Tax Type
Corporation Income Tax
Description
Alternative method of allocation and apportionment; Investment income includable
Topic
Allocation and Apportionment
Date Issued
09-23-1997
September 23, 1997
Re: § 58.1-1821 Application: Corporate Income Tax
Dear
This will respond to your letter of July 22,1997, in which you request that the department reconsider its determination of June 25,1997, in the matter of ********(the "Taxpayer").
FACTS
The Taxpayer took a subtraction on its 1995 Virginia corporation income tax return for nonapportionable investment function income. This subtraction was disallowed on office audit resulting in the assessment of additional tax. The Taxpayer's representative filed an application for correction of the assessment on April 14, 1997. The department denied the application by letter of June 25, 1997. See Public Document 97-285 (6-25-71) copy enclosed. The Taxpayer's representative requests that the department reconsider its prior determination.
DETERMINATION
In your letter you indicate that the department is incorrect in its interpretation of Allied-Signal, Inc. v. Director of Taxation 112 S. Ct. 2551 (1992). You maintain reliance on whether a corporation is nondomiciliary to a state is not the basis in applying the Allied-Signal decision, rather that decision was based on the Court's reliance on the unitary business principle. The department agrees that the Court applied the unitary business approach in its decision, however, this approach was applied to a nondomiciliary corporation's income that was derived from an activity unrelated to its multi-state activities.
In the case at hand, it is the department's position that by virtue of the fact that the Taxpayer has established its commercial domicile in Virginia prevents it from asserting a constitutional limitation on Virginia's ability to tax its income. See P.D. 94--322, (10-21-91), copy enclosed.
In determining whether a corporation is domiciliary or nondomiciliary for purposes of the Virginia corporation income tax, Title 23 VAC 10-120-140.D. of the Virginia Administrative Code, (copy enclosed) is controlling. This section provides in pertinent part that:
-
- Commercial domicile means the state in which is located the principal office from which the business affairs of the corporation are normally directed or managed. The commercial domicile will normally be the location of the headquarters office of the corporation.
A review of the corporation's 1994 Virginia income tax return indicates the corporation's address to be in ******** , Virginia. Further, this return includes the statement that The corporation's books and records are in care of THE CORPORATION located at ******** , Virginia. Accordingly, the department considers the Taxpayer to be domiciled in Virginia regardless of its state of incorporation. See (P.D.) 83-211, (8-25-83), copy enclosed.
I must disagree with your analysis based on Code of Virginia § 58.1-421, and the application of the statutory method of allocation and apportionment. This section acts to prohibit an alternative method of allocation and apportionment from subjecting a taxpayer to a greater amount of tax than the statutory method. If an alternative method of allocation and apportionment was applied to the Taxpayer's situation, the income in question would be assigned to Virginia if it was considered passive investment income. This action would clearly subject the Taxpayer to more tax than the statutory method.
The United States Supreme Court has recognized that allocation and apportionment of income is a process designed to approximate income from business transactions within a state. As long as each state's method of allocation and apportionment is rationally related to the business transacted within a state, then each state's tax is constitutionally valid even though no single formula apportions income perfectly. See Mooreman Mfg. Co. V. Bair, 437 U.S. 267, 98 S. Ct. 2340 (1978).
It is noted that you requested a conference in case the department did not resolve this matter in the Taxpayer's favor. Since the department's position is clear on this matter as stated in P.D. 94-322, this ruling has been issued without a conference.
If you still desire a conference on this matter, please contact ****** at ***** within the next 30 days to schedule one.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12781P
Rulings of the Tax Commissioner