Tax Type
Corporation Income Tax
Description
Alternate payroll factor used to apportion income
Topic
Allocation and Apportionment
Date Issued
06-12-1990
June 12, 1990
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-412 Payroll Factor
Dear ***************
This is in response to your letter of November 28, 1989, in which you applied for correction of an assessment of corporation income tax.
Facts
The Taxpayer filed corporation income tax returns as a multistate corporation in 1986 and 1987 and apportioned income using the three factor formula. In computing the payroll factor, salaries and wages from the federal tax return were used. The auditor adjusted these amounts to include employee relocation expenses for both years. The Taxpayer now proposes to use the amounts reported for Virginia unemployment tax purposes and on Federal Form 941 (Employer's Quarterly Federal Tax Return) to compute the payroll factor. The Taxpayer contends that the relocation expenses were included in these returns.
Discussion
The payroll factor is a fraction, the numerator of which is the total amount of compensation paid or accrued within Virginia during the tax period by the corporation. The denominator is the total compensation paid or accrued everywhere during the tax period.
Under VR 630-3-412.C., total wages reported for Virginia unemployment compensation purposes are presumed to be compensation paid or accrued in Virginia, provided that there is no compensation paid or accrued in Virginia not subject to the Virginia Unemployment Tax Act. The Taxpayer has provided the Virginia Employment Commission forms (VEC-20) for each year to support the presumption and to substantiate its computation for the numerator of the payroll factor for both 1986 and 1987.
In determining the total compensation paid or accrued everywhere (the denominator of the payroll factor), the Department of Taxation will accept the gross amounts reported to the Internal Revenue Service on Forms W-2/W-3, Form 940 or the accounting records of the corporation, provided that all of the employees of the corporation are included in such reports. VR §630-3-302. The Taxpayer proposes to use Federal Form 941 to determine total compensation paid or accrued everywhere. However, the regulations are specific as to which federal forms may be used to determine the denominator of the payroll factor; only forms W-2/W-3, Form 940, or the accounting records of the corporation will be permitted. Therefore, the Taxpayer's proposed payroll factors for 1986 and 1987 based on amounts from Federal Form 941 will not be accepted. However, the Taxpayer has supplied Form 940 for 1986 and 1987. Form 940 will be accepted in determining the denominator of the payroll factor.
Determination
Accordingly, the audit will be revised to reflect the revised payroll factor, using the total of the VEC-20's as the numerator and the total payments on line 1 of Form 940 as the denominator. 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.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner