Tax Type
Corporation Income Tax
Description
Financial corporations; No cost of performance outside of Virginia
Topic
Allocation and Apportionment
Date Issued
01-11-1990
January 11, 1990
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-418 Financial Corporations; Apportionment
Dear ********************
This is in response to your letter of August 2, 1989 in which you applied for correction of an assessment of corporation income tax.
Facts
The issue in this case involves the apportionment of income for a financial corporation.
The Taxpayer was included on the Virginia consolidated corporation income tax return of the parent corporation for the tax year in question. Upon audit, it was determined that the Taxpayer was a financial corporation as defined in Va. Code §58.1-418. As a result, the Taxpayer was removed from the consolidated return since all other corporations filing used a three factor apportionment formula. According to the audit report, the Taxpayer had no costs of performance to apportion income, which consisted entirely of interest. Therefore, all income was apportioned to Virginia, the commercial domicile of the Taxpayer.
The Taxpayer owns no tangible or real property. Its only assets are intangible receivables, notes and investments in subsidiaries. It has no employees and its only expense for the taxable year was taxes. All of the Taxpayer's officers and directors live in Virginia, and its mailing address on various returns and correspondence is in Virginia.
In its protest, the Taxpayer does not contest the determination that the Taxpayer is a financial corporation. The Taxpayer limits its challenge to the method of apportionment used. Consequently, that issue is the focus of this ruling.
Discussion
The first issue to be addressed is whether or not the Taxpayer is entitled to allocate or apportion income at all. The Taxpayer has paid no taxes to other states on or measured by net income. The taxes actually paid are a maintenance fee to New York for the privilege of doing business in New York, and a minimum franchise tax and filing fee to the state of incorporation. The Taxpayer has not substantiated that it is actually doing business in New York or in any other state. Therefore, the taxes appear to be a "voluntary payment" within the meaning of VR §630-3-405.C.
Even if the Taxpayer is eligible to allocate and apportion income, there are no costs of performance outside of Virginia to apportion income. The combined income and deductions statement from the federal return indicates there are no costs of performance associated with the income of the financial corporation. Since there are no costs of performance outside of Virginia to apportion income and the commercial domicile of the Taxpayer is Virginia, all income is properly apportioned to Virginia.
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