Tax Type
Corporation Income Tax
Description
Alternate method of allocation and apportionment
Topic
Allocation and Apportionment
Date Issued
12-10-1996
December 10,1996
Re: Request for Ruling: Corporate Income Tax
Dear*************
This will respond to your request appended to the 1995 amended Virginia corporation income tax return of ******** (the "Taxpayer") to use an alternative method of allocation and apportionment for Virginia corporation income tax purposes.
FACTS
The Taxpayer is a well drilling contractor located within this state. The Taxpayer performs contracts in an adjoining state which requires that the Taxpayer compute its taxable income and tax liability using a methodology different from that employed by Virginia and required by Code of Virginia §58.1-409-416. This method requires the Taxpayer to detail sales and expenses directly to jobs performed within that state as well as allocate certain overhead expense items that apply to the contracts. You request permission to compute the Taxpayer's Virginia income tax liability using an alternative method of allocation and apportionment and have filed an amended 1995 Virginia return claiming a refund based on this method.
RULING
The policies which apply to requests for an alternative method of allocation and apportionment under Code of Virginia §58.1-421 are well established. See Virginia Regulation (VR) 630-3-421, copy enclosed. The Taxpayer has not furnished the necessary documentation to indicate the inadequacy of the statutory method. Further, the Taxpayer has not shown that the statutory method of apportionment produces an unconstitutional result.
The use of an alternative method is allowed only in extraordinary circumstances where the need for relief has been demonstrated by clear and compelling evidence of the inadequacy of the statutory formula. After carefully considering the facts set forth, the department does not find that merely being subject to differing methods of allocation and apportionment by another state constitutes extraordinary circumstances.
Accordingly, your request to use an alternative method of allocation and apportionment must be denied. It should be noted that if the Taxpayer files an amended return using the statutory three factor formula of property, payroll, and sales, this method could reduce the Taxpayer's Virginia income tax liability since the Taxpayer is subject to tax in another state.
If you have any questions regarding this ruling, please call***********in the Office of Tax Policy at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11774P
Rulings of the Tax Commissioner