Tax Type
Corporation Income Tax
Description
Refunds
Topic
Returns/Payments/Records
Date Issued
06-08-1994
June 8, 1994
Re: §58.1-1821 Application: Corporate Income Taxes
Dear********
This will reply to the amended return filed on October 30, 1992, in which a refund of corporate income taxes was requested on behalf of **************(the "Taxpayer") attributable to a net operating loss carryback from the 1991 taxable year. The refund is in part attributable to non-business income claimed as a subtraction on the Taxpayer's 1991 Virginia return. The Code of Virginia does not provide for the allocation of income other than certain dividends. The Taxpayer's subtraction of the non-business income has been treated as a request for an alternative method of allocation and apportionment in accordance with Va. Code §58.1-421.
FACTS
The Taxpayer's 1991 separate company federal return reflects a net operating loss. On its 1991 Virginia income tax return, the Taxpayer also claimed a subtraction for allocable non-business income. The federal net operating loss was carried back to the taxable year ended March 31, 1989. The Taxpayer has claimed the 1991 allocable non-business income as an adjustment which increases the amount of the net operating loss carryback available. In February 1994, the department processed the amended return as filed, and issued a refund.
DETERMINATION
The department has previously ruled that the Taxpayer is entitled to allocate income attributable to certain arbitrage activity. The department also ruled that the Taxpayer's method of determining the arbitrage income overstated the amount of net income attributable to such activity. Accordingly, permission to use an alternative method of allocation and apportionment for the Taxpayer's arbitrage activity for 1991 will only be granted to the extent that the net income from such activity is determined in accordance with the department's previous ruling. See Public Document (P.D.) 94-167, (5/25/94), copy attached.
There is however a second limitation which will apply to the Taxpayer's allocable income. The gross amount of income which may be considered as allocable income pursuant to this ruling and Va. Code §58.1-407 exceeds the Taxpayer's Virginia taxable income. However, there is no express authority in the Code of Virginia for a Virginia net operating loss. Accordingly, neither the adjustments required in determining Virginia taxable income nor allocable income may be used to create a Virginia net operating loss. The amount of income which the Taxpayer may allocate out of Virginia is therefore limited to the sum of its federal taxable income and the adjustments required by Va. Code § 58.1-402.
Because the sum of the Taxpayer's federal taxable income and the adjustments required by Va. Code §58.1-402 is less than zero, the Taxpayer's allocable income for 1991 is limited to zero. Because there is no provision for a Virginia net operating loss, allocable income from the 1991 taxable year cannot be utilized to reduce Virginia taxable income in any other taxable
167.
The amended return was initially processed as filed. However, the erroneous refund allowed must be adjusted as provided in this letter and the attached schedules. An assessment shall be issued as provided herein for the excess refund. 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 M. Payne
Tax Commissioner
OTP/6842M
Rulings of the Tax Commissioner