Tax Type
Corporation Income Tax
Description
Subtractions from income
Topic
Subtractions and Exclusions
Date Issued
06-27-1994
June 27, 1994
Re: §58.1-1821 Application: Corporate income taxes
Dear***************
This will reply to your letters of July 20, 1993, and June 14, 1994, in which you apply for correction of assessments of additional corporate income taxes to*********** for the taxable year ended December 31, 1990. 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 four issues, which will be addressed separately.
DETERMINATION
Property factor: The department's auditor removed the capitalized rental value of marine vessels used in international waters from the denominator of the property factor. You believe that although the property was not located in any state at year end, the value of such property is properly included in the denominator of the property factor.
The property in question was rented 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. See Public Document (P.D.) 94-186 (6/15/94), copy attached.
Environmental Tax: The department has previously ruled that the federal environmental tax imposed by Sec. 59A of the Internal Revenue Code is a tax based on net income that must be added back to federal taxable income in determining Virginia taxable income. See P.D. 91-87 (5/29/91), copy attached. However, the tax must only be added back to the extent that it has actually been deducted in determining federal taxable income.
The Taxpayer has provided evidence which indicates that the tax added back by the department's auditor for the 1990 taxable year was not deducted by the Taxpayer in arriving at federal taxable income for Virginia purposes. . the 1990 adjustment for environmental tax shall be reversed.
Sales Factor: The department's auditor removed various unidentified items of income from the denominator of the sales factor. The department has previously ruled that receipts of an unknown or unspecified nature may not be included in the denominator of the sales factor. See P.D. 92-45 (4/27/92), copy attached.
The Taxpayer has provided evidence regarding certain of the 1990 receipts, and demonstrated that they constitute receipts within the meaning of VR 630-3-302. Accordingly, these items shall be included in the denominator of the 1990 sales factor. The remaining items of unidentified miscellaneous income and various accounting adjustments shall not be included.
ACRS Subtraction: The Taxpayer has contested the department's adjustment with respect to ACRS subtractions of merged corporations, but has offered no evidence of the correct amount. Accordingly, I will not disturb the auditor's adjustment.
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 check, made payable to Department of Taxation, 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/7256M
Rulings of the Tax Commissioner