Tax Type
Corporation Income Tax
Description
Apportionment of Income
Topic
Allocation and Apportionment
Date Issued
10-29-1998
October 29, 1998
Re: Request for Ruling: Corporate Income Tax
Dear *****
This will respond to your letter in which you inquire about the proper method of apportioning the income of an anonymous client (the ``Taxpayer').
FACTS
The Taxpayer is a service provider transporting fuel on barges from its place of business located without Virginia to vessels docked in Virginia. The Taxpayer requests a ruling on the proper method of apportioning income for a water transportation company providing such services.
RULING
The taxpayer has Income from Virginia sources within the meaning of Title 23 of the Virginia Administrative Code (VAC) 10-120-20, copy enclosed, attributable to a business, trade, profession or occupation carried on in Virginia. Accordingly, the Taxpayer is subject to the Virginia corporation income tax. Because the Code of Virginia makes no provision for a specialized apportionment factor for purposes of the Taxpayer, the Taxpayer must utilize the standard three factor formula of property, payroll, and sales to apportion its Virginia taxable income.
Title 23 VAC 1-120-160, copy enclosed, provides that the property factor consists of the ratio of the average value of the Taxpayer's real and tangible personal property owned or rented and used in Virginia over the like property located everywhere. The value of movable tangible personal property used both within and without Virginia is includable to the extent of its utilization in Virginia. Utilization is determined by the ratio of the number of days of physical location in Virginia to the number of days of physical location everywhere, Title 23 VAC 10-120-170, copy enclosed. Accordingly, the Taxpayer must determine the value of its movable property being utilized in Virginia for the computation of the numerator of the property factor over all other property as described above for the denominator of the ratio.
Title 23 VAC 10-120-190, copy enclosed, provides that payroll for purposes of the numerator of the payroll factor is the total amount paid or accrued in Virginia for the tax period for compensation and the denominator is the total compensation paid or accrued everywhere. However, if the employees' service is performed both within and without Virginia, the compensation is deemed paid at the employees' base of operations, Title 23 VAC 10-120-200, copy enclosed. Based on the information presented, it appears that the base of operations is located without Virginia and the employees are not subject to the Virginia Unemployment Compensation Act. Accordingly, it is unlikely that the Taxpayer will have a positive Virginia payroll factor.
Title 23 VAC 10-120-230, copy enclosed, provides that sales, other than sales of tangible personal property, are considered in Virginia if the income producing activity is performed in Virginia or if the income producing activity is performed both within and without Virginia, the sales are assigned based on costs of performance. Because the Taxpayer's sales consist of fees for transportation services, the income from the services provided must be assigned based on the costs of performance in rendering the services. Therefore, any fees derived by the Taxpayer for services rendered in which the greater costs of performance are in Virginia would be considered Virginia sales.
If you have any questions regarding this ruling, you may contact ***** of the Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/16356P
Re: Request for Ruling: Corporate Income Tax
Dear *****
This will respond to your letter in which you inquire about the proper method of apportioning the income of an anonymous client (the ``Taxpayer').
FACTS
The Taxpayer is a service provider transporting fuel on barges from its place of business located without Virginia to vessels docked in Virginia. The Taxpayer requests a ruling on the proper method of apportioning income for a water transportation company providing such services.
RULING
The taxpayer has Income from Virginia sources within the meaning of Title 23 of the Virginia Administrative Code (VAC) 10-120-20, copy enclosed, attributable to a business, trade, profession or occupation carried on in Virginia. Accordingly, the Taxpayer is subject to the Virginia corporation income tax. Because the Code of Virginia makes no provision for a specialized apportionment factor for purposes of the Taxpayer, the Taxpayer must utilize the standard three factor formula of property, payroll, and sales to apportion its Virginia taxable income.
Title 23 VAC 1-120-160, copy enclosed, provides that the property factor consists of the ratio of the average value of the Taxpayer's real and tangible personal property owned or rented and used in Virginia over the like property located everywhere. The value of movable tangible personal property used both within and without Virginia is includable to the extent of its utilization in Virginia. Utilization is determined by the ratio of the number of days of physical location in Virginia to the number of days of physical location everywhere, Title 23 VAC 10-120-170, copy enclosed. Accordingly, the Taxpayer must determine the value of its movable property being utilized in Virginia for the computation of the numerator of the property factor over all other property as described above for the denominator of the ratio.
Title 23 VAC 10-120-190, copy enclosed, provides that payroll for purposes of the numerator of the payroll factor is the total amount paid or accrued in Virginia for the tax period for compensation and the denominator is the total compensation paid or accrued everywhere. However, if the employees' service is performed both within and without Virginia, the compensation is deemed paid at the employees' base of operations, Title 23 VAC 10-120-200, copy enclosed. Based on the information presented, it appears that the base of operations is located without Virginia and the employees are not subject to the Virginia Unemployment Compensation Act. Accordingly, it is unlikely that the Taxpayer will have a positive Virginia payroll factor.
Title 23 VAC 10-120-230, copy enclosed, provides that sales, other than sales of tangible personal property, are considered in Virginia if the income producing activity is performed in Virginia or if the income producing activity is performed both within and without Virginia, the sales are assigned based on costs of performance. Because the Taxpayer's sales consist of fees for transportation services, the income from the services provided must be assigned based on the costs of performance in rendering the services. Therefore, any fees derived by the Taxpayer for services rendered in which the greater costs of performance are in Virginia would be considered Virginia sales.
If you have any questions regarding this ruling, you may contact ***** of the Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/16356P
Rulings of the Tax Commissioner