Tax Type
Corporation Income Tax
Description
Basis of assets; ACRS modifications
Topic
Returns/Payments/Records
Date Issued
04-27-1992
April 27, 1992
Re: § 58.1-1821 Application; Corporation Income Tax
Dear ****
This will reply to your letter of May 24, 1991, in which you seek correction of an assessment of corporation income tax for ***** (the "Taxpayer").
FACTS
During the taxable year ended February 28, 1989, the taxpayer sold assets of one of its divisions. On its Virginia corporation income tax return for the period, the taxpayer reported a subtraction for "basis difference for retired assets." The subtraction represented the difference between the federal tax basis and a purported Virginia tax basis for depreciable assets based on the 30% ACRS addback required under Virginia law (Va. Code § 58.1-323, repealed for taxable years beginning on and after January 1, 1988). Upon audit, the subtraction was disallowed and additional tax was assessed.
DETERMINATION
The department has previously ruled that there is no separate "Virginia basis," and there is no provision in Virginia law for a lump sum subtraction of unamortized ACRS additions. P.D. 88-132 (6/13/88) (copy enclosed). Because there is no authority in Virginia law for the subtraction, the auditor properly disallowed it.
As the cited ruling points out, Virginia does not permit nor require any adjustments to basis because of the ACRS modifications. Disallowance of the full amount of federal depreciation and taxing federal gains is not double taxation because Virginia law provides that the additions shall be recovered over a ten-year period (1988-1997, as amended by the 1992 General Assembly). This recovery does not depend on the continued ownership of the depreciable assets.
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. 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
Rulings of the Tax Commissioner