Tax Type
Intangible Personal Property Tax
Description
Capital not otherwise taxed
Topic
Taxable Transactions
Date Issued
12-11-1984
December 11, 1984
Re: § 58-1118 Application-
- Capital Not Otherwise Taxed
For the Years 1981 and 1982
- Capital Not Otherwise Taxed
Dear ****
This is in reply to your letter in which you applied pursuant to § 58-1118 of the Code of Virginia for relief from state capital taxes assessed and additional information submitted November 2, 1984.
You question whether the corporation's accounts receivable have acquired situs in Virginia and are, therefore, subject to taxation as capital not otherwise taxed.
Generally, intangibles such as those in question have no situs of their own as provided in Commonwealth v. United Cigarette, 119 Virginia 447, 89 S.E.935(1916). However, for taxation purposes the basic rule is based on the maxim mobilia sequuntur personam, movables follow the person. Therefore, the situs of the property is considered to be the domicile of the owner. Since a corporation is generally considered to be a domiciliary of the State in which it is incorporated, it is presumed that the intangibles will be taxed in that state. The reasoning behind this premise is that situs should be attributed to the State which gives the corporation legal protection and establishes those legal interests arising from the intangibles.
However, if a corporation has only a "paper domicile" in its incorporating state but actually functions and is managed from offices in another state, the Corporation will, thereby, have established a "commercial domicile," for taxation purposes, in the state where the greatest portion of the corporation's control exists. In Taxpayer s situation, the state of incorporation is Delaware and the corporate headquarters is in Virginia with branch offices, which have various levels of control and responsibilities, in several states.
The term "localization" is often used to describe the concept of determining the business situs of intangibles. If the property is committed to the charge and management of an agent or other representative who is more than a mere custodian or collector and who has the power to deal in a managerial capacity with the funds, the intangibles are deemed to be localized and will acquire a business situs in the state where the agent's control exists.
From the facts as presented, sufficient control is not vested in the branch managers so that they have final authority to negotiate all contracts and reinvest cash remittances into company business within their respective states. Therefore, the intangible property has not retained business situs in branch offices located outside Virginia and such intangible property will be taxable in Virginia. The Court in United, supra., looked at where the corporate officers resided, where the stockholders' and directors' meetings were held, where the executive functions were performed and where the books, securities and evidences of debt were kept in determining that a foreign corporation, with functional corporate headquarters in Virginia, would be subject to Virginia's capital tax on trade and notes receivable. No specific and sufficient data relating to the branch offices has been presented which discloses that situs of trade receivables has not moved to Virginia for capital tax purposes. Therefore, any further adjustment to the audit findings is denied.
The assessments previously issued are due and payable with interest accrued to date of payment.
Sincerely,
W. H. Forst
State Tax Commissioner-
Rulings of the Tax Commissioner