Tax Type
Corporation Income Tax
Description
Property factor when operating government owned plant; DISC adjustment
Topic
Allocation and Apportionment
Subtractions and Exclusions
Date Issued
02-20-1987
February 20, 1987
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-446 Adjustment; DISC
§58.1-409 Property Factor; Government owned plant
Dear*************
This is in response to your letter of November 26, 1986, applying for correction of an erroneous assessment of corporation income tax for 1982 and 1983.
DISC ADJUSTMENT
You object to the inclusion of the income of a (DISC) in the taxpayer's income. You indicate that you are aware of the fact that this issue is currently in litigation before the Virginia Supreme Court and reserve the right to file an application in court.
Under Virginia law, the procedure is such cases is to pay the disputed tax and file a protective claim for refund under 58.1-1824. The claim will then be held without action until there is a final decision in the pending case styled Commonwealth of Virginia v. General Electric Co.
PROPERTY FACTOR
The taxpayer operates a facility for the U. S. Government under a cost plus fixed fee contractual arrangement. The taxpayer does not own the facility and pays no rent for its use. Therefore the cost of the facility was not included in the property factor. The taxpayer contends that the government owned facility should be included in the property factor at original cost.
Under Va. Code §58.1-409 and Va. Regulation VR 630-3-409.A.2.a. (copy enclosed), property is included in the factor if the taxpayer has any right of use or possession. However, since the taxpayer does not own the facility, has no capital of its own invested in it, and pays no rent for its use, the valuation of the facility for property factor purposes is zero. See VR 630-3-410.B.2.c. (copy enclosed) which defines "annual rent" as "...the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer or for its benefit for the use of the property...
The apportionment factors do reflect the activity of the taxpayer in managing the facility because the payroll factor includes the taxpayer' 9 employees and the sales factor includes the fee plus the reimbursed cost.
Accordingly, the audit adjustments are correct as made. In your letter you requested an informal hearing if we did not agree with your position. If you still desire a conference please let us know within 30 days and one will be scheduled. If we do not hear from you within 30 days this letter will be considered final and the assessments will then be due and payable. After the assessments have been paid you may wish to file a protective claim for refund limited to the DISC issue.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner