Tax Type
Intangible Personal Property Tax
Description
Capital not otherwise taxed
Topic
Taxability of Persons and Transactions
Date Issued
07-16-1984
July 16, 1984
Re: § 58-1118 Application
Capital Not Otherwise Taxed
For the Years 1978 and 1979
Dear ****
This ruling is issued in response to your application under § 58-1118, Code of Virginia, and additional information submitted.
FACTS
Taxpayer is the parent corporation to subsidiaries who are in the electronics industry. Five issues protested by the taxpayer concern the following items: 1) cash investment account, 2) intercompany note payable to subsidiary, 3) intercompany note receivable from subsidiary, 4) long-term debt, and 5) penalties. Each issue will be discussed below.
Cash investment account:
Taxpayer recorded in its ledger a "cash investment account." In audit, the Department included the value of this asset in taxable capital. In protest, Taxpayer contends that the asset is a checking account and should be treated as money and excluded from taxable capital.
DETERMINATION
Taxpayer submitted evidence which substantiated that the cash investment account represents a checking account with the bank. Accordingly, the cash investment account will be excluded from taxable capital.
Intercompany note payable to subsidiary:
Taxpayer discloses that loans from one subsidiary to another subsidiary were recorded on parent company books to maintain control at the parent level. The Department included in other taxable property the receivable from one subsidiary to Taxpayer and included in the excess receivables over payables category the payable between Taxpayer and the subsidiary which loaned the funds. Taxpayer contends, that for capital tax purposes, the intercompany receivable and payable should be taxed at net.
DETERMINATION
Taxpayer submitted evidence clearly reflecting that the transaction was recorded on Taxpayer's books for record purposes only and the intercompany receivable and payable will be netted and the net receivable will be included in the other taxable property category.
Intercompany note receivable from subsidiary:
Taxpayer holds a note receivable from subsidiary. The Department included the note receivable in the other taxable property category for the 1978 capital tax audit. Taxpayer contends that the subsidiary did not include the liability for the note receivable to its parent in the 1978 capital tax return and the statute of limitations prevents the filing of an amended return. Taxpayer feels it is not equitable to tax the receivable and not allow the subsidiary benefit of the payable.
DETERMINATION
While the Department understands that the subsidiary did not receive any tax benefit for the payable to the parent, the Department has no authority to permit changes to a year on which the statute of limitations has expired. Therefore, any further adjustment in the intercompany receivable and payable in question is denied.
Long-term debt:
Taxpayer had long-term debt payable to two banks during audit period. A portion of Taxpayer's debt was for loans to subsidiaries. For the portion of borrowed funds loaned by the bank to the subsidiaries, Taxpayer accepted notes receivable from subsidiaries. Taxpayer contends that outstanding long-term debt and intercompany notes receivable should be netted since Taxpayer merely recorded transactions between lenders and borrowers. The Department in audit included the notes receivable from subsidiaries in other taxable property, (hereinafter "other" category), and included the long-term debt payable in the excess receivables over payables category.
DETERMINATION
After consideration of the evidence presented, the long-term debt of Taxpayer will be reduced to the extent that it is shown that the bank advanced money directly to subsidiaries and the reduction is limited to the outstanding balance of the receivable from each specific subsidiary on the date of measure for capital tax purposes.
Penalties
Taxpayer requests relief from 10 percent late filing and 5 percent late paying penalties. Taxpayer's basis for relief is that the failure to file was not a willful intent to avoid taxation, but an unfamiliarity with the Virginia filing requirements by an out-of-State employee. The Department assessed both penalties since the taxpayer failed to file the required returns.
DETERMINATION
While both penalties were assessed in accordance with applicable laws, in consideration of the specific circumstances surrounding your failure to file the returns, we will relieve one-half of the late filing and all of the late paying penalties.
A revised report and assessments will be issued which reflect the adjustments as outlined above. The revised assessments will reflect your January 1984 payment of *****. Any additional tax due should be paid upon receipt of the revised assessment. If a refund results from the audit adjustments such refund will be made.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner