Tax Type
Corporation Income Tax
Description
ACRS additions
Topic
ACRS Modifications
Date Issued
11-12-1991
November 12, 1991
Re: §58.1-1821 Application; Corporation Income Tax
Dear******************
This will reply to your letter of April 24, 1991, in which you seek correction of as assessment of corporation income tax for *************** (the "Taxpayer").
FACTS
The taxpayer incorporated on December 17, 1987, in anticipation of purchasing certain assets and entering into a manufacturing business. The assets were acquired on February 1, 1988.
The taxpayer filed its first Virginia corporation income tax return showing the taxable year beginning as of December 17, 1987. Because the first taxable year began in 1987, the department computed an ACRS addition in accordance with Va. Code §58.1-323, and assessed additional tax. You object, contending that an ACRS addition should not be required.
DETERMINATION
Va. Code §§58.1-402 B.3. and 58.1-323, which required corporations to add back 30% of the total deduction claimed for federal purposes under the Accelerated Cost Recovery System (ACRS), were repealed effective for taxable years beginning on and after January 1, 1988. (1987 Acts of Assembly, Chapter 9). Therefore, taxable years beginning before January 1, 1988, must be computed and assessed under the provisions of the repealed sections.
A review of the taxpayer's federal and Virginia income tax returns reveals that its taxable year began on December 17, 1987. The taxpayer was required to compute an ACRS addition under Va. Code §§58.1-402 B.3. and 58.1-323 because its taxable year began prior to January 1, 1988, and an ACRS deduction was reported on its federal return for that taxable year.
You now take the position that the taxpayer's taxable year did not begin for Virginia income tax purposes until February 1, 1988, when the assets for production were acquired and it became possible for the taxpayer to conduct business activity and become subject to Virginia corporation income tax. Therefore, no ACRS addition is justified because the taxpayer did not begin to do business until after January 1, 1988.
The statutes requiring the ACRS addition do not speak in terms of the date in which a taxpayer "acquires assets" or "starts to conduct business activity." Instead, the statutes clearly refer to "taxable years." The fact that the taxpayer in this case did not acquire certain assets or start production until February 1, 1988, is not determinative. The taxpayer incurred start-up costs prior to that date; these expenses were deductible on the initial return. The taxpayer cannot go back and change the beginning of the taxable year because certain assets were acquired on a particular date.
You also assert that the fact that the date of incorporation was reflected on the return as the beginning of the taxable year for federal purposes should not be conclusive or even determinative of the commencement of the taxable year for Virginia income tax purposes. Your position is incorrect. Va. Code §58.1-440 provides that a corporate taxpayer's taxable year for Virginia income tax purposes shall be the same as its taxable year for federal income tax purposes. Therefore, the beginning and ending dates of the taxable year on the federal return are determinative for Virginia income tax purposes.
Accordingly, the assessment is correct and is now due and payable. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest. Although you requested a conference, this letter has been issued without one because the application of the law is clear.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5173F
Rulings of the Tax Commissioner