Tax Type
Corporation Income Tax
Description
Apportionment of income; Multiple division corporation
Topic
Allocation and Apportionment
Date Issued
08-22-1990
August 22, 1990
Re: Request for Ruling; Corporation Income Tax
§58.1-441 Reports by Corporations
§58.1-408 Apportionment of Income
Dear***************
This is in response to your letter of February 26, 1989, in which you requested a ruling concerning the filing requirements and the appropriate apportionment formula for a particular corporation.
Facts
The taxpayer presently consists of three divisions. In the past each division was a separate corporation, only one of which was subject to income tax in Virginia. The three corporations merged. You ask whether a Virginia corporation income tax return is required to be filed by the taxpayer and, if it is, what apportionment method should be applied.
Discussion
A corporation must have income from Virginia sources to file a Virginia corporation income tax return. Under VR §630-3-302, a corporation will have Virginia source income if any apportionment factor is positive. In this case, the taxpayer consists of three distinct divisions - a truck leasing company, a motor carrier and a freight broker. If the three factor (payroll, property and sales) apportionment formula were applied, the property factor would be positive because the taxpayer would have tangible personal property (trucks) in Virginia during the year (VR §630-3-410). If the taxpayer is a motor carrier, the vehicle mileage factor would be positive because vehicles travel in Virginia (VR §630-3-417). Because there would be a positive apportionment factor in either case, the taxpayer has Virginia source income and is required to file a Virginia corporation income tax return.
You ask that if a Virginia corporation income tax return is required, what is the proper apportionment factor to be used. You have proposed to segregate the income of the motor carrier division, since it is the only division doing business in Virginia, and applying an apportionment factor to that income.
Virginia law clearly requires that the divisions of a single corporation be treated as a single taxpayer for purposes of computing Virginia taxable income. Separate accounting for each division and application of the allocation and apportionment provisions only to the motor carrier division is not allowed. Commonwealth of Virginia v. Lucky Stores, Inc., 317 Va. 121 (1976) (copy enclosed).
The applicable apportionment factor is determined by the majority of the business, except for a financial corporation, which requires more than 70% of its gross income to consist of fees, commissions, interest and dividends. From the figures you have supplied, 61% of the total revenue of the taxpayer is earned by the motor carrier division. Because the motor carrier division appears to constitute a majority of the taxpayer's business, the mileage apportionment factor for motor carriers should be applied to the taxpayer's Virginia taxable income.
The response you previously received from the department suggested that the three factor apportionment formula should be used by the taxpayer. This response was based on the information supplied at that time, which indicated that only 48% of the taxpayer's total revenue resulted from the motor carrier division. Information furnished subsequent to that reply indicates that a majority of the taxpayer's revenue is earned by the motor carrier division and dictates that the mileage apportionment factor should be used.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner