Tax Type
Corporation Income Tax
Description
Sales of marketable securities
Topic
Allocation and Apportionment
Date Issued
05-11-1989
May 11, 1989
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-419 Construction Corporations; Apportionment
§58.1-421 Alternative Method of Apportionment
Dear***************
This is in response to your letter of September 26, 1988, in which you protested an assessment of additional corporation income tax and requested permission to use an alternative method of allocation and apportionment.
Facts
The taxpayer is a construction contractor whose commercial domicile is in Virginia and who uses the completed contracts method of accounting and the apportionment factor under §58.1-419. After a field audit a number of adjustments were made and additional tax was assessed for 1986. You object only to the adjustment to include in the apportionment factor the gross proceeds from sales of marketable securities.
You state that idle cash is invested in either short term securities or certificates of deposit. In 1986 an extraordinary amount of stock sales were made. You claim that the amount of income apportioned to Virginia is greatly distorted when the gross proceeds from sales of marketable securities are included in the apportionment factor.
Determination
It is recognized that different types of investments have different impacts on Virginia income tax liability; however, that does not mean that the different tax treatment is unjustified. The direct purchase of a bond involves selecting, purchasing, and ongoing monitoring of the market interest rates and the issuer's credit rating. The salary and wages of the employees who engage in these activities are, of course, included in the payroll factor. There is no distortion when the gross receipts generated by an employee's activity are also included in the apportionment factor.
Money deposited into a bank account is not a "purchase," nor is a withdrawal equivalent to a sale of property. Certificates of deposit are not marketable securities and are treated as deposits, not as the purchase and sale of property. Therefore, withdrawals from a bank account or a certificate of deposit have never been included in the apportionment factor.
Accordingly, the fact that the apportionment factor includes gross proceeds from the sale of marketable securities does not result in a distortion of the income apportioned to Virginia. Since there is no distortion of income, there is no basis for finding that an alternative method of allocation and apportionment is justified.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner