Tax Type
Corporation Income Tax
Description
Alternate method of allocation and apportionment; Net operating loss
Topic
Allocation and Apportionment
Date Issued
10-21-1994
October 21, 1994
Re: Amended Return: Corporate income taxes
Dear*****
This will reply to the 1990 amended return filed November 24, 1993 in which you applied for a refund of corporate income taxes to *********(the "Taxpayer").
FACTS
The Taxpayer is a Virginia domiciled corporation. During 1990, the Taxpayer sold unimproved real estate located outside Virginia. The Taxpayer filed an amended 1990 Virginia return, claiming that the resulting gain from the sale of such real estate is non-apportionable investment function income not subject to apportioned taxation in Virginia.
DETERMINATION
The Code of Virginia does not provide for the allocation of income other than certain dividends. Accordingly, a taxpayer's entire federal taxable income, adjusted and modified as provided in Va. Code §§ 58.1 -402 and 58.1 -403, less dividends allocable pursuant to Va. Code §58.1-407 is subject to apportionment. The Taxpayer's protest has been treated as a request for an alternative method of allocation and apportionment in accordance with Va. Code §58.1-421.
The decision of the U. S. Supreme Court in Allied-Signal, Inc. v. Director, Div. of Taxation, 112 S. Ct. 2551 (1992), made it clear that a in order for a state to tax a nondomicillary corporation, certain minimal connections had to exist between the interstate activities and the taxing state. However, the Taxpayer is incorporated and domiciled in Virginia. Accordingly, the judicial doctrines controlling Allied-Signal and prior cases do not apply to this situation.
Although judicial law would permit the allocation of 100% of the gain realized on the sale of the land into the state of domicile, the Code of Virginia only requires that an apportioned share of the gain be included in income subject to tax in Virginia. Accordingly, the inclusion of the gain realized on the sale of the land in the Taxpayer's Virginia apportionable income is correct.
Because the Taxpayer owned real property outside of Virginia, it should have claimed appropriate relief from double taxation through the use of allocation and apportionment. The Taxpayer failed to do so on either its original or amended returns as filed. However, because the 1990 taxable year resulted in a federal net operating loss, no Virginia tax was paid for the 1990 taxable year in spite of the Taxpayer's failure to apportion its income.
The Taxpayer did carry the 1990 federal net operating loss back to the 1987 taxable year, and filed appropriate Virginia tax returns to claim the resulting Virginia refund associated with the federal carryback. The Virginia refund was paid in 1991.
Because there is no express authority in the Code of Virginia for a net operating loss, the 1990 apportionment factor has no effect on the 1990 net operating loss carryback allowed to the 198'7 taxable year. Accordingly, even if the Taxpayer had amended its apportionment factors for 1990, it would not change the amount of Virginia refund available as a result of the 1990 federal net operating loss carryback.
Accordingly, because the maximum Virginia refund allowable has already been paid with respect to the 1990 net operating loss, your refund claim must be denied.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8322M
Rulings of the Tax Commissioner