Tax Type
Intangible Personal Property Tax
Description
Supply inventory; Loans to officers
Topic
Assessment
Date Issued
10-31-1984
October 31, 1984
Re: Capital Not Otherwise Taxed
Years 1981, 1982 and 1983
Dear *****************
This will respond to your protest of additional State capital taxes assessed ***** for the years 1981, 1982 and 1983.
Facts
Taxpayer, an operator of motor inns in Virginia, was assessed additional tax on capital not otherwise taxed, penalty and interest as follows for the years 1981, 1982 and 1983:
Assessments resulted solely from the inclusion of certain supplies inventories and the inclusion of loans to officers in taxable capital.
The Department held in audit that all inventories other than restaurant supplies were held by Taxpayer for resale indirectly and accordingly were includible in taxable inventory under the provisions of Virginia Code §§ 58-411 and 58-412.
You have advised that the inventories at issue consisted of guest room supplies, office supplies, cleaning and maintenance supplies, uniforms and laundry supplies and you protest the inclusion of any of these supplies as inventory held for resale directly or indirectly.
The Department held in audit that advances to corporate officers constituted property includible in taxable capital under the property classification for "all other taxable property" as set forth in Code § 58-411A(4).
In protest you note that neither cash nor intercompany advances are taxable under Code § 58-411 and you indicate that some of the advances were in effect, intercompany advances, and some were in effect, cash reserves of the corporation. You contend that subjection of these advances to tax goes far beyond the reasonableness and intent of the General Assembly.
Determination
Virginia Code § 58-411 defines taxable capital to include "the inventory of stock on hand, which shall include all materials for use in the business..." However, this is modified by § 58-412 which limits the inclusion of inventory for businesses other than manufacturing and other specified businesses, not including motor inn businesses, to the inventory of stock on hand which is held for resale directly or indirectly.
Clearly none of the inventory at issue was held by Taxpayer for resale directly and I find none which under the established policies of the Department would be considered as held for resale indirectly. Assessments will therefore be revised to exclude all inventories from taxable capital.
In regard to the second issue raised in protest, Code § 58-410 provides for the inclusion of all capital of a taxable trade or business except capital specifically exempted by statute. There is no specific exemption for loans to corporate officers. The only question to be resolved, therefore, relates to the property category in which this receivable must be included for capital tax purposes. Taxable capital as defined by § 58-411 includes certain receivables in the "excess of bills and accounts receivable over bills and accounts payable" property category and includes certain other receivables in the property category for "all other taxable property."
Only receivables and payables which have been contracted in the usual course of a taxpayer's business and not for purposes of capital outlay Are includible in the "excess of bills and accounts receivable over bills and accounts payable" category. See W. Va. Pulp and Paper Co. v. Karnes, 137 Va. 714, 120 3E 321 (1923). All other receivables of any kind whatever are includible in the category for "all other taxable property.
The receivables at issue, loans to corporate officers, are not considered to be contracted in the usual course of Taxpayer's business. They are, therefore, includible in "all other taxable property."
While you have indicated that some of the loans were in effect, intercompany advances, and some were in effect, cash reserves of the corporation, you have presented nothing to support the contention. I, therefore, deny your protest in respect of loans to corporate officers.
Assessments will be revised in accordance with this determination and revised assessments will be due and payable upon receipt by Taxpayer.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner