89-231 | Virginia Tax

Tax Type

Corporation Income Tax

Description

Short taxable year

Topic

Allocation and Apportionment

Date Issued

08-31-1989

August 31, 1989

Re: §58.1-1821 Application; Corporation Income Tax
§58.1-409 Property Factor

Dear****************

This is in reply to your letter dated April 20, 1989 in which you applied for correction of the above mentioned assessment of corporation income tax.

Facts

The taxpayer is a corporation organized under the laws of Delaware and authorized to do business in Virginia. For the taxable year of the assessment, the taxpayer filed a combined Virginia corporation income tax return with five of its subsidiaries. After a field audit, several adjustments were made and additional tax was assessed. The taxpayer protests the adjustments to the property factor as it relates to the average value of the assets of one of the subsidiaries.

The subsidiary was sold on June 10, 1986 and the final short taxable year return of the subsidiary was included in the combined return filed. The department's auditor adjusted the numerator and denominator of the property factor of the subsidiary to reflect the fact that the taxable year of the subsidiary was less than 12 months. The taxpayer protests this adjustment and contends that the property factor should be prorated to reflect the actual amount of time the assets were in Virginia during the calendar year.

Determination

Virginia Code §§58.1-409 through 58.1-411 (copies enclosed) and Virginia Regulations (VR) 630-3-409 through VR 630-3-411 (copies enclosed) set forth the requirements applicable to the computation of the average property factor used in apportioning the income of a multistate corporation. Virginia Code §58.1-109 provides:

- The property factor is a fraction, the numerator of which is the average value of the corporation's real and tangible personal property owned and used or rented and used in the Commonwealth during the taxable year and the denominator of which is the average value of all the corporation's real and tangible personal property owned and used or rented and used during the taxable year and located everywhere, to the extent that such property is used to produce Virginia taxable income and is effectively connected with the conduct of a trade or business within the United States and income therefrom is includable in federal taxable income. ( Emphasis added.)

As set forth in VR 630-3-411:

- The average value of property shall be determined by averaging the value of the beginning and end of the taxable year ... (Emphasis added.)

As set forth in both the statute and regulations, the value used for the property factor is based upon the average value of the property during the taxable year. The property factor is based on average value of the property during the taxable year, regardless of the length of the taxable year. Neither the statute nor the regulations provide for prorating the property factor to reflect the actual amount of time the assets were in Virginia in the event the taxable year is less than 12 months.

Accordingly, I find the department's adjustments correct and the assessment is due and payable.

Sincerely,

W. H. Forst
Tax Commissioner

Rulings of the Tax Commissioner