Tax Type
Corporation Income Tax
Description
Sales Factor, Gross Receipts
Topic
Allocation and Apportionment
Date Issued
08-29-1990
August 29, 1990
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-414 Sales Factor
Dear ****
This is in response to your letter of November 27, 1989, in which you applied for correction of an assessment of corporation income tax.
Facts
The taxpayer was field audited and several adjustments were made. The auditor adjusted the denominator of the sales factor to equal gross receipts on the federal return and adjusted the numerator to include intercompany sales made into Virginia. The amounts in question represent billings for inventory items transferred from one plant to another. Some transfers came to a Virginia plant; these were included in the numerator of the sales factor by the auditor. The taxpayer wants the intercompany sales removed from the sales factor.
Discussion
The Virginia sales factor is a fraction, the numerator of which is the total sales in Virginia during the taxable year. The denominator is the total sales of the corporation everywhere during the taxable year.
The term "sales" means the gross receipts of the corporation from all sources (except dividends, which are allocated), whether or not such gross receipts are generally considered as sales. Sales are to be included in the sales factor if the gross receipts are included in Virginia taxable income and are connected with the conduct of the taxpayer's trade or business within the United States.
Virginia relies on the amount and character of each item reported on the federal return and supporting schedules to determine gross receipts for purposes of computing the sales factor. The adjustments by the auditor were made to reconcile the denominator with the gross receipts shown on the federal return. The intercompany sales appear to have been included in the gross receipts reported on the federal return (line 1c) and the profit included in federal taxable income. The auditor properly adjusted the denominator of the sales factor to agree with the gross receipts, including the intercompany sales, shown on the face of the federal return.
The intercompany sales to the Virginia plant were properly included in the numerator of the sales factor (sales in Virginia). The gross receipts from the sales were included in federal and Virginia taxable income and the property was received in Virginia. See VR §630-3-415 (copy enclosed). Because the gross receipts were attributable to activity in Virginia, the amounts were properly included in the numerator of the sales factor.
Determination
Accordingly, the assessment is correct as made and is now due and payable. 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