Tax Type
Corporation Income Tax
Description
Unitary relationship
Topic
Allocation and Apportionment
Date Issued
07-29-1985
July 29, 1985
Re: §58.1-1821 Application; Corporation Tax § 58.1-408 Apportionment of Income;
Dear ****
This is in response to a conference held on April 10, 1985, on your request that we reconsider the position taken in our letter of October 31, 1984, (copy attached).
The Taxpayer believes that a unitary relationship must exist between the payor of income from intangibles and the recipient of that income before a non-domiciliary state can include that income in apportionable income. In support of its argument, the Taxpayer cites ASARCO, Inc. v. Idaho State Tax Commission, 458 U.S. 3O7, 102, S. Ct. 31O3 (1982) and an opinion of the New Jersey Tax Court in Silent Hoist & Crane Co., Inc. v. Director, Division of Taxation. Docket No. MC515-77, January 28, 1983 (presently pending before the New Jersey Supreme Court.)
We have reviewed ASARCO and Silent Hoist and find no reason to change the result of the October 31, 19&4, letter. The source of the taxpayer's argument can be found in the following language:
Virtually all of the analysis in ASARCO concerned the relationship between ASARCO and other corporations which paid dividends to ASARCO. The Court examined the percentage of ownership, degree of management control exercised, selection of officers and directors, and sales between the subsidiaries and ASARCO.
The Taxpayer would have Virginia apply the same analysis that the Court applied to ASARCO's dividend income to the interest, capital gain and royalty income received by the taxpayer. We see no logical reason for the apportionment of interest received on deposits to depend on whether the Taxpayer owns and controls the bank which pays it, or for apportionment of interest received on accounts receivable to depend on the amount of sales between the Taxpayer and customers. We do not interpret ASARCO to require such an analysis.
"Justice O'Connor's dissent views the Court's decision as 'prohibiting apportioned taxation of investment income by non-domiciliary states.' . . . This reflects a serious misunderstanding of our decision today and the cases on which we rely." ASARCO, supra, at note 22.
Until the Virginia or U.S. Supreme Court clearly says otherwise, I believe it is consistent with due process standards for Virginia to require apportionment of all income, other than dividends, earned by a corporation.
During the conference, you asked that this decision be postponed pending final determination in the Silent Hoist case. I decline to do so for three reasons. First, Silent Hoist involves only New Jersey tax law and is not controlling on Virginia tax law. Second, even if the decision of the New Jersey Supreme Court is reviewed by the U.S. Supreme Court, such a review would require a year or more. The assessment cannot be allowed to remain outstanding for that length of time. Third, Virginia Code §58.1-1824 provides an appropriate remedy. If the assessment, with accrued interest, is paid you may file a protective claim for refund and request that it be held without action pending final determination in Silent Hoist.
Accordingly, the assessment of additional tax is correct and is now due and payable. You will shortly receive an updated bill with accrued interest. Upon payment of the bill, you may file a protective claim under §58.1-1824.
Sincerely,
W. H. Forst
Tax Commissioner
Re: §58.1-1821 Application; Corporation Tax § 58.1-408 Apportionment of Income;
Dear ****
This is in response to a conference held on April 10, 1985, on your request that we reconsider the position taken in our letter of October 31, 1984, (copy attached).
The Taxpayer believes that a unitary relationship must exist between the payor of income from intangibles and the recipient of that income before a non-domiciliary state can include that income in apportionable income. In support of its argument, the Taxpayer cites ASARCO, Inc. v. Idaho State Tax Commission, 458 U.S. 3O7, 102, S. Ct. 31O3 (1982) and an opinion of the New Jersey Tax Court in Silent Hoist & Crane Co., Inc. v. Director, Division of Taxation. Docket No. MC515-77, January 28, 1983 (presently pending before the New Jersey Supreme Court.)
We have reviewed ASARCO and Silent Hoist and find no reason to change the result of the October 31, 19&4, letter. The source of the taxpayer's argument can be found in the following language:
-
- We cannot accept, consistently with recognized due process standards, a definition of "unitary business" that would permit non-domiciliary States to apportion and tax dividends where the business activities of the dividend payor have nothing to do with the activities of the recipient in the taxing State. (Emphasis supplied, citations omitted.) ASARCO, Supra, at 327.
Virtually all of the analysis in ASARCO concerned the relationship between ASARCO and other corporations which paid dividends to ASARCO. The Court examined the percentage of ownership, degree of management control exercised, selection of officers and directors, and sales between the subsidiaries and ASARCO.
The Taxpayer would have Virginia apply the same analysis that the Court applied to ASARCO's dividend income to the interest, capital gain and royalty income received by the taxpayer. We see no logical reason for the apportionment of interest received on deposits to depend on whether the Taxpayer owns and controls the bank which pays it, or for apportionment of interest received on accounts receivable to depend on the amount of sales between the Taxpayer and customers. We do not interpret ASARCO to require such an analysis.
"Justice O'Connor's dissent views the Court's decision as 'prohibiting apportioned taxation of investment income by non-domiciliary states.' . . . This reflects a serious misunderstanding of our decision today and the cases on which we rely." ASARCO, supra, at note 22.
Until the Virginia or U.S. Supreme Court clearly says otherwise, I believe it is consistent with due process standards for Virginia to require apportionment of all income, other than dividends, earned by a corporation.
During the conference, you asked that this decision be postponed pending final determination in the Silent Hoist case. I decline to do so for three reasons. First, Silent Hoist involves only New Jersey tax law and is not controlling on Virginia tax law. Second, even if the decision of the New Jersey Supreme Court is reviewed by the U.S. Supreme Court, such a review would require a year or more. The assessment cannot be allowed to remain outstanding for that length of time. Third, Virginia Code §58.1-1824 provides an appropriate remedy. If the assessment, with accrued interest, is paid you may file a protective claim for refund and request that it be held without action pending final determination in Silent Hoist.
Accordingly, the assessment of additional tax is correct and is now due and payable. You will shortly receive an updated bill with accrued interest. Upon payment of the bill, you may file a protective claim under §58.1-1824.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner