Tax Type
Corporation Income Tax
Description
Adjustment to property and payroll factors
Topic
Allocation and Apportionment
Date Issued
05-30-1991
May 30, 1991
Re: §58.1-1821 Application; Corporation Income Tax
Dear*****************
This will reply to a letter dated October 24, 1990, written on behalf of***********(the "Taxpayer"), seeking correction of a corporation income tax assessment.
FACTS
The taxpayer was field audited and numerous adjustments were made. The auditor increased the taxpayer's property and payroll factors to 100%, resulting in the assessment of additional tax against the taxpayer. The taxpayer protests the assessment, stating that the adjustments subject it to tax on more than 100% of net income.
DETERMINATION
The taxpayer questions how the auditor can apportion 85.9% of the taxpayer's income to Virginia when only 57.7% of its sales were in Virginia.
A "sale" is but one of many actions that contribute to income. The fact that a sale occurs in another state does not justify assigning 100% of the income attributable to the sale to that state. The taxpayer's property and its employees' base of operations in Virginia also contributed to earn income when a sale occurred in another state. The auditor correctly applied Virginia law in apportioning the taxpayer's income. Therefore, the application for correction of assessment is denied.
Because the letter suggests that alternative apportionment methods would more accurately reflect Virginia's share of the taxpayer's income, we have treated the letter as a request to use an alternative method of allocation and apportionment based on a single sales factor.
The policies which apply to requests for an alternative method under Va. Code §58.1-421 are well established. See Virginia Regulation (VR) 630-3-421, P.D. 86-184 (9/18/86), and P.D. 85-146 (7/2/85) (copies enclosed). After considering the facts set forth, I conclude that you have not demonstrated by clear and cogent evidence that the statutory method is unconstitutional or inapplicable as applied to your situation.
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 30 days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner