Tax Type
Corporation Income Tax
Description
Capital gains from stock sales
Topic
Allocation and Apportionment
Subtractions and Exclusions
Date Issued
09-06-1991
September 6, 1991
Re: §58.1-1821 Application; Corporation Income Tax
Dear******************
This will reply to your letter of June 21, 1991, in which you seek correction of corporation income tax assessments for **************** (the "Taxpayer").
FACTS
The taxpayer is an out-of-state corporation with its commercial domicile in New York. On its 1988 and 1989 Virginia corporation income tax returns, the taxpayer claimed a subtraction for capital gains from stock sales. The auditor disallowed the subtraction and assessed tax on the amounts apportioned to Virginia. The taxpayer contends that the gains are unrelated to its trade or business in Virginia and should not be included in apportionable income.
DETERMINATION
Virginia law does not require or permit the subtraction or allocation of "nonbusiness" income; all income (other than dividends) is apportionable. See P.D. 84-210 (10/31/84); P.D. 87-104 (3/27/87); and P.D. 87-224 (10/14/87) (copies enclosed). However, under Va. Code §58.1-421 a corporation is permitted to request an alternative method of allocation and apportionment that would reduce its tax if it can show by clear and cogent evidence that the statutory method is unconstitutional or inequitable as applied to its situation. See Virginia Regulation (VR) 630-3-421 and P.D. 86-184 (copies enclosed).
Treating your letter as a request to use an alternative method, I find that you have not demonstrated that the inclusion of the income in question in apportionable income produces an unconstitutional or inequitable result. You have not shown that the activities or investments which generated the disputed income have been consistently treated as not part of a unitary business in the current and prior returns of Virginia and other states. For example, if apportionable income for any taxable year included deductions for wages, stewardship expenses, carrying costs and other expenses related to an activity or investment, then the apportionment of any gain, profit, and other income generated by the activity or investment would be consistent with the taxpayer's treatment
The department is currently in litigation involving the unitary business principle. This case may or may not have relevance to your factual situation. You may wish to file a protective claim for refund pursuant to Va. Code §58.1-1824 (after paying the assessment) and request that the department hold it without action pending a final decision in Corning Glass Works, Inc. v. Virginia Department of Taxation in the United States Supreme Court. This procedure will allow the department to investigate and ascertain the pertinent facts and apply the relevant principles, if any, of the final decision to the facts of your protective claim.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner