Tax Type
Corporation Income Tax
Description
Apportionment factors; Parent company's returns
Topic
Allocation and Apportionment
Date Issued
10-30-1992
October 30, 1992
Re: §58.1-1821 Application; Corporation Income Tax
Dear***********
This will reply to your letter of March 27, 1991, in which you seek correction of an assessment of corporation income taxes for ************** (the "taxpayer").
FACTS
The taxpayer was audited and numerous adjustments were made. The auditor calculated a payroll factor based on payroll tax returns filed under the taxpayer's registration, a sales factor based on sales tax returns filed under the taxpayer's registration, and a property factor. Income was apportioned to Virginia and tax was assessed. You object to all adjustments made to the apportionment factors and contend that the taxpayer has no business operations in Virginia.
You state that the taxpayer was an operating unit of its parent corporation. The income and the apportionment factors of the taxpayer were included in the parent's federal and state income tax returns and, therefore, should not be included again in the income or apportionment factors of the taxpayer.
DETERMINATION
Sales and payroll factors: You argue that the filing of sales tax returns and payroll tax returns under the taxpayer's registration is not prima facie evidence that the taxpayer is actually doing business in Virginia. You maintain that the taxpayer's parent corporation is conducting business in Virginia and that the sales and payroll are attributable to the parent.
The taxpayer registered with the department and in its registration cites an airport in Virginia as its in-state location. The filing of sales tax and payroll tax returns under the taxpayer's registration indicates that the taxpayer had sales and payroll attributable to business conducted at this Virginia location.
While you stated to the auditor that the filing of any tax returns (sales, withholding, income) under the taxpayer's registration was an error by the parent corporation, there is nothing to indicate that corrective action was taken. In fact, a review of years subsequent to the audit reveals that the same reporting methods have been followed. The auditor was correct in assuming that the sales and payroll arose from the taxpayer's activity in Virginia and in computing the apportionment factors based on the taxpayer's filed returns.
Property factor: You believe that the auditor's estimate of Virginia property is grossly overstated," and that the auditor's estimate is not supported. Property was attributed to Virginia in the audit based on the average of the ratios of Virginia sales to total sales and Virginia payroll to total payroll.
The auditor requested property information on several occasions, but the taxpayer did not provide any. Therefore, the auditor computed the property factor based on the best information available. While you assert that the taxpayer has no title or other rights to property in Virginia, and that the parent corporation holds the title and rights, you have not provided documentation to substantiate your claim. Without this documentation and supporting detail, you have not met your burden of proving that the assessment is erroneous.
Income reported on the Parent's returns: You state that the income in question was reported on the parent's corporation income tax return; therefore, the auditor is assessing the taxpayer with income previously taxed. You maintain that if the auditor is to attribute the income to the taxpayer, then the parent's return should be adjusted.
There is no documentation to show that the income and apportionment figures in question were included in the parent's return. The department cannot accept your assertion without evidence detailing the amount and source of the income included in the income and apportionment factors reported on the parent's return.
The department will allow you to submit additional information to support your position. The information must clearly show that the amounts reported under the taxpayer's registration and the income attributed to the taxpayer were included in the parent's corporation income tax returns. If you choose to submit this information, please send it to the department's Technical Services Section, P.O. Box 1880, Richmond, Virginia 23282-1880, within 30 days.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5113F
Rulings of the Tax Commissioner