Tax Type
Corporation Income Tax
Description
Permission to use alternative allocation and apportionment method is denied
Topic
Allocation and Apportionment
Date Issued
04-22-1986
April 22, 1986
Re: §58.1-421 Request for Alternative Method of Allocation and Apportionment; Corporation Income Tax: FYE 1983
Dear **********
This will reply to your letter of January 10, 1986 requesting permission to use an alternative method of allocation and apportionment.
FACTS
Taxpayer sold real property located in a state other than Virginia and allocated the gain to and paid tax to such other state. Taxpayer also included such gain in income apportionable to Virginia. Taxpayer asserts that it has been subject to a double tax.
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. That method requires dividends to be allocated to the commercial domicile of the corporation. All other income is apportioned. 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 Section §630-3-421 (copy enclosed).
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 Mooreman 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, permission to use an alternative method of allocation and apportionment is denied.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner