Tax Type
Corporation Income Tax
Description
Investment income; Foreign source income expenses
Topic
Allocation and Apportionment
Date Issued
08-29-1990
August 29, 1990
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-408 Allocation & Apportionment; ASARCO
§58.1-302 Foreign Source Income; Expenses
Dear ****
This is in response to your letter of August 7, 1989, protesting the assessment of additional corporation income tax for taxable years 1986 and 1987.
FACTS
The taxpayer filed its Virginia corporate income tax returns for taxable years 1986 and 1987 and included certain interest income and capital gains in allocable income. As the result of a field audit, this income was determined to be apportionable income. This same field audit also determined that expenses related to the production of foreign source income were underreported.
You object to the inclusion of the interest and capital gains from investments on the grounds that the taxpayer does not have a unitary relationship with the payors of the interest and capital gains. You suggest that if such income is included in the apportionable income of the taxpayer, the apportionment factors of the taxpayer should be revised to reflect the property, payroll and sales of the payors. You propose that the taxpayer should be allowed to use an alternative method of allocation that would allow the taxpayer to allocate all income derived from non-unitary businesses to states other than Virginia.
DETERMINATION
You provide no information regarding why you feel that the department's determination of the expenses related to the production of foreign source income is flawed. The auditor determined expenses from federal Form 1118, by multiplying total expenses related to the production of foreign source income by the ratio of Virginia foreign source income to total foreign source income. Without evidence that this method produces an inaccurate result, I find this method to be acceptable. However, if you can provide information that directly matches foreign source income and expenses, I will consider such information and make any adjustments deemed necessary. I caution you that for the department to adjust its determination of expenses, any information you provide must show the expenses more accurately than federal Form 1118, yet still be in accord with IRC §§861-863. (See Public Document # 87-149, enclosed.)
The issues involving the apportionment of investment income (interest and capital gains) in this application are identical to the issues resolved in Public Document # 87-104 for taxable year 1982 (copy enclosed). This issue is currently pending before the Virginia Supreme Court in the case styled Corning Glass Works v. Department of Taxation, and before the Circuit Court of the City of Richmond in the case styled W. R. Grace & Co. v. Commonwealth of Virginia. You may wish to preserve the taxpayer's judicial remedies by paying the assessment and filing a protective claim pursuant to Virginia Code §58.1 - 1824. The protective claim for refund would be held without action until there is a final decision in the pending cases.
Accordingly, based upon the information presented, the assessments for taxable years 1986 and 1987 are correct and are now due and payable.
This determination letter has been issued without a conference because, based on the information that we have, the facts are identical to the facts in the taxpayer's previous protest. Please let me know if you have additional information and still desire a conference. If no request is made within 30 days, this letter will be final.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner