Tax Type
Corporation Income Tax
Description
Property factor; Partnership property; DISC adjustment
Topic
Allocation and Apportionment
Subtractions and Exclusions
Date Issued
07-29-1988
July 29, 1988
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-409 Property Factor; Partnership Property
§58.1-446 Adjustment for Domestic International Sales Corp.
Dear***************
This is in response to your letter of May 26, 1988, in which you applied for correction of an assessment of corporation income tax. Your application raises only two issues concerning the adjustments made by the auditor.
DISC Adjustment
The auditor adjusted the tax pursuant to §58.1-446 based on consolidation of the taxpayer with its Domestic International Sales Corporation (DISC). You protest the adjustment because the DISC is an operating corporation with its own employees and property producing its own taxable income and because the DISC uses the "§482" pricing method. In a previous audit of the taxpayer the department agreed that an adjustment was not required based on consolidation because the §482 pricing method had been used for virtually all income of the DISC. However, an adjustment was required with respect to the few transactions for which either the 4% or 50/50 pricing method had been elected. See Ruling of the Commissioner dated July 23, 1982 (copy enclosed).
The same principle will be applied in this audit. A review of the Schedules P for the DISC indicate that the income of the taxpayer must be increased by the income attributed to the DISC by the 4% or 50/50 pricing method as shown on the attached sheet. The sales factor must also be adjusted for those transactions where the transfer price was affected by these pricing methods as shown on the attached sheet.
Partnership Property
You protest the exclusion from the apportionment factors of property, payroll and sales of certain partnerships in which the taxpayer owned interests. Under paragraph A.2.b of Virginia Regulation VR 630-3-409, "each item of partnership property shall have the same character for a corporate general partner as if direct corporate ownership of the property existed." (Emphasis supplied.) You have supplied information indicating that the taxpayer owns both general and limited partnership interests in various partnerships. The audit report will be revised to include the property of the partnerships in which the taxpayer owns a general partnership interest. Although the regulations are silent about partnership payroll and sales, they will be treated in the same manner as property.
Determination
Accordingly, the audit report and assessment will be revised in accordance with this letter. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within thirty days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner