Tax Type
Corporation Income Tax
Description
Limited Partnership Interests
Topic
Taxpayers
Date Issued
04-19-1999
April 19, 1999
Re: Ruling Request: Corporation Income Tax
Dear****************
This will reply to your letter in which you request a ruling with respect to limited partnership interests held by your client, ***** (the "Taxpayer'). I apologize for the delay in responding.
FACTS
The Taxpayer owns an interest in a low income housing project in Virginia through four tiers of pass-through entities. This was accomplished through the Taxpayer's membership in a limited liability company (T1), that is an owner in a limited partnership (T2) that holds investments in 18 other limited partnerships. One of these 18 partnerships (T3) owns a 99% interest in a partnership (T4) that owns and operates the Virginia low income housing project.
Other than T4, none of the entities, including the Taxpayer, have operations in Virginia. An unrelated third party is the general partner in all the limited partnerships. The Taxpayer is requesting a ruling as to whether or not it would be subject to Virginia corporation income tax as a result of its indirect ownership of the low income housing project.
RULING
In Public Document (P.D.) 95-19 (2-13-95), copy enclosed, the department ruled that a corporate limited partner is generally required to include its proportionate share of the partnership's property, payroll and sales with its own property, payroll and sales for purposes of determining its Virginia apportionment factor. P.D. 95-19 modified the department's previous policy with regard to this issue. However, in that ruling the department set forth a standard, pending the promulgation of regulations in this area under which no partnership attribution of apportionment factors would be required if:
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- (1) a corporation holds a limited partnership; (2) all general partners are unrelated third parties; (3) the combined partnership interests held by the corporation and all related parties constitute 10% or less of the profit and capital interest of the limited partnership; and (4) the structure is not a device primarily designed to avoid Virginia taxation of the limited partnership's income.
- (1) a corporation holds a limited partnership; (2) all general partners are unrelated third parties; (3) the combined partnership interests held by the corporation and all related parties constitute 10% or less of the profit and capital interest of the limited partnership; and (4) the structure is not a device primarily designed to avoid Virginia taxation of the limited partnership's income.
In the instant case, the Taxpayer's combined ownership, after considering the effects of the four tiers of pass through entities, does exceed 10% of the limited partnership that invested in a low income housing project located in Virginia. Although the percentage over 10% is small, the department finds the total ownership percentage to be significant and fails to meet the standard provided in P.D. 95-19.
Given the facts as presented, the department does not find it appropriate to modify the standard set forth in P.D. 95-19. I hope the enclosed addresses all of your questions regarding the determination of Virginia apportionment. If you have any additional questions, please call ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13271O
Rulings of the Tax Commissioner