Tax Type
Corporation Income Tax
Description
Taxable income; Modifications to federal taxable income; Net operating losses
Topic
Computation of Income
Date Issued
12-22-1994
December 22, 1994
Re: §58.1-1821 Application: Corporation Income Tax
Dear****************
This will reply to your letter of November 18, 1994, in which you seek correction of corporation income tax assessments for*****************(the "Taxpayer") for the 1988 through 1992 taxable years.
FACTS
The Taxpayer was audited for 1988 through 1992 resulting in numerous adjustments. The Taxpayer has objected to the lack of an adjustment for the carryforward of prior year net operating losses. The Taxpayer believes that the net operating loss deductions (NOLD's) should have been a part of the computation of federal taxable income since they would have been allowable had a separate federal return been filed.
The Taxpayer also requests permission to use an alternative method of allocation and apportionment as part of this petition. Taxpayer requests to use steamship mileage to apportion income.
DETERMINATION
Net operating loss deductions: The auditor failed to allow NOLD'S for the years under audit since the NOLD years were not part of the audit period. You disagree with the disallowance and state that the NOLD'S should be made part of the years under audit. The NOLD'S in question were absorbed in a federal consolidated return.
Virginia law has no separate provision for a NOLD. Therefore, a NOLD is allowable for Virginia tax purposes only to the extent that the NOLD is allowable as a deduction in computing federal taxable income for Virginia purposes, i.e., as if federal returns had been filed on the same basis as Virginia returns for all affected years.
You have submitted documentation of the amount of the NOLD's and their utilization. Therefore, the department will allow the carryforward and deduction of the NOLD's in the audit years. The allowance of the NOLD's and adjustments to the state income addition result in the assessments being totally eliminated.
Alternative method of allocation and apportionment: The policies which apply to requests for an alternative method under Code of Virginia § 58.1-421 are well established. The use of an alternative method is allowed only in extraordinary circumstances where the need for relief has been demonstrated by clear and cogent evidence. After considering the facts set forth, I find that you have not demonstrated that the statutory method is unconstitutional or inapplicable as applied in your situation.
Accordingly, permission to use an alternative method of allocation and apportionment is denied. The Taxpayer should continue to use the statutory three factor formula to apportion income.
If you have any questions about the department's ruling, you may contact
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8753P
Rulings of the Tax Commissioner