Tax Type
Corporation Income Tax
Description
Airline carrier; Apportionment of income; Excess net operating loss deduction
Topic
ACRS Modifications
Allocation and Apportionment
Taxable Income
Date Issued
11-19-1990
November 19, 1990
Re: §58.1-1821 Application; Corporation Income Tax
Dear ****
This will reply to your letter of July 3, 1990, in which you seek correction of a corporation income tax assessment for ***** (the "Taxpayer").
FACTS
The taxpayer, a commercial air carrier, filed its 1986, 1987 and 1988 returns using a single mileage factor to apportion its income. The auditor disallowed this apportionment method and used the statutory three factor formula. The auditor also carried forward 1983 ACRS additions with the 1983 net operating loss deduction (NOLD) to 1988 and disallowed an excess NOLD for 1986 which reduced federal taxable income below zero.
Apportionment formula: The department has previously ruled on the correct method of apportioning income for airlines. See P.D. 90-158 (9/6/90)
(copy enclosed). The single factor formula based on revenue passenger miles is not permitted; the taxpayer is required to use a three factor apportionment formula.
While the methods used by the auditor to calculate the property and sales factors (based on departures and gross ticket sales, respectively) were correct, the department will allow you to submit mileage information if you wish to, in accordance with the principles established in P.D. 90-158.
ACRS Additions Carried Forward with NOLD: The taxpayer used a portion of its 1983 federal NOLD to offset its federal taxable income for 1988. The auditor carried forward a portion of the taxpayer's 1983 ACRS addition to 1988, based on the percentage of 1983 NOLD utilized in 1988 to the total 1983 NOLD. This reduced the taxpayer's ACRS subtraction carryover to 1989. The taxpayer disagrees with this adjustment.
§8.C. of Virginia Regulation (VR) 630-3-323.1 applies to the taxpayer's situation. Because the taxpayer's 1983 net operating loss was carried forward to 1988, the ACRS additions should not have been carried forward with the NOLD. The audit report will be adjusted and the ACRS subtraction carryover to 1989 will be reinstated to the amount computed by the taxpayer.
Excess NOLD Producing Negative Federal Taxable Income: On its 1986 return, the taxpayer started with a federal taxable loss, resulting from an NOLD. The auditor included the taxpayer's NOLD as a positive adjustment based on the rule that a NOLD cannot create or increase a federal net operating loss. The taxpayer asserts that the NOLD available in the current year is not limited to federal taxable income but, instead, can be used to produce a federal taxable loss for Virginia purposes.
The department has previously ruled that the federal taxable income for Virginia purposes cannot be reduced below zero by a net operating loss deduction. See Ruling of the Tax Commissioner dated June 24, 1983 (copy enclosed). Therefore, the auditor was correct in adding back the excess NOLD for 1986 which reduced federal taxable income below zero.
Accordingly, the assessment will be adjusted to remove the carryforward of ACRS additions to 1988. In all other respects, the assessment is correct. 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. If you desire to submit mileage information, including overflight miles, it should be submitted to the department's Technical Services Section, P.O. Box 6-L, Richmond, VA 23282 within 30 days. Although you requested a conference, this letter has been issued without one. If you still desire a conference you should request one within thirty days.
Sincerely,
W. H. Forst
Tax Commissioner
Re: §58.1-1821 Application; Corporation Income Tax
Dear ****
This will reply to your letter of July 3, 1990, in which you seek correction of a corporation income tax assessment for ***** (the "Taxpayer").
FACTS
The taxpayer, a commercial air carrier, filed its 1986, 1987 and 1988 returns using a single mileage factor to apportion its income. The auditor disallowed this apportionment method and used the statutory three factor formula. The auditor also carried forward 1983 ACRS additions with the 1983 net operating loss deduction (NOLD) to 1988 and disallowed an excess NOLD for 1986 which reduced federal taxable income below zero.
DETERMINATION
Apportionment formula: The department has previously ruled on the correct method of apportioning income for airlines. See P.D. 90-158 (9/6/90)
(copy enclosed). The single factor formula based on revenue passenger miles is not permitted; the taxpayer is required to use a three factor apportionment formula.While the methods used by the auditor to calculate the property and sales factors (based on departures and gross ticket sales, respectively) were correct, the department will allow you to submit mileage information if you wish to, in accordance with the principles established in P.D. 90-158.
ACRS Additions Carried Forward with NOLD: The taxpayer used a portion of its 1983 federal NOLD to offset its federal taxable income for 1988. The auditor carried forward a portion of the taxpayer's 1983 ACRS addition to 1988, based on the percentage of 1983 NOLD utilized in 1988 to the total 1983 NOLD. This reduced the taxpayer's ACRS subtraction carryover to 1989. The taxpayer disagrees with this adjustment.
§8.C. of Virginia Regulation (VR) 630-3-323.1 applies to the taxpayer's situation. Because the taxpayer's 1983 net operating loss was carried forward to 1988, the ACRS additions should not have been carried forward with the NOLD. The audit report will be adjusted and the ACRS subtraction carryover to 1989 will be reinstated to the amount computed by the taxpayer.
Excess NOLD Producing Negative Federal Taxable Income: On its 1986 return, the taxpayer started with a federal taxable loss, resulting from an NOLD. The auditor included the taxpayer's NOLD as a positive adjustment based on the rule that a NOLD cannot create or increase a federal net operating loss. The taxpayer asserts that the NOLD available in the current year is not limited to federal taxable income but, instead, can be used to produce a federal taxable loss for Virginia purposes.
The department has previously ruled that the federal taxable income for Virginia purposes cannot be reduced below zero by a net operating loss deduction. See Ruling of the Tax Commissioner dated June 24, 1983 (copy enclosed). Therefore, the auditor was correct in adding back the excess NOLD for 1986 which reduced federal taxable income below zero.
Accordingly, the assessment will be adjusted to remove the carryforward of ACRS additions to 1988. In all other respects, the assessment is correct. 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. If you desire to submit mileage information, including overflight miles, it should be submitted to the department's Technical Services Section, P.O. Box 6-L, Richmond, VA 23282 within 30 days. Although you requested a conference, this letter has been issued without one. If you still desire a conference you should request one within thirty days.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner