Tax Type
Corporation Income Tax
Description
Capital gains; Apportionable income
Topic
Allocation and Apportionment
Date Issued
01-11-1990
January 11, 1990
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-408 Apportionment of Income
Dear**********************
This is in response to your letter of May 10, 1989 in which you applied for correction of an assessment of corporation income tax and interest.
Facts
The Taxpayer, a manufacturer and seller of paper and related products, filed consolidated Virginia corporation income tax returns for tax years ending December 31, 1985 and December 31, 1986. On those returns, the Taxpayer included certain capital gains and interest in allocable income. As the result of a field audit, this income was determined to be apportionable income.
The Taxpayer contends that these income items are not subject to apportionment. It relies on ASARCO Inc. v. Idaho State Tax Commission, 458 U.S. 307, 102 S. Ct. 3103 (1982) in which the Supreme Court ruled that capital gains (and other types of income) may not be included in a company's apportionable income where no unitary relationship exists between a non-domiciliary corporation and its subsidiary.
Discussion
I have previously ruled on the constitutionality of apportioning capital gains and interest income. Rulings of the Commissioner dated October 31, 1984, P.D. No. 84-210; March 27, 1987, P.D. No. 87-104; October 14, 1987, P.D. No. 87-224; and July 5, 1989, P.D. No. 89-197, copies enclosed.
Determination
Accordingly, the assessment is correct as made and is 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.
Two cases are presently pending in court in which the issue is the constitutionality of including capital gains in apportionable income. You may wish to preserve your judicial remedies by paying the assessment and filing a protective claim under §58.1-1824. In view of the issues involved, your protective claim will be held without action pending final decisions in the cases styled Corning Glass Works, Inc. v. Virginia Department of Taxation and Lorillard, Inc. v. Department of Taxation. On June 23, 1989, the Circuit Court of Fairfax County ruled from the bench in favor of the department in the Corning Glass Works case.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner