Tax Type
Corporation Income Tax
Description
Insurance agency, accounts receivable from a stockholder, income tax refunds receivable and master notes
Topic
Collection of Delinquent Tax
Penalties and Interest
Date Issued
04-09-1982
April 9, 1982
Re: § 58-1118 Application
Capital Not Otherwise Taxed
For the Years 1976, 1977, 1978 and 1979
Dear ********************
This ruling is issued in response to your application under § 53-1118, Code of Virginia, a taxpayer hearing held November 6, 1981, and additional information submitted.
FACTS
Taxpayer is an insurance agency engaged in business in Virginia. Three audit adjustments protested by the taxpayer concern the following items: (1) accounts receivable from a stockholder. (2) income tax refunds receivable, and (3) master notes.
Accounts receivable from stockholder:
The receivable from a stockholder resulted from an IRS audit which split the stockholder's law practice from the insurance agency. The Department included the accounts receivable from stockholder in the category of all other taxable property. The taxpayer's position is that the receivable as incurred in the usual course of business and should be included in the excess receivables over payables category instead of in the other taxable property category.
DETERMINATION
The Department consistently has treated accounts receivable from stockholders for other than normal business services as other taxable property for capital tax purposes and I must deny any relief from this treatment.
Income tax refunds receivable:
The income tax refunds were classified as receivables per the taxpayer's records. The Department included the receivable in the category of all other taxable property for the years 1976, 1977, and 1978. The taxpayer takes the position that prior to the amendment of § 58-411(3), the section did not specifically include income tax refund receivables and, therefore, the refund should not be taxed. The taxpayer's position is that the amendment. merely clarified the intent of the Code to exempt from tax the income tax refund receivables.
DETERMINATION
When the General Assembly amends a statute by adding to it a new provision the presumption is that the General Assembly acted with full knowledge of and in reference to existing law, and the courts construe the amendment as making some change in existing law. In light of the Department's previous interpretation of § 58-411(3), the amendment can only be viewed as a legislative determination to change substantively the meaning which had previously been in existence. I must deny any further change to the audit adjustment as reported.
Master Notes
The taxpayer contends that this item is cash invested with banking institutions and is exempt from capital tax by § 58-408 as cash. The taxpayer provided additional information regarding this issue subsequent to the taxpayer's hearing. The supplemental information consisted of a letter from the banking institution in which the taxpayer has the "cash investment," and a copy of the Variable Rate Note [Master Note] Agreement Letter executed between the taxpayer and bank. A statement from the variable rate note agreement letter is as follows:
-
- The variable rate commercial paper confirmed to you hereby is an unsecured obligation of First and Merchants Corporation, is not a legally enforceable obligation of any bank and is not insured by the Federal Deposit Insurance Corporation.
- The variable rate commercial paper confirmed to you hereby is an unsecured obligation of First and Merchants Corporation, is not a legally enforceable obligation of any bank and is not insured by the Federal Deposit Insurance Corporation.
DETERMINATION
From the information available, the master note does not represent money, but in fact an obligation, unsecured, between First and Merchants Corporation and the taxpayer. The Department has consistently defined money to include checking accounts, saving accounts and certificates of deposit. The Department included the taxpayer's master note in the category "all other taxable property" and this adjustment is consistent with the statute and department policy related thereto and no further audit adjustment may be made.
On the basis of the information submitted and for the reasons stated above, I find no error in audit computations of taxable capital or in the deficiencies assessed. Your application for correction is therefore denied and the assessments should be paid with interest accrued to the date of payment.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner