Tax Type
Corporation Income Tax
Description
Alternate method of allocation and apportionment for federal contractor
Topic
Allocation and Apportionment
Date Issued
05-19-1988
May 19, 1988
Re: Request for Ruling; Corporation Income Tax
§58.1-421 Alternative Method of Allocation & Apportionment
§58.1-409 Property Factor
Dear****************
This is in response to your letter of November 18, 1987, and a letter from your Senior Tax Accountant dated May 28, 1987, in which permission was requested to use an alternative method of allocation and apportionment. I apologize for the delay in responding.
Facts
A significant portion of the taxpayer's income is derived from contracts with the U. S. Government under either a fixed price or cost plus fixed fee arrangement. Performance of the contracts requires the use of property, plant, equipment, furniture and inventory owned by the U. S. Government. No rent is charged for the use of government owned assets.
Discussion
The policies which apply to requests for an alternative method under §58.1-421 are well established. See Virginia Regulation VR 630-3-421 (copy enclosed). The department has recently ruled that property used rent-free by a taxpayer is included in the property factor, but is valued at zero. See Ruling Letter dated February 20, 1987, P. D. No. 87-28 (copy enclosed). Another factor to be considered in connection with your request is that you do not explain how you propose to value the property for purposes of the property factor. Much of the property is related to national defense and similar property may not exist in the private sector. Therefore, a fair market rent cannot easily be established for the property used, and the Department of Taxation cannot audit the records of the U. S. Government to determine the actual cost of the property used.
Determination
After considering the facts set forth, you have not demonstrated by clear and cogent evidence that the statutory method is unconstitutional or inapplicable as applied to your situation. Accordingly, permission to value the government owned property by some method other than the statutory method is denied.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner