Tax Type
Corporation Income Tax
Description
Financial Corporations
Topic
Allocation and Apportionment
Date Issued
03-17-1993
March 17, 1993
Re: Ruling Request - Corporation Income Taxes
Dear**************
This will reply to your letter dated July 30, 1992 in which you request clarification regarding the Virginia tax treatment of the following items.
Interest earned on conditional sales contracts: The Virginia sales factor numerator is increased by any property sales, other than tangible personal property, if (1) the income producing activity is performed in Virginia; or (2) the income producing activity is performed both in and outside of Virginia and a greater proportion of the income producing activity is performed in Virginia than in any other state, based on costs of performance. See Virginia Regulation (VR) 630-3-416.
For further edification regarding intangible sales, especially with regard to the definitions of "cost of performance" and "income producing activity," please refer to the enclosed copy of the Virginia Corporate Income Tax Regulations.
Treatment of finance versus operating leases: In general Virginia law follows the federal income tax treatment of leases. However, since finance leases are analogous to a lending transaction, the interest portion is treated as interest income, and the principal portion as a return of principal. On the other hand, operating lease payments are included as a single source of income from leases.
Arranging lease transactions: The taxpayer generates fee income by providing a "service" of arranging lease transactions for other investors. For the Virginia income tax treatment of this transaction, please see VR 630-3-416.
Financial corporation: Virginia financial corporations do not use a three factor apportionment formula; rather, they use a one factor formula based solely upon cost of performance.
A "financial corporation" is one deriving more than 70% of its gross income from:
-
- _ fees, commissions, or other compensation for financial services rendered;
_ gross profits from trading in stock, bonds, or other securities;
_ interest; and
_ dividends, to the extent included in Virginia taxable income.
- _ fees, commissions, or other compensation for financial services rendered;
If this letter does not adequately respond to your questions, please do not hesitate to call the Taxpayer Assistance Section at (804) 367-8036.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6320G
Rulings of the Tax Commissioner