Tax Type
Corporation Income Tax
Description
Assessment and Payment of Deficiency
Topic
Collection of Tax
Date Issued
05-28-1999
May 28, 1999
Re: § 58.1-1821 Application: Corporation Income Tax
Dear**************
This will respond to your letter in which you contest the assessment of additional Virginia corporation income taxes to ******** (the "Taxpayer').
FACTS
The Taxpayer was subject to a field audit resulting in numerous adjustments and the assessment of additional taxes. The Taxpayer is contesting three adjustments made on audit, the amount included as capitalized rent expense for 1993, the add-back of environmental tax for 1994, and the amount of proceeds from the sale of ordinary assets included in the numerator of the sales factor for Virginia in 1994.
DETERMINATION
Capitalized Rent Expense: The Taxpayer erroneously failed to include capitalized rent expense when computing the property factor for 1993. The auditor included the capitalized rent expense as an adjustment in the audit report. The Taxpayer, however, objects to the amount included as it is the rent expense for 1992. From the additional documentation provided by the Taxpayer, the department concurs that the 1992 rent expense was used and will adjust the property factor accordingly.
Environmental Tax Add-Back: The auditor made an adjustment to add-back environmental tax for 1994 based on an Schedule M-1 adjustment for that year on the facsimile federal return filed with Virginia. Although this adjustment appears on Schedule M-1 and also on the schedule of taxes deductible on the Taxpayer's Form 1120, the Taxpayer did not take the deduction in arriving at federal taxable income, the starting point for Virginia taxable income. Consequently, this adjustment will be removed and the audit recomputed accordingly.
Proceeds from Sale of Assets: The auditor adjusted the sales factor by including proceeds from the sale of ordinary assets in both the numerator and denominator of the sales factor. In accomplishing this adjustment, the auditor used the ratio of the property factor times gross proceeds everywhere to determine the Virginia proceeds to be included. The Taxpayer has furnished the correct proceeds from the sale of assets in Virginia, accordingly, the sales factor will be adjusted per the Taxpayer's schedule.
The assessments will be revised to reflect the changes noted herein. Your payment in the amount of ***** in combination with the adjusted refund for 1993, offset the balance of the taxes due for 1994 and 1995 in full. If you have any questions regarding this determination, you may contact ***** of the Office of Tax Policy at ********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17171P
Rulings of the Tax Commissioner