Tax Type
Corporation Income Tax
Description
DISC income
Topic
Taxable Income
Date Issued
02-17-1984
February 1984
Dear ******************
This is in response to your letter of August 29, 1983 in which you have applied under the provisions of Virginia Code § 58-1118 for relief from assessments of additional corporation income taxes for the years 1978 and 1979.
You seek relief only in regard to the department's treatment of DISC income, an issue presently in litigation before the Circuit Court of the City of Richmond in the case of the General Electric Company v. Commonwealth of Virginia.
Facts
Taxpayer owns a subsidiary which is a Domestic International Sales Corporation (DISC) qualified under § 991 et. seq of the Internal Revenue Code.
DISC's income is substantially commissions from affiliated corporations for sales of export property and a portion of such commissions is attributable to sales by affiliated corporations which have no nexus with Virginia.
Determination
Taxpayer protested the combining of its net income with that of its DISC, contending that the provisions of § 58-141.083 of the Code of Virginia relate only to price manipulation and are inapplicable to a commission DISC.
Taxpayer alternatively protested the combining with its net income that portion of the DISC's net income which was attributable to sales made through the DISC by affiliated corporations which have no nexus with Virginia. In this regard, Taxpayer cited a ruling of the Commissioner issued March 4, 1982.
The department has previously considered the question of combining a parent's net income with that of its DISC and has ruled that such treatment is authorized by § 58-151.083 and is not in violation of the U.S. Constitution. A copy of a ruling dated January 13, 1982 is enclosed for your convenience.
The ruling of the Commissioner issued March 4, 1982 and cited by Taxpayer involved subsidiaries which did no business in Virginia, each subsidiary having a separate DISC, and each subsidiary bearing the expenses associated with its related DISC. There was no question of commingling the income or expenses of a corporation subject to Virginia income tax with the income and expenses of corporations not having nexus with Virginia.
However, when a corporation, otherwise having no nexus with Virginia, commingles a portion of its business with the business of another related corporation which is subject to tax in Virginia, it is our view that such commingled portion of business does indeed have nexus with Virginia.
Accordingly, I hold that the assessments are correct as made and presently due and payable.
Since the issue of § 58-141.083 adjustments is presently before the Circuit Court of the City of Richmond, Division I, in the case styled General Electric Company v. Commonwealth of Virginia, you may wish to preserve your judicial remedies by filing a protective claim under § 58-1119.1 after paying the assessments with accrued interest.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner