Tax Type
Corporation Income Tax
Description
Taxable income, Equipment servicing fees
Topic
Computation of Income
Date Issued
08-21-1995
August 21, 1995
Re: § 58.1-1821 Application: Corporate Income Tax
Dear ***************:
This will reply to your letter of July 11, 1995, in which you protest certain audit adjustments made against *********** (the "Taxpayer").
FACTS
The Taxpayer's corporate income tax returns for 1993, 1992, and 1991 were audited and numerous adjustments were made. The auditor removed "service income" from the Taxpayer's subtraction for foreign source income. The taxpayer protests this adjustment, arguing that the income was foreign source income.
DETERMINATION
You contend that the service income removed from the Taxpayer's foreign source income subtraction is from "technical services performed without the United States," qualifying as "foreign source income" as defined in Code of Virginia § 58.1-302.
The department has previously ruled that the words "technical fees from . . . services performed" cannot be taken out of their context to create a subtraction for income earned from the performance outside the United States of any service characterized as of a technical nature. See P.D. 86-209 (11-3-86), copy attached. In order for technical fees to qualify as foreign source income, they must be incidental to a contract relating to the rental of property located without the United States or the licensing of intangible property for use without the United States.
In this case, the technical fees were not incidental to the rental of real estate or the licensing of intangible property. Instead, the income was attributable to a contract requiring the Taxpayer to provide equipment, installation, maintenance, repair, and other ancillary activities. As such, the income does not qualify as foreign source income eligible for the Virginia subtraction.
Accordingly, pursuant to longstanding written policy, the department finds that the assessments must be upheld. The assessments as reflected on the attached schedule have been updated with interest and should be paid within the next 30 days to prevent accrual of additional interest. Please forward your payment to the Office of Tax Policy, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282-1880. If you have any questions regarding this ruling, you may contact********at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9984P
Rulings of the Tax Commissioner