Tax Type
Corporation Income Tax
Description
DISC
Topic
Taxable Income
Date Issued
12-23-1985
December 23, 1985
Re: §58.1-1821 Application/Corporation Income Tax
Dear ****
This will reply to your letter of September 6, 1985, requesting relief from an assessment against ***** ("Taxpayer") for the year ended December 31, 1983.
FACTS
Taxpayer has a subsidiary domestic international sales company (the "DISC"). The return filed by the DISC for the year ***** 1982 through ***** 1983 reports that the 4% gross receipts method was used for inter-company pricing. On office audit, the income of the DISC was consolidated with that of Taxpayer and tax was assessed. Taxpayer asserts that such consolidation is improper because the DISC is not a "paper DISC" and its relationship with Taxpayer properly reflects the business done or Virginia taxable income earned from business done in Virginia. Moreover, Taxpayer argues that its position will be resolved by General Electric Company v. Commonwealth of Virginia.
DETERMINATION
The department has previously ruled that it may properly consolidate a "DISC" with its parent (January 13, 1982 ruling), but that when the transactions between the two are subject to I.R.C. Section 482, consolidation is not necessary (July 23, 1982 ruling). Although Taxpayer alleges that its DISC makes purchases on an arm's length basis, the DISC's return for the year ended ***** 1983 reports otherwise. In the absence of substantiation that DISC, in fact, uses I.R.C. Section 482 for inter-company pricing, no adjustment to the assessment is required and it remains due and payable.
If Taxpayer wishes to preserve its judicial remedies pending final decision in the case of General Electric Company v. Commonwealth of Virginia, it must pay the assessment and file a protective claim for refund pursuant to Virginia Code Section 58.1-1824.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner