Tax Type
Corporation Income Tax
Description
Airline apportionment factors; Overflight miles
Topic
Allocation and Apportionment
Date Issued
09-21-1990
September 21, 1990
Re: §58.1-1821 Application/ Corporate Income Tax
Dear *************
This will reply to your letter of September 4, 1987 in which you protest the assessment of corporate income tax and interest against ****** ("the Taxpayer") for calendar years 1983 and 1984.
FACTS
The taxpayer, an airline, filed its returns using a mileage formula to include property, payroll and sales in the respective apportionment factors. The department's auditor adjusted the property and sales factors to include miles in which an aircraft flew over Virginia without landing (overflight miles). The payroll factor, as adjusted by the auditor, included in the numerator all payroll expense for employees whose base of operations was in Virginia. The adjustments resulted in the assessment of additional tax.
DETERMINATION
Your primary objections to the audit adjustments are that overflight miles should not be used in the apportionment factors, and that the auditor's payroll factor adjustment discriminates against airlines whose flight crews are based in Virginia.
You cite U.S.C. §1508(a), declaring the federal government's sovereignty over all U.S. airspace, as support for your contention that overflight miles are not in Virginia for purposes of apportionment. However, the Oregon Supreme Court has ruled that the inclusion of overflight miles is proper for property tax apportionment. Alaska Airlines, Inc. v. Department, of Revenue 307 OR 106, 769 P. 2d. 193 (1989). In a similar case he recently ruled that both the inclusion of overflight miles and similar payroll factor adjustments were correct. See the enclosed Public Document P.D. No. 90-158 dated September 6, 1990 (copy enclosed).
Based on the foregoing, the assessments are correct and are now due and payable. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within thirty days to avoid the accrual of additional interest. However, if you desire to submit additional mileage information consistent with the principles in the enclosed P.D. No. 90-158 you should submit the information to Technical Services Section, Department of Taxation, P.O. Box 6-L, Richmond, VA 23282 within thirty days of the date of this letter.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner