Tax Type
Corporation Income Tax
Description
Telecommunications companies; Minimum tax; Gross receipts reported
Topic
Computation of Income
Date Issued
12-31-1996
December 31, 1996
Re: Corporate Income Tax
Dear***************
This will reply to your letter in which you file a protective claim for refund for additional corporation income taxes paid by*************(the "Taxpayer") for the taxable years ended March 31, 1990 and and to *************(the "Subsidiary") for the year ended March 31, 1989.
The department previously denied the Taxpayer's application for correction on February 24, 1993. You now ask the department to reconsider and issue a refund of the taxes paid.
FACTS
During fiscal years 1989 through 1991, the Subsidiary was a general partner in a partnership (the "Partnership"). The Partnership's only other partner was a corporation (100% owned by the Subsidiary) whose sole function was to hold the partnership interest in the Partnership.
During fiscal years 1989 through 1991, the Subsidiary was a general partner in a partnership (the "Partnership"). The Partnership's only other partner was a corporation (100% owned by the Subsidiary) whose sole function was to hold the partnership interest in the Partnership.
The Subsidiary filed the annual Statement of Gross Receipts required by Code of Virginia §58.1-2628 with the State Corporation Commission (the "SCC"). The filing made by the Subsidiary contained the gross receipts of the Partnership.
As a result of an audit by the department, it was determined that the Partnership was not a telecommunications company as certified by the SCC, and that an incorrect figure for gross receipts was used to calculate the telecommunications company minimum tax. The auditor's position was that only the gross receipts certified by the SCC could be used to calculate the Taxpayer's telecommunications company minimum tax.
The Taxpayer requests that the Tax Commissioner invoke Code of Virginia §58.1-446 as described in Virginia Regulation (VR) 630-3-446 to allow the Partnership and the Subsidiary to calculate the telecommunications company minimum tax based on gross receipts attributable to each entity.
DETERMINATION
Code of Virginia §58.1-446 is invoked if it is deemed necessary to prevent the distortion of business done in Virginia or income from Virginia activities. Virginia Regulation (VR) 630-3-446 allows the department to consolidate the accounts of related entities in order to accurately reflect operating results or properly report the effect of intercorporate transactions when other methods to properly report these items are not possible.
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- VR 630-3-446, effective January 1, 1985, provides in pertinent part:
In extraordinary circumstances a taxpayer may request permission to allow an adjustment under Va. Code 58.1-446 on the grounds that income from business done in Virginia is substantially distorted as a result of law or policies peculiar to Virginia. Before such an adjustment is claimed on a Virginia return or amended return, permission must be granted by the Department.
- VR 630-3-446, effective January 1, 1985, provides in pertinent part:
Although you now claim to be able to document gross receipts by entity, no petition under VR 630-3-400.1 (11) has been filed with the SCC to change the gross receipts reported by each entity. The time for filing such a petition has long expired. Therefore, the gross receipts certified by the SCC cannot be changed for income tax purposes.
Nevertheless, you ask the department to ignore the certification process included in the telecommunications tax statute and regulation to prevent taxpayers from adopting different reporting positions for SCC and income tax purposes. You assert the department's application of the law distorts Virginia income, and it is the Tax Commissioner's responsibility to correct this distortion. If this were the case, l would be compelled to exercise the authority granted the Tax Commissioner under VR 630-3-446 to correct this inequity.
The fact is the Taxpayer failed to comply with Virginia law when it included the gross receipts for the Partnership with the SCC filing for the Subsidiary. The Tax Commissioner is not granted the authority under Code of Virginia §58.1-446 to ignore the law to change an alleged distortion in Virginia income when lack of compliance with the law directly resulted in the alleged distortion. In addition, you have not demonstrated that the laws governing telecommunications companies, when observed, have the effect of distorting income attributable to Virginia. Therefore, your request to treat the revenue from the Partnership as certified gross receipts from a telecommunications company under VR 630-3-446 is denied.
While I can sympathize with your situation, l must deny your protective claim for refund for the years ended March 31,1989,1990, and 1991, because there is no statutory authority or legal basis for such refunds under Code of Virginia § 58.1-1824. The Taxpayer has one year from the date of this letter to seek redress of your claim from the circuit court under Code of Virginia §58.1-1825. If you have any questions regarding this matter, you may contact********** at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner