Tax Type
Corporation Income Tax
Description
Sales factor; Out-of-state delivery
Topic
Allocation and Apportionment
Date Issued
02-13-1995
February 13, 1995
Re: §58.1-1821 Application; Corporate Income Taxes
Dear*********
This is in response to your July 13, 1993, letter in which you, on behalf of**************(the "taxpayer"), appeal corporate income tax assessments for the 1989, 1990 and 1991 taxable years. I apologize for the delay in responding.
FACTS
As a result of an audit, the taxpayer's sales factor numerator was adjusted to include all sales made to a particular customer, because the customer took delivery of the goods at the taxpayer's Virginia manufacturing facility.
The taxpayer is a manufacturer of raw materials, which are assembled into finished goods at the customer's plant outside of Virginia. The customer has no plant facilities in Virginia. The customer maintains its own fleet of trucks for delivering finished goods to its own customers in various regions in the United States. When returning through Virginia from deliveries of its own goods, the customer may have its trucks stop at the taxpayer's facilities in Virginia to pick up raw materials. This practice is commonly referred to as "back hauling."
You object to the sales factor adjustment. You aver the sales in question had an ultimate destination outside of Virginia, and consequently the sales should not be included in the numerator of the sales factor.
DETERMINATION
Direct delivery of goods to a purchaser in Virginia are considered Virginia sales if the delivery was for purposes other than transportation. If the delivery is for transportation purposes, Virginia attributes sales on a destination basis. The controlling statute is Code of Virginia §58.1-415, which provides in pertinent part;
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- In the case of delivery by common carrier or other means of transportation, the place at which such property is ultimately received after all transportation has been completed shall be considered as the place at which such property is received by the purchaser (emphasis added).
- In the case of delivery by common carrier or other means of transportation, the place at which such property is ultimately received after all transportation has been completed shall be considered as the place at which such property is received by the purchaser (emphasis added).
The determinative factor in each of these rulings was not the mode of transportation, as the standard imposed by the statute merely stipulates that the goods be subject to some form of transportation. Rather, the basis of the department's conclusions in these rulings hinged on whether the taxpayer had knowledge that the ultimate destination of the goods was outside of Virginia.
In the instant case, the taxpayer regularly conducted business with the customer over a period of years, had extended the customer credit, and was familiar with the customer's operation and facilities. In addition, the taxpayer was aware of the customer's practice of back hauling and had direct knowledge that the sales would be back hauled to the customer's facility outside of Virginia.
The department finds there was direct delivery in Virginia to a purchaser, however; the facts demonstrate the delivery to the customer was for the purposes of transportation. The department further finds ample evidence to demonstrate that the taxpayer knew that the ultimate destination of the goods was outside Virginia. Accordingly, the taxpayer correctly omitted the sales to the customer from the sales factor numerator.
The assessments have been adjusted as provided herein. Attached is a schedule summarizing these adjustments. A review of your account shows these assessments have been paid in full. Therefore, you will be receiving a refund plus accrued interest in the next 30 days. Should you have additional questions regarding this matter, please contact********************.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/7166L
Rulings of the Tax Commissioner