Tax Type
Corporation Income Tax
Description
Taxable income; Modifications to federal taxable income; Addback of franchise tax
Topic
Computation of Income
Date Issued
05-28-1999
May 28, 1999
Re: § 58.1-8121 Application: Corporation Income Tax
Dear*****************
This will respond to your letter in which you seek correction of assessments of corporate income taxes to * * * * * (the "Taxpayer') for the taxable years ending December 31, 1993 through 1995. I apologize for the delay in responding.
FACTS
The Taxpayer was subject to field audit resulting in several adjustments. The department's auditor added to federal taxable income all taxes imposed by states in which the Taxpayer does business. You protest these additions, contending that the taxes involved do not meet the criteria for the addition set forth in Code of Virginia § 58.1-402 (B)(4).
DETERMINATION
The aforementioned section provides in pertinent part that to the extent excluded from federal taxable income. there shall be added:
-
- The amount of any net income taxes and other taxes, including franchise and excise taxes, which are based on, measured by, or computed with reference to net income, imposed by this Commonwealth or any other taxing jurisdiction, to the extent deducted in determining federal taxable income. (Emphasis added).
Pursuant to this section, taxes which are deducted in computing federal taxable income which are based on or utilize net income in their computation are required to be added to federal taxable income in computing Virginia taxable income.
In the instant case, the Taxpayer points to the auditor's add-back of the Illinois Franchise Tax and the Ohio Franchise Tax as examples of the taxes added back from the Taxpayer's schedule of taxes not based on income.
The basis for the Illinois Franchise Tax is the amount of paid-in capital represented in Illinois. The tax is for the privilege of corporations exercising their franchise or authority to transact business in the state. As such, it does not qualify as a tax to be added-back in the computation of Virginia taxable income.
The Ohio Franchise Tax is tentatively computed on both the net worth basis and the net income basis and payment must be made on the computation that produces the greater tax. For all years involved in the audit, the tax was computed and paid on the net worth basis and does not qualify for the add-back. However, if in the future, the Taxpayer's tax based on income is higher than the net worth tax, the entire Ohio tax will be required to be added back in determining Virginia taxable income.
Accordingly, the tax assessments have been adjusted pursuant to the attached schedules based on the documentation provided. Please remit your payment to * * * * * Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880 within 30 days to avoid the accrual of additional interest. If you have any questions, you may contact * * * * * at * * * * *.
Sincerely,
Danny Payne
Tax Commissioner
Rulings of the Tax Commissioner