Tax Type
Corporation Income Tax
Description
Alternative Method
Topic
Allocation and Apportionment
Date Issued
03-16-1994
March 16, 1994
Re: Ruling request: Corporate income taxes
Dear****************
This will reply to your letter of June 21, 1993, in which you have requested permission to use an alternative method of allocation and apportionment on behalf of ************** (the "Taxpayer"). I apologize for the delay in responding.
FACTS
The Taxpayer was audited for the 1990 taxable year, and an adjustment was made to the apportionment factor. The Taxpayer had used a single factor based on Virginia sales to compute its taxable income. The department's auditor found that 100% of the Taxpayer's property and payroll was in Virginia, and adjusted the Taxpayer's factor to the statutory three factor formula based on property, payroll and sales. You believe that this will result in double taxation, and request permission to use an alternative allocation method.
DETERMINATION
The policies which apply requests for an alternative method under Va. Code §58.1-421 are well established. See VR 630-3-421, copy enclosed. The Taxpayer has not furnished any substantive documentation to refute the statutory method, other than a general statement that such treatment by Virginia results in double taxation. The Taxpayer has not shown that the statutory method of apportionment produces an unconstitutional result. The United States Supreme Court has recognized that allocation and apportionment of income is an arbitrary process designed to approximate income from business transactions within a state. As long as each state's method of allocation and apportionment is rationally related to the business transacted within a state, then each state's tax is constitutionally valid even though there may be some overlap. See Mooreman Manufacturing Company v. Bair, 437 U.S. 279, 98 S.Ct. 2340 (1978).
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 to the Taxpayer.
Accordingly, your request is denied.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7178M
Rulings of the Tax Commissioner