Tax Type
Corporation Income Tax
Description
Interest income and gain from sale of fixed assets; Returns of Affiliated Corporations
Topic
Returns/Payments/Records
Date Issued
10-15-1991
October 15, 1991
Re: §58.1-1821 Application; Corporation Income Tax
Dear**********
This will reply to your letter of May 31, 1990, in which you seek correction of corporation income tax assessments for*****************(the "Taxpayer").
FACTS
The taxpayer was included in a consolidated federal return and filed a separate Virginia return for the years under review. The taxpayer was audited and an adjustment was made to the sales factor to reflect only interest income and net gains from fixed asset sales. You contend that the sales factor should include the gross proceeds from fixed asset sales and other income items.
DETERMINATION
The Virginia sales factor is a fraction, the numerator of which is total sales in Virginia during the taxable year. The denominator is the total sales of the corporation everywhere during the taxable year.
The term "sales" means the gross receipts of the corporation from all sources (except dividends, which are allocable), whether or not such gross receipts are generally considered sales. Sales are to be included in the sales factor if the gross receipts are included in Virginia taxable income and are connected with the conduct of the taxpayer's trade or business within the United States.
Gross receipts or sales (Line 1c on federal Form 1120) and gross receipts from installment sales were excluded from the sales factor denominator because the taxpayer could not identify the source of the receipts. The auditor requested the source information during the audit, but none was furnished.
The department cannot allow a taxpayer to include in the denominator of the sales factor receipts from an unknown or unspecified source. Only receipts or income that can be readily attributed to a particular state (or assigned to the numerator of the sales factor of a particular state) may be included in the denominator. To do otherwise would allow a taxpayer to inflate the denominator and distort the sales factor.
You now assert that the receipts were from sources without Virginia; however, no source information has been provided to substantiate your claim. Absent documentation showing the source of the receipts, the department will not accept your position.
The department will allow you to submit information detailing the sources of the gross receipts. The information must be sufficiently detailed to reconcile to amounts reported on the consolidated federal return and the separate Virginia return and must clearly show the receipts to be included in the denominator and the states to which they are attributed. Should you choose to submit the information, please send it to the department's Technical Services Section, P.O. Box 6-L, Richmond, Virginia 23282, within 30 days.
Sincerely
W. H. Forst
Tax Commissioner
TPD/5389F
Rulings of the Tax Commissioner