Tax Type
Corporation Income Tax
Description
Adjustment for DISC
Topic
Computation of Income
Date Issued
04-28-1989
April 28, 1989
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-446 Adjustment for DISC
Dear**************
This is in response to your letter of December 21, 1988, in which you applied for correction of an assessment of corporation income tax.
Discussion
After a field audit a number of adjustments were made to the 1983 and 1984 returns. You protest only the adjustment with respect to the consolidation of a Domestic International Sales Corporation (DISC). About half of the DISC's income was derived from commission income received from its parent, the taxpayer. The rest of the DISC's income was derived from commissions received from other affiliates which are not subject to Virginia income tax. The DISC reimbursed the taxpayer for accounting and other expenses.
You contend that consolidating all of the DISC income with the taxpayer substantially overstates the income derived from business done in Virginia because it includes commissions from affiliates not taxable in Virginia.
In prior rulings the department has found situations in which consolidation of a DISC with the parent may not be an equitable adjustment to the tax in order to reflect the taxable income from business done in Virginia. See, for example, Rulings dated 2/27/87, P.D. 87-75 and 2/27/87, P.D. 87-78 (copies enclosed).
After reviewing the audit report and the copies of the DISC returns, it appears that the DISC income consolidated with the taxpayer should be limited to the commissions received from the taxpayer.
Determination
Accordingly, the assessment will be adjusted in accordance with this letter. You will shortly receive a revised audit report and an updated bill with interest accrued to date if any tax remains unpaid after the revision. 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