Tax Type
Corporation Income Tax
Description
Superfund Tax
Topic
Allocation and Apportionment
Subtractions and Exclusions
Date Issued
08-06-1992
August 6, 1992
Re: Va. Code §58.1-1821 Application
Dear*************
This will reply to your letter dated November 26, 1991 in which you protest certain adjustments resulting from an audit of********* (the "Taxpayer").
FACTS
The auditor made several adjustments to the taxpayer's Virginia taxable income, two of which are at issue in your application.
The auditor adjusted the amount of "superfund" tax added back to federal taxable income, which you protest. Also, the auditor adjusted the sales factor denominator to agree to Line 1 of the Form 1120, as filed by the taxpayer. You protest this adjustment, stating that the sales as shown on the Form 1120 are in error, due to a mistake in a journal entry made in preparing the federal return.
RULING
Superfund tax: As a part of your protest letter, you provided a reconciliation showing the total amount of tax expense deducted on Line 17, Form 1120, including the amount deducted for superfund taxes. Since the Virginia addition for income taxes should only include those amounts actually deducted in determining federal taxable income, the adjustment you propose for the superfund tax is correct. Accordingly, your assessment will be corrected to reflect an addback of superfund tax.
Sales factor: The term "sales" is defined in Va. Code §58.1-302 to mean all gross receipts of a corporation except dividends allocated under Va. Code §58.1-407. As a normal practice, auditors reconcile "sales" to gross receipts of a corporation as shown on Line 1, Form 1120.
However, you state that an entry to account for completed contract method (CCM) sales was inadvertently reversed, resulting in a reduced amount of sales shown on Line 1, Form 1120. This reduced amount of sales was offset by a reduced amount of cost of goods sold, resulting in no effect to the federal taxable income or liability. Therefore, the Form 1120 was not amended upon discovery of this error.
The auditor properly relied on the amount and character of items reported on Form 1120 in determining the proper amount to be shown in the sales numerator. , in the instant case, the total amount of the taxpayer's gross receipts was not shown on Line 1, Form 1120. Notwithstanding the fact that the Form 1120 was not amended to correct the CCM error, I will allow an adjustment to the Virginia audit reflecting the taxpayer's actual gross receipts.
A corrected assessment will be sent within thirty days of the date of this letter. Payment should be made within thirty days of receipt to avoid the imposition of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner