Tax Type
Corporation Income Tax
Description
Request permission to use an alternative method of allocation and apportionment
Topic
Allocation and Apportionment
Date Issued
04-12-1985
April 12, 1985
RE: §58.1-421 Request for Alternative Method of Allocation and Apportionment; Corporation Income Tax: FYE January 31, 1984
Dear ****
This will reply to your letter of January 9, 1985, requesting permission to use an alternative method of allocation and apportionment.
Facts
Taxpayer is located in Washington, D.C. and is registered to do business in Virginia. It filed its Virginia income tax return for the fiscal year ended January 31, 1984 and used the statutory method of apportioning income. Taxpayer claims that it overpaid taxes by $**** because the statute does not provide that non-business income earned outside Virginia can be excluded from the apportionment formula.
Determination
The General Assembly has provided a statutory method of allocation and apportionment that applies to all corporations. Neither the taxpayer nor the Department may elect to use a different method. I construe §58.1-421 as authorizing me to allow use of an alternative method only in extraordinary circumstances where the need for relief has been demonstrated by clear and cogent evidence. The policy applicable to requests for an alternative method is set forth in Virginia Regulation §630-3-421 (copy attached).
The Taxpayer has not shown that the statutory method of allocation and apportionment produces an unconstitutional result. The United States Supreme Court has recognized that allocation and apportionment of income is an arbitrary process designed to approximate the income from business transactions within a state. As long as each state's method of allocation and apportionment is rationally related to the business transacted within a state, then each state's tax is constitutionally valid even though there may be some overlap. See Moorman Manufacturing Company v. Bair, 437 U.S. 279, 98 S.CT. 2340 (1978).
The regulations also provide that relief may be granted if the statutory method of allocation and apportionment produces a tax that is inequitable and that the inequity is attributable to Virginia. However, in determining whether inequity exists that is attributable to Virginia, I must consider the whole statutory structure under which the Virginia tax is computed, and not solely how a corporation's income is divided by Virginia versus another state. Each state's tax structure contains its particular method of determining the definition of "income," for dividing that income among the states and for applying a rate of tax, as well as credits against the tax. I do not find that, as a whole, the Virginia corporate income tax structure is the cause of any inequity in this case.
Accordingly, your request to use an alternative method of apportionment is denied.
Sincerely,
W. H. Forst
Tax Commissioner
RE: §58.1-421 Request for Alternative Method of Allocation and Apportionment; Corporation Income Tax: FYE January 31, 1984
Dear ****
This will reply to your letter of January 9, 1985, requesting permission to use an alternative method of allocation and apportionment.
Facts
Taxpayer is located in Washington, D.C. and is registered to do business in Virginia. It filed its Virginia income tax return for the fiscal year ended January 31, 1984 and used the statutory method of apportioning income. Taxpayer claims that it overpaid taxes by $**** because the statute does not provide that non-business income earned outside Virginia can be excluded from the apportionment formula.
Determination
The General Assembly has provided a statutory method of allocation and apportionment that applies to all corporations. Neither the taxpayer nor the Department may elect to use a different method. I construe §58.1-421 as authorizing me to allow use of an alternative method only in extraordinary circumstances where the need for relief has been demonstrated by clear and cogent evidence. The policy applicable to requests for an alternative method is set forth in Virginia Regulation §630-3-421 (copy attached).
The Taxpayer has not shown that the statutory method of allocation and apportionment produces an unconstitutional result. The United States Supreme Court has recognized that allocation and apportionment of income is an arbitrary process designed to approximate the income from business transactions within a state. As long as each state's method of allocation and apportionment is rationally related to the business transacted within a state, then each state's tax is constitutionally valid even though there may be some overlap. See Moorman Manufacturing Company v. Bair, 437 U.S. 279, 98 S.CT. 2340 (1978).
The regulations also provide that relief may be granted if the statutory method of allocation and apportionment produces a tax that is inequitable and that the inequity is attributable to Virginia. However, in determining whether inequity exists that is attributable to Virginia, I must consider the whole statutory structure under which the Virginia tax is computed, and not solely how a corporation's income is divided by Virginia versus another state. Each state's tax structure contains its particular method of determining the definition of "income," for dividing that income among the states and for applying a rate of tax, as well as credits against the tax. I do not find that, as a whole, the Virginia corporate income tax structure is the cause of any inequity in this case.
Accordingly, your request to use an alternative method of apportionment is denied.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner