Tax Type
Corporation Income Tax
Description
Texas Business Margin Tax is not a tax based on, measured by, or computed with reference to net income.
Topic
Subtractions and Exclusions
Taxable Income
Date Issued
09-11-2008
September 11, 2008
Re: Ruling Request: Corporate Income Tax
Dear *****:
This will reply to your correspondence in which you request a ruling concerning whether the Texas Business Margin tax must to be added back in determining a corporation's Virginia taxable income.
FACTS
For purposes of computing the Virginia taxable income of a corporation, Virginia Code § 58.1-402 B 4 provides an addition to federal taxable income for 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 the Commonwealth or any other taxing jurisdiction, to the extent deducted in determining federal taxable income." You request a ruling as to whether the Texas Business Margin Tax, effective for reports due on or after January 1, 2008, is required to be added back under this statute.
RULING
Under Tex. Tax Code Ann. § 171.101, the Texas Business Margin Tax is computed based on the lesser of 70% of a taxpayer's total revenue or the taxpayer's total revenue reduced by certain deductions. Permitted deductions are limited to cost of goods sold or compensation. Deductions for interest, depreciation, and almost all other business expenses normally included in the computation of net income are not permitted.
Virginia's modification under Va. Code § 58.1-402 B 4 requires an addition for net income taxes and other taxes based on, measured by, or computed with reference to net income. Because the Texas Business Margin Tax excludes the vast majority of normal business expenses normally permitted in determining net income, it is my conclusion that the Texas Business Margin Tax is not a tax based on, measured by, or computed with reference to net income. Therefore, the tax is not required to be added back under Va. Code § 58.1-402 B 4 when computing Virginia taxable income.
This ruling is issued based on the facts presented in your request as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia section cited is available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-2605508659.o
Rulings of the Tax Commissioner