ****
This will respond to your letter of August 10, 1984 submitted pursuant to Section 58-1118 of the Code of Virginia i n protest of tax on capital not otherwise taxed, assessed the referenced taxpayer for the tax years 1981 and 1982.
Facts
In its filed returns, Taxpayer included in taxable capital certain unbilled receivables amounting to ***** and ***** for the tax years 1981 and 1982, respectively. Total tax paid with filed returns in respect of these amounts was $****.
In audit of Taxpayer's returns of capital not otherwise taxed, the Department increased the taxable value of unbilled receivables to agree with values reflected in Taxpayer's balance sheets and assessed additional taxes in the amount of ***** attributable to such increase in values.
In protest you contend that while unbilled receivables are shown as assets on Taxpayer's balance sheets, they do not represent property and therefore may not be taxed under Chapter 8 of Title 58.
In support of your contention, you point out that unbilled receivables are not fixed debts as of the valuation dates, that no one is legally or equitably obligated to pay them, and that some represent cost overruns on completed federal government contracts collectible only upon successful contract renegotiation.
Determination
§ 58-410 of the Code of Virginia provides that all capital of a trade or business in Virginia is deemed to be intangible personal property subject to State tax, except capital which is otherwise specifically taxed or specifically exempted from taxation. §58-411 then defines taxable capital to include (1) inventory, (2) the excess of bills and accounts receivable over bills and accounts payable and (3) all other taxable property of any kind whatever, including all chose in action, equities, demands and claims, but excluding certain specifically excluded property.
There has been no contention that the assets in question are within a category specifically excluded by Code § 58-411, nor has it been contended that such assets are incorrectly valued. Rather, you contend that the assets in question lack any of the indicia of property and should not be subject to taxation. In support of this contention, you note only that these unbilled receivables are not fixed debts at the valuation dates and that the amounts which may be ultimately billed and collected is not precisely determinable at the valuation dates.
However, "property" within the meaning of Virginia tax laws should not be given a narrow or technical meaning. Virginia law, Code § 58-411, uses the broad, general term "all property of any kind whatever" in defining taxable capital and then specifically provides for the inclusion of all chose in action, equities, demands and claims. You will note that each of the assets specifically included is within a property category not generally constituting fixed debts or having a precisely determinable value. Their reasonable values must generally be determined by the facts and circumstances surrounding them. In the matter at issue, the values were determined and reflected by Taxpayer in its records and balance sheets and there has been no contention that such values are incorrectly stated.
For these reasons, I reject your appeal and must deny Taxpayer's claims for refund of taxes on capital not otherwise taxed for the years 1981 and 1982.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner