Tax Type
Corporation Income Tax
Description
In-State Based Subsidiaries
Topic
Allocation and Apportionment
Date Issued
12-04-1991
December 4. 1991
Re: Request for Ruling: Corporate Income Tax
Dear********************
This will reply to your October 28, 1991 letter regarding the tax treatment for several subsidiaries of ******************** (the "taxpayer") beginning operation in Virginia.
FACTS
The taxpayer is contemplating either moving several wholly owned subsidiaries to Virginia or forming new wholly owned subsidiaries which would be Virginia based. The gross income of all such subsidiaries would include professional fees, interest, income from securities and the periodic sale of securities. The taxpayer files a consolidated Virginia return, and all contemplated companies would file as members of the taxpayer's consolidated federal return.
RULING
Financial Corporations
A "financial corporation" is one that derives more than 70% of its gross income from (1) fees for financial services, (2) gross profits from securities trading, (3) interest, and (4) dividends to the extent included in Virginia income. See Virginia Regulation (VR) 630-3-418. If the contemplated taxpayer subsidiaries earn more than 70% of their gross income in the above manner, they qualify as financial corporations for Virginia tax purposes. Professional fees would not qualify for purposes of the 70% test unless the fees are for financial services.
A qualifying financial corporation, filing on a separate return basis, apportions Virginia income, less allocable dividends, on a one factor formula based on cost of performance in Virginia over cost of performance everywhere.
Apportionment Factors
The property factor includes the average value of real and tangible personal property which is used in Virginia. Intangible property is not included. See VR 630-3-409. The sales factor, after 1990, only includes the net gains realized and not the gross proceeds from intangible property sales.
Consolidated Return
Members of an affiliated group which first become subject to the Virginia income tax in years after an initial filing election by an affiliated group must conform to the initial group election. See VR 630-3-442. The new corporations are required to be included in the taxpayer's 1991 Virginia income tax return, since they would become newly taxable in Virginia in 1991. See VR 630-3-442 "Example 2".
All of the contemplated corporations would use the single factor cost of performance apportionment. The other corporations in the Virginia consolidated return use either the three factor apportionment method or a single factor method. Therefore, the single factor must be converted to a three factor equivalent for purposes of inclusion in the Virginia consolidated return pursuant to Public Document 91-244 (10/7/91), Exhibit A.
Intercorporate Transactions
You have asked that the department rule that the proposed corporate group would "properly reflect the business done and the Virginia taxable income earned from business done in the Commonwealth." The department cannot determine if an equitable adjustment to the tax under Va. Code §58.1-446 is required until it has reviewed, and possibly audited, all of the information that affects the computation of income allocated and apportioned to Virginia. However, nothing in the information provided indicates that such an adjustment would be required at this time.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5707G
Rulings of the Tax Commissioner