Tax Type
Corporation Income Tax
Description
Construction contractor with partnership income
Topic
Allocation and Apportionment
Date Issued
03-26-1984
March 26, 1984
Re: § 58-1118 Application/Corporate Income Tax
Dear **************
This is in response to the application for correction of corporate assessments filed on behalf of the above referenced taxpayer.
FACTS
Taxpayer is a general construction contractor incorporated in Virginia but does business in several states including Virginia. Taxpayer is also a partner in three partnership entities. The department's audit of Taxpayer's returns for the taxable years in issue resulted in an adjustment of the apportionment factor to include Taxpayer's proportionate share of the gross receipts earned by the partnership entities.
Taxpayer contends that the single factor formula for apportioning the income of construction contractors reporting under the completed contract method should not include its share of gross receipts earned by the partnerships. The principal argument concerns the department's interpretation of the term "business" and the term "sales" as defined in § 58-141.034(b), and its application of the § 58-151.047 sales factor to the § 58-151.050:2(A) "construction" factor.
DETERMINATION
With regard to the applicability of the sales factor to § 58-151.050:2(A), the department has held that the use of the sales factor is appropriate in determining the ratio that the business within the state is to the total business of the corporation. See the enclosed Ruling of the Commissioner. The use of gross receipts in determining the construction factor is a long-standing policy of this department and served as a basis for the department's proposal of § 58-151.050:2 to the Virginia General Assembly in 1976.
In addition, the phrase "total business" is not restricted to only the gross contracting revenues of a construction corporation. Total business includes these revenues and all other business of the corporation not otherwise allocable. §§ 58-151.037 through 58-151.040 of the Code of Virginia enumerate the items subject to allocation. The partnership property derived in this case is not subject to these statutes.
Accordingly, I hold that the assessments are correct as made and are now due and payable. However, previous billings have neglected to credit the taxpayer for the July, 1982 payment, so the account has been adjusted accordingly.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner