Tax Type
Corporation Income Tax
Description
Property factor; Inventory in transit
Topic
Allocation and Apportionment
Date Issued
06-15-1994
June 15, 1994
Re: § 58.1-1821 Application: Corporate Income Taxes
Dear***********
This will reply to your letter of July 2, 1993, in which you apply for correction of assessments of additional corporate income taxes to * * * for the taxable years ended February 2, 1991, and February 1, 1992. I apologize for the delay in responding.
FACTS
The Taxpayer was the subject of a field audit, and numerous adjustments were made. You have contested an adjustment made by the department's auditor with respect to the property apportionment factor. The auditor removed inventory which was in-transit at year-end from the denominator of the property factor. You believe that although the inventory was not located in any state at year end, the value of such property is properly included in the denominator of the property factor.
DETERMINATION
The property in question was in shipment at year-end, located somewhere between the Far East and California. The Taxpayer held title to the property at year-end, and the property was reflected on its federal income tax balance sheet.
Pursuant to VR 630-3-409:
Property shall be included in the property factor if it is:
a. owned or rented by taxpayer, and
b. used by taxpayer, and
-
- c. effectively connected with the taxpayer's trade or business within the United States and the income from such trade or business is includible in both Virginia taxable income and federal taxable income.
Property is effectively connected with the taxpayer's business within the United States if it is actually used or available to be used in taxpayer's trade or business. - c. effectively connected with the taxpayer's trade or business within the United States and the income from such trade or business is includible in both Virginia taxable income and federal taxable income.
The property in question was owned and used by the Taxpayer, and effectively connected with the Taxpayer's trade or business within the U.S. the income of which is taxable in Virginia. Accordingly, it is properly includible in the denominator of the property factor.
The Code of Virginia is silent with respect to in-transit property. However, there is no specific requirement that property be located in any state in order to be included in the denominator of the property factor. Accordingly, the auditor's adjustment for in-transit property shall be reversed.
The assessment shall be adjusted as provided herein and as reflected on the attached schedules. The balance due, * * * should be paid within 30 days to prevent the accrual of additional interest. Your payment may be sent to******** c/o Office of Tax Policy, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282-1880.
Sincerely,
Danny Payne
Tax Commissioner
Rulings of the Tax Commissioner