Tax Type
Corporation Income Tax
Description
Alternative method; Separate accounting for sale of realty
Topic
Allocation and Apportionment
Date Issued
09-10-1996
September 10, 1996
Re: § 58.1-1821 Application: Corporate income taxes
Dear**********
This will respond to your letter in which you ask the department to reconsider the request by ********** (the "Taxpayer") to use an alternative method of allocation and apportionment for the 1988 and 1989 taxable years. The department previously denied your request. See Public Document (P.D.) 92-237, (11/16/92), copy attached.
FACTS
The Taxpayer was field audited, and an adjustment was made to include the gross proceeds attributable to a sale of land located in Virginia in both the numerator and denominator of the sales factor. The Taxpayer protested and submitted a request to use an alternative method of allocation and apportionment, in which the entire gain on the sale of the land would be allocated to Virginia and interest income would be excluded from apportionment. The Taxpayer now reiterates its protest, claiming that the issue of an alternative method of allocation and apportionment was "unresolved" by P.D. 92-237.
DETERMINATION
The department's long standing policy is that the statutory method provides the most equitable means of determining the income of a multistate corporation subject to taxation by Virginia. In extraordinary circumstances, however, the department will grant permission to use an alternative method of allocation and apportionment when a taxpayer shows, by clear and cogent evidence, that application of the statutory method produces an unconstitutional or inequitable result. The department denied the Taxpayer's original request because this standard was not met.
In the instant case, the Taxpayer has submitted no additional evidence subsequent to the original ruling. The Taxpayer's alternative method consisted of a separate accounting for the income and expenses attributable to the sale of Virginia realty, supplemented by a statement that application of the three factor formula would be inequitable because the Taxpayer was terminating its business activities. Simply showing that Virginia taxable income is greater under the statutory method than separate accounting does not constitute "extraordinary circumstances" sufficient to justify permission to use an alternative method. See Department of Taxation v. Lucky Stores, Inc., 217 VA 121. In addition, there was no evidence as to how Virginia's statutory method produced an inequitable result because the Taxpayer was winding down its affairs.
Based on the information provided, the Taxpayer has not demonstrated that application of the statutory three factor formula produces an unconstitutional or inequitable result. Accordingly, the department must uphold its ruling in P.D. 92-237 and your request to use an alternative method of allocation and apportionment is denied.
The attached schedule sets forth the balance due, which must be paid within ninety days to prevent the further accrual of interest. Please remit your payment to*****Office of Tax Policy, P.O. Box 1880, Richmond, VA 23218-1880. If you have any questions regarding this determination, you may contact him directly at************* .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7791G
Rulings of the Tax Commissioner