Tax Type
Corporation Income Tax
Description
Payroll factor adjustments; Base of operations
Topic
Allocation and Apportionment
Computation of Tax
Date Issued
03-10-1994
March 10, 1994
Re: §58.1-1821 Application: Corporate income taxes
Dear*************
This will reply to your letter of June 8, 1993, in which you applied for correction of assessments for additional corporate income taxes to ****************** (the "Taxpayer") for the taxable years ended October 31, 1990 and 1991.
FACTS
The Taxpayer was audited and adjustments were made to the apportionment factors for property, payroll and sales. The Taxpayer is contesting the adjustments made to the payroll factor.
DETERMINATION
The Virginia payroll factor is clearly defined by Virginia regulations VR 630-3-412 and VR 630-3-413, copies attached. The department presumes that wages reported to the Virginia Employment Commission are includible in the numerator of the factor. You have said that each job site had its own administrative office and that the workers reported directly to job sites in the District of Columbia and Virginia, not to the Virginia office. The wages were erroneously reported to the VEC by a payroll service used by the Taxpayer. You also have said that the employees were paid the same wages and that there is a very close relationship between the wages paid and gross receipts. You ask that the payroll factor be accepted as filed, which used the sales factor percentage for the payroll factor.
After considering the burden of assembling the necessary payroll records by jobsite and the probable impact on tax liability of the proposed method compared to using the proper data, I am willing to recompute the payroll factor by including in the numerator only the percentage of total wages equivalent to the sales factor for the year. However, all of the officer's salary must be included in the numerator because his base of operations was in Virginia even though he travelled to all job sites daily. Although there was also a part time clerk in the Virginia office, the clerk's wages do not appear to materially affect the tax liability in the years at issue. The fact that the audit has been adjusted in this manner based upon the facts and circumstances affecting the years at issue should not be interpreted as consent to use this method for any other taxable year or taxpayer.
Accordingly, the assessments will be adjusted in accordance with the attached marked up copies of the audit report. You should pay the amount shown below within 30 days to avoid the accrual of additional interest.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7067C
Rulings of the Tax Commissioner