Tax Type
Corporation Income Tax
Description
Adjustments to consolidated return to remove affiliates with no Virginia nexus
Topic
Returns/Payments/Records
Date Issued
11-16-1992
November 16 1992
Re: §58.1-1821 Application; Corporation Income Tax
Dear*****************
This will reply to your letter of February 11, 1992 in which you seek correction of corporation income tax assessments for **************(the "Taxpayer").
FACTS
The Taxpayer filed a consolidated Virginia corporation income tax return. On audit, it was determined that several corporations did not have nexus with Virginia, and they were removed from the Virginia consolidated return. You protest this adjustment, maintaining that these corporations should remain in the consolidated return.
DETERMINATION
To be included in a Virginia consolidated income tax return, a corporation must be subject to Virginia income tax, if separate returns were to be filed. See Virginia Regulation (VR) 630-3-442. Generally, corporations organized under Virginia law and foreign corporations having income from Virginia sources are subject to Virginia tax. A corporation will have income from Virginia sources if there is sufficient business activity within Virginia to make any one or more of the applicable apportionment factors positive.
Based on the auditor's workpapers and the information you have provided, none of the subsidiaries in question have a positive property, payroll or sales factor. Therefore, the subsidiaries do not have income from Virginia sources and are not subject to Virginia income tax. These corporations are not eligible to be included in the Virginia consolidated Virginia return. The auditor properly removed these corporations from the Taxpayer's Virginia consolidated income tax return.
In an application for correction of an erroneous assessment under Va. Code §58.1-1821, the taxpayer has the burden of proving that the assessment is erroneous by showing what the correct assessment should be. You have not demonstrated why the corporations in question should be included in the consolidated return, i.e., that they have positive apportionment factors and would not be exempt from Virginia's tax under Public Law 86-272.
The original assessments for the taxable years ended August 31, 1985 and August 31, 1986 were estimated assessments; they will be adjusted to reflect the proper tax and interest due. The assessments for the taxable years ended August 31, 1987 and August 31, 1988 are correct as made. You will shortly receive a revised 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
OTP/6072F
Rulings of the Tax Commissioner