Tax Type
Intangible Personal Property Tax
Description
Residential contractor and speculative builder engaged in business in Virginia.
Topic
Appropriateness of Audit Methodology
Taxability of Persons and Transactions
Date Issued
06-18-1982
June 18, 1982
Re: §58-1118 Application Capital Not Otherwise Taxed
Dear ******************
This ruling is issued in response to an application under §58-1118, Code of Virginia, a taxpayer hearing held ***************and additional information submitted.
Facts
Taxpayer is a residential contractor and speculative builder engaged in business in Virginia. Three audit adjustments protested by the taxpayer concern the following items: (1) intercompany notes receivable, (2) income tax refunds receivable, and (3) cost of uncompleted jobs.
Intercompany notes receivable:
The notes receivable resulted from (1) an equipment financing agreement for a corporation considered an affiliate by the Internal Revenue Service, (2) individual loans and (3) an account receivable for construction work for which the taxpayer accepted a note. The department included the total of the notes receivable in the all other taxable property category. The taxpayer's position is that the receivable from the affiliated corporation should be excluded from tax under §58-411(4), Code of Virginia. The taxpayer feels the individual loans and construction receivables were incurred in the usual course of business and should be included in the excess of receivables over payables category.
Determination
§58-411(4), Code of Virginia, was amended for tax years beginning on and after January 1, 1980 regarding the intercompany receivables. The years under audit are 1977, 1978 and 1979. Any further adjustment regarding the intercompany receivable for equipment financing must be denied since the Department, in accordance with the law prior to amendment, included intercompany receivables for such transactions in the other taxable property category for capital tax purposes.
The individual loans included in the notes receivable are not considered to be in the normal course of the taxpayer's business. The Department in audit included the individual loans in other taxable property.
The note receivable for construction work performed by the taxpayer is considered to be incurred in the usual course of business and should be included in the excess of receivables over payables category for capital purposes. The necessary adjustment will be made.
Income tax refunds receivable:
The income tax refunds were classified as receivables in the taxpayer's records. The Department included the receivable in the category of all other taxable property for the years 1977, 1978 and 1979. The taxpayer takes the position that prior to the amendment of §58-411(3)-, the section did not specifically include income tax refunds receivable and 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 refunds receivable.
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. The amendment is applicable to tax years beginning on and after January 1, 1980. The audit years precede the effective date and I must deny any change to the audit adjustment as reported.
Cost of uncompleted jobs
Taxpayer contends the amounts classified as cost of uncompleted jobs represent receivables from customers incurred in the usual course of business. The Department in audit included the cost of uncompleted jobs in the other taxable property category. Information furnished the Department on May 12, 1982 shows that under the terms of contracts used by the taxpayer, amounts which were billable were not billed and remained in the cost of uncompleted jobs account. Prior to the 1980 amendment to the statutes, the Department in its treatment of construction in progress included in the excess of receivables over payables category, the amount which was billed or billable under the terms of contracts. Accordingly, the amount of accumulated costs and earnings which was unbilled and unbillable under the terms of contract was recorded as an asset in the other taxable property category.
The Department will adjust the cost of uncompleted jobs on the basis of the supplemental information furnished. The adjustment will be computed by subtracting the amount of billable costs from the total accumulated cost at year end which results in the unbillable costs. The unbillable costs will be included in the other taxable property category.
A revised report and assessments will be issued which reflect the adjustments as outlined above and the assessments should be paid with interest accruing to date.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner