Tax Type
Corporation Income Tax
Description
Alternative apportionment method denied
Topic
Allocation and Apportionment
Date Issued
05-29-1992
May 29, 1992
Re: Request for Ruling; Corporation Income Tax
Dear ****
This will reply to your letter of October 22, 1991, in which you request permission for * * * ("the taxpayer") to use an alternative method of allocation and apportionment for Virginia corporation income tax purposes.
FACTS
The taxpayer, a construction company, is required to use the percentage of completion method for contracts entered into after March 31, 1990. The taxpayer has income from Virginia and a neighboring state. The neighboring state requires that a single apportionment factor, based on sales, be used to apportion income. You request that the taxpayer be allowed to use a single factor apportionment formula (based on sales) for all income, including income reported under the percentage of completion method for contracts entered into after March 31, 1990.
You have filed an amended return for the taxable year ended March 31, 1991, claiming a refund, based on the single sales factor apportionment formula.
RULING
Construction companies electing to report income under the completed contract method must apportion income based on the ratio of business within Virginia to total business of the corporation. All other construction companies must apportion income based on the statutory three factor formula of property, payroll and sales. Because the taxpayer is reporting income under the percentage of completion method, it must apportion income using the three factor formula.
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 and P.D. 86-184 (9/18/86) (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, permission to use an alternative method of allocation and apportionment is denied, and the amended return based on a single sales factor is not accepted.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner