Tax Type
Corporation Income Tax
Description
Income From Intangible Property
Topic
Allocation and Apportionment
Date Issued
10-31-1984
October 31, 1984
Re: § 58-1118 Application; Corporation Income Tax
§ 58-151.041 Allocation of income; ASARCO
Dear ****
Taxpayer is a corporation which does business in Virginia and many other states. In its 1982 return taxpayer included in allocable income amounts derived from interest, rentals and capital gain from the sale of securities and land. The auditor removed these items from allocable income, included them in apportionable income and assessed additional tax.
Taxpayer recognizes that these items are not allocable under Va. Code § 58-151.041. Taxpayer claims that the U.S. Constitution prohibits a non-domiciliary state from apportioning to itself any income from intangible property unless a unitary relationship exists between the payor and the taxpayer citing ASARCO Inc. v. Idaho State Tax Commission, 458 U.S. 307, 102 S. Ct. 3103 (1982) and F. W. Woolworth Co. v. Taxation and Revenue Dept. of N.M., 458 U.S. 354, 102 S. Ct. 3128 (1982).
Determination
As already stated, Virginia law clearly requires that the income in dispute be included in apportionable income. I am not persuaded that ASARCO renders Virginia's apportionment laws unconstitutional. All of the income in dispute in Woolworth, and most of the income in ASARCO, involved dividends which are allocated to the commercial domicile under Virginia law. ASARCO also involved some capital gains and interest income arising from the sale of stock in some subsidiaries.
Under Idaho law "business income" is included in apportionable income and "non-business income" is included in allocable income. Idaho Code § 63-3027. Regulations of the Idaho State Tax Commission state that if property is utilized for the production of non-business income then gain or loss from the sale of such property will also be non-business income. A similar rule applies to interest income. Idaho Regulation 27-4.1.C.
Idaho and ASARCO agreed that interest and capital gain arising from the sale of stock should be treated in the same manner as dividend income from such stock. Because of this agreement the only discussion of the treatment of interest and capital gains in the Court's opinion occurred in a single paragraph in which the Court recited the agreement and ratified it. ASARCO, 102 S. Ct. at 3116.
ASARCO and Woolworth involved income generated by subsidiary corporations. Virginia law prohibits apportionment of dividends from subsidiary corporations (or any other corporations.) The income involved in this application, whether it is called investment income or income from intangibles, was received directly by the taxpayer as a direct result of decisions and activity of the taxpayer. It is inconceivable to me that any court would hold that Virginia's apportionment of such income is unconstitutional.
Accordingly, I find that the assessment of additional tax was correct in every respect. Since there were no facts in dispute and the application of Virginia law was clear I have issued this determination letter without a conference. If you desire a conference you must request one within 30 days or this letter will be final and the assessment will be due and payable.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner