Tax Type
Corporation Income Tax
Description
Modifications to federal taxable income; Software licensing income
Topic
Computation of Income
Date Issued
08-25-1995
August 25, 1995
Re: § 58.1-1821 Application: Corporate Income Tax
Dear ***************:
This will reply to your letter of October 6, 1994, concerning the 1992 Virginia corporation income tax audit assessment for********* (the "Taxpayer"). I apologize for the delay in responding to your request.
FACTS
The Taxpayer designs, develops, markets, and supports data base management systems, which are sold as prewritten software. The Taxpayer sells the software to foreign subsidiaries who, in turn, sell the software to foreign end-users for use outside of the United States. The packages are sold with a license agreement between the Taxpayer and the end-user. The Taxpayer claimed a foreign source income subtraction for income received from the subsidiaries for its computer software. A field audit was conducted, the subtraction was disallowed, and an assessment was issued. The Taxpayer paid the assessment.
DETERMINATION
Income from the licensing of prewritten software for use outside of the United States qualifies for the Virginia foreign source income subtraction. Public Documents 94-36 (3/7/94) and 94-82 (3/24/94), copies enclosed, address the sale of computer software subject to license agreements in further detail. Accordingly, the department finds that the Taxpayer properly claimed a foreign source income subtraction for income received from licensed software which was sold to foreign subsidiaries for use outside of the United States.
Accordingly, the subtraction for foreign source income shall be adjusted for as provided herein. The necessary adjustments shall also be made to expenses related to foreign source income and the sales factor. The resulting overpayment provided in the enclosed schedules, *******shall be refunded to you in due course, with applicable interest.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9465N
Rulings of the Tax Commissioner