Tax Type
Corporation Income Tax
Description
Alternative allocation and apportionment method denied
Topic
Allocation and Apportionment
Date Issued
11-03-1986
November 3, 1986
Re: §58.1-1821 Application: Corporation
Dear **********************
This will reply to your letter of May 21, 1985, in which you protest assessment of additional tax for 1981 and 1982.
Facts
Taxpayer indicates that it is a foreign corporation consisting of three divisions which operate independently of one another, with no inter-company sales or financing or transfer of personnel between the divisions. The three divisions are a tobacco division (manufactures and sells tobacco products), an investment division (invests excess corporate funds), and a hotel division (operated two hotels outside Virginia).
Taxpayer underwent a field audit for calendar years 1981 and 1982. For those years only the tobacco division conducted business in Virginia. Taxpayer had subtracted the income of the investment and hotel divisions from company-wide income and apportioned the remaining income to Virginia by use of the tobacco division's property, payroll and sales. On audit the subtractions were disallowed and the apportionment factors were adjusted to include company-wide property, payroll and sales. Tax and interest were assessed for 1981 and 1982.
Taxpayer asserts that ASARCO Inc. v. Idaho State Com'n, 456 U.S. 307 (1982) bars Virginia from taxing "a portion of dividends, interest and capital gains, which the [nondomiciliary] corporation received from sources that had no other connection with the state." Taxpayer claims that, in its case, such income consists of interest earned on the investment of excess corporate funds, gains and losses from the sale of portfolio stock, gain from the sale of a hotel in******** and profit from the operation of two hotels in *****************.
Determination
Any corporation subject to taxation in Virginia and at least one other state is required by §58.1-406 of the Code of Virginia to allocate and apportion its Virginia taxable income. Dividends are required to be allocated to the commercial domicile of the corporation. Va. Code §58.1-408 provides that all other Virginia taxable income is apportioned to Virginia by a three-factor formula.
The U. S. Supreme Court ruling in ASARCO was that a state could not constitutionally include within the taxable income of a nondomiciliary parent corporation doing some business in that state a portion of intangible income that the parent received from subsidiary corporations having no other connection with r that state. [Emphasis supplied.] This is inapplicable to Taxpayer, which has chosen to operate its three businesses as divisions of one corporate entity. A previous ruling of October 31, 1984 (copy enclosed) explained why Virginia's statutory apportionment method could withstand a challenge brought pursuant to ASARCO or F. W. Woolworth Co. v. Taxation and Revenue Dept., 458 U.S. 354 (1982).
Based on the foregoing, I find no basis to adjust the assessment and the balance of bills *****and ******* remains due and payable. I have issued this determination letter without a conference because no facts were in dispute and Virginia law was clear. Please let me know if you have additional information and still desire a conference. If no request is made within 30 days, this letter will be final.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner