Tax Type
Corporation Income Tax
Description
Alternate method of allocation and apportionment; Capital gains from sale of subsidiaries
Topic
Allocation and Apportionment
Date Issued
11-14-1994
November 14, 1994
Re: §58.1-1821 Application: Corporate income taxes
Dear**************
This will reply to your letters of March 8, 1991, and May 27, 1992, in which you apply for correction of an assessment of additional corporate income tax to********* (the "Taxpayer") for the 1988 taxable year.
On May 3, 1993, and August 5, 1994, we wrote to you asking for additional information. We have also requested additional information by telephone several times. Because you have not provided any additional information we have acted upon your protest based on the information presently available.
FACTS
On its 1988 return as filed, the Taxpayer claimed a subtraction for certain capital gains. The Taxpayer was audited and the department disallowed this subtraction. You contest this adjustment, and believe the capital gains are allocable income not properly subject to apportioned taxation by 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 Code of Virginia §§ 58.1 -402 and 58.1-403, less allocable dividends, 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 Code of Virginia §58.1-421.
The Taxpayer realized capital gains from the sale of two domestic subsidiaries, and contends that such gains should be treated as nonbusiness allocable income. However, the Taxpayer has not furnished any substantive documentation to refute Virginia's statutory method of apportionment, other than general statements that Virginia should not be entitled to tax such gains. The Taxpayer has not shown that the statutory method of apportionment produces an unconstitutional result.
The Taxpayer has not demonstrated that the subsidiaries which were sold were not operational assets involved in a unitary business conducted within and without of Virginia. In the instant case, the Taxpayer must demonstrate that Virginia's statute is a violation of the decision of the United States Supreme Court in Allied-Signal. Inc. v. Director, Division of Taxation, 112 S. Ct. 2251 (1992).
In any proceeding relating to the interpretation of the tax laws of the Commonwealth of Virginia, the burden of proof is on the taxpayer. In this particular matter, the Taxpayer must bear the heavy burden of demonstrating that the imposition of Virginia's statute is a violation of the standards enunciated by the United States Supreme Court in Allied Signal. Based upon the information provided, the Taxpayer has not met that burden.
Accordingly, permission to use an alternative method of allocation and apportionment for capital gains realized from the sale of domestic subsidiaries in 1988 must be denied. The attached schedule sets out the balance due,**** If you have any questions regarding this determination, please call**********in the Office of Tax Policy at ************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/6224M
Rulings of the Tax Commissioner