Tax Type
Corporation Income Tax
Description
Apportionment of income; Airlines
Topic
Allocation and Apportionment
Date Issued
02-25-1993
February 25, 1993
Re: §58.1-1821 Application/Corporate Income Tax
Dear*****************
This will reply to your letter of December 14, 1992, in which you protest the assessment of corporate income tax and interest against the Taxpayer for fiscal years 1988 through 1990.
FACTS
The Taxpayer, an airline, filed its corporate income tax returns using a mileage formula to include property, payroll, and sales in the respective apportionment factors. The department's auditor adjusted the property and sales factors to include miles in which an aircraft flew over Virginia without landing ("bridge miles"). The adjustment resulted in the assessment of additional tax.
RULING
The Taxpayer has previously raised the issue of the inclusion of bridge miles in a protest of the assessment of corporate income tax for fiscal years 1986-1988. Taxpayer is referred to Public Document (P.D.) 90-173 (copy enclosed) in which the department ruled that the inclusion of Taxpayer's bridge miles in the numerator along with miles flown from or to a Virginia airport was correct. The exclusion of bridge miles from the numerator, while including them in the denominator, distorts the factor. The purpose of apportionment is to determine how much of a taxpayer's income was attributable to the state for the purposes of taxation. A method which does not result in the assignment of all, or almost all, of the taxpayer's income to the states in which it is subject to tax (assuming all states use the same method) is neither rational nor reasonable.
Additionally, I am not persuaded that 49 U.S.C. §1513(d) prohibits the inclusion of bridge miles in the factor. An income tax is imposed on the corporation's annual income from all sources; the fact that flight information is used as part of an apportionment factor does not mean that an income tax is imposed directly on the income from that flight. n fact, an apportionment formula is used to divide an airline's income among the states in which it operates in lieu of separately accounting for the income and loss of each flight and all other revenue producing operations of the airline.
You cite a number of states and courts which, for one reason or another, have excluded bridge miles from income tax apportionment, however, nothing contained therein constitutes sufficient basis to justify the treatment of Taxpayer's 1988-1990 fiscal years any differently than fiscal years 1986-1988.
Virginia's policy on the inclusion of bridge miles is well-established. If an airline elects to use mileage, it must include bridge miles. However, this is an election. An airline may chose the departure method for apportionment of flight related sales and property. Thus, provided the statute of limitations for filing an amended return has not passed, the Taxpayer may amend its returns to use the departure method.
Therefore, the assessments are correct and are now due and payable. You will shortly receive an updated bill with interest accrued to date which must be paid within thirty days to avoid the accrual of additional interest and collection action. Although you requested a hearing to discuss your arguments, the policy with respect to bridge miles has been firmly established and was thoroughly considered in connection with previous rulings. If the taxpayer elects to file amended returns to utilize departures, the amended returns must be filed within the applicable statute of limitations.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6599L
Rulings of the Tax Commissioner