Tax Type
Corporation Income Tax
Description
Partnership engaged in telecommunications
Topic
Taxpayers
Date Issued
05-12-1988
May 12, 1988
Re: Request for Ruling; Corporation Income Tax
§58.1-401 Exempt Public Service Corporation
Dear********************
This is in response to your letter of December 18, 1987, in which you requested a ruling as to the taxation of income when a partnership is subject to the license tax on gross receipts under §58.1-2600 et seq.
Facts
The taxpayer is a partnership formed by two corporations. The partnership provides telecommunications service and is subject to the license tax on gross receipts of telephone companies under §58.1-2623. The taxpayer requests a ruling that its partners are exempt from the Virginia income tax on income arising from the partnership even if no gross receipts tax is actually paid. Although you do not explain why no gross receipts tax is actually paid, I will assume that it is either because gross receipts are less than $5 million or qualify for one of the exemptions in §58.1-2625.
Discussion
A "public service corporation" is exempt from the corporation income tax "to the extent such corporation is subject to the license tax on gross receipts contained in Chapter 26 (§58.1-2600 et seq.) of this title." §§58.1-401 and 58.1-2690.
Although a partnership is not a corporation, the taxpayer is subject to the license tax imposed on telephone companies by Chapter 26, (Taxation of Public Service Corporations). Since the clear intent of the exemptions in §§58.1-401 and 58.1-2690 is to avoid subjecting the same income to both the gross receipts tax and the income tax, I am of the opinion that the partnership qualifies for the exemption.
Therefore, the corporate partners of the taxpayer would be exempt from income tax on the income arising from the taxpayer's business subject to the gross receipts tax (whether or not a tax is actually required to be paid on such receipts). However, this exemption applies only to the income from the partnership. The corporate partners would be subject to income tax on any other income received from Virginia sources.
It should be noted that the 1988 General Assembly enacted Chapter 899 (SB 312) which revises the taxation of telecommunications companies. Effective for taxable years beginning on and after January 1, 1989, the license tax on the gross receipts of telephone and telegraph companies is repealed and all telecommunications companies will be subject to the corporation income tax. There are special provisions which phase in the transition from a gross receipts tax to an income tax through a minimum tax on gross receipts and a credit. I have enclosed a copy of the act for your information. An explanation of the application of the minimum tax and credit provisions to partnerships and their partners will have to await the promulgation of regulations.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner