Tax Type
Corporation Income Tax
Description
Nonbusiness income; Apportionment
Topic
Allocation and Apportionment
Date Issued
09-30-1991
September 30, 1991
Re: §58.1-1821 Application; Corporation Income Tax
Dear*****************
This will reply to your letter of March 20, 1991, in which you seek correction of a corporation income tax assessment for*****************(the "Taxpayer").
FACTS
On its 1988 Virginia corporation income tax return, the taxpayer claimed a subtraction for "nonbusiness" income, consisting of capital gains and interest income. The subtraction was disallowed by the auditor, and tax was assessed based on the amount apportioned to Virginia. You contend that elimination of this income from the taxpayer's Virginia taxable income is constitutionally required under the Virginia Supreme Court's decision in Corning Glass Works, Inc. v. Virginia Department of Taxation and under Virginia Regulation (VR) 630-3-421 (B)(4)(a) (alternate allocation and apportionment method when statutory method is unconstitutional).
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 VR 630-3-421 and P.D. 86-184 (9/18/86) (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 provided no details as to the taxpayer's corporate and operating structure that would prove that the disputed income did not arise from a unitary business. In particular, 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 or 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 Virginia Department of Taxation v. Corning, Inc., Docket No. 90-1852, 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