Tax Type
Corporation Income Tax
Description
Subsidiary DISC in a consolidated return
Topic
Allocation and Apportionment
Taxable Income
Date Issued
01-13-1984
January 13, 1984
RE: § 58-1118 Application for Years 1979 & 1980
§ 58-151.083 Adjustment for DISC
§ 58-151.036 through 58-141.40 Allocation/Apportionment of Income
Dear ****
This ruling is made in response to your application under § 58-1118 dated July 22, 1983 in which you protested assessments made for the years 1979 and 1980.
FACTS
Taxpayer is a corporation doing business in Virginia with its principal office located in ******. Taxpayer also has a subsidiary DISC and protests the inclusion of this DISC in a consolidated report on the grounds that such combination is unconstitutional.
Taxpayer also receives income from a unique form of participation in a German business enterprise which it characterizes as foreign silent partnership income. Taxpayer maintains that the business activities of the German business have nothing to do with Taxpayer's business activities in Virginia and thus there is no rational relationship between the income and Virginia. Taxpayer avers that such income is return on investment income and is therefore allocable. Taxpayer cites Department of Taxation v. Champion International Corp., ASARCO, Inc. v. Idaho State Tax Commission and Mobil Oil Corp. v. Vermont Tax Commissioner in support of its contentions.
DETERMINATION
With respect to the protestation regarding the inclusion of the DISC income, the Department has considered this issue and has ruled that an adjustment for DISCs is authorized by § 58-151.083 and is not a violation of the U.S. Constitution. Copies of the relevant Rulings of the Commissioner dated January 13, 1982 and March 4, 1982 are enclosed.
It should be noted that the issue of § 58-151.083 adjustments is presently before the Circuit Court of the City of Richmond in the case styled General Electric Co. v. Commonwealth of Virginia. You may wish to preserve your judicial remedies by paying the assessment, with accrued interest, and filing a protective claim under § 58-1119.1.
It is also the opinion of this Department that the inclusion of the "foreign silent partnership" income in Virginia apportionable income is proper. The Virginia statutes clearly meet the constitutional requirements set forth by the U.S. Supreme Court, including the ASARCO and Mobil decisions. Both these decisions primarily involved the apportionment of dividends from subsidiaries, a class of income specifically excluded from Virginia taxable income. The facts in this case do not involve dividends from a subsidiary.
In the Champion case, the Virginia Supreme Court held that the business/non-business distinction drawn by the Department was contrary to law and that all income from allocable classes must be allocable according to situs without regard to such distinction. The classes of allocable income are set forth in § 58-151.037. Because the income derived from the partnership is not a class of income provided for in § 58-151.037, it is not allocable income and therefore the apportionment of such income is proper.
Accordingly, the application for correction is denied and the assessments should now be paid with interest accrued to date of payment.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner