Current through Register Vol. 41, No. 3, September 23, 2024
A. In general.
The sales factor is a fraction, the numerator of which is the total sales in
Virginia during the taxable year, and the denominator of which is the total
sales of the corporation everywhere during the taxable year.
B. Sales. "Sales" is defined in §
58.1-302 of the Code of Virginia and means all gross receipts of the
corporation except dividends allocated under § 58.1-407 of the Code of
Virginia. In the case of the sale or disposition of intangible property
(including, but not limited to patents, copyrights, bonds, stocks and other
securities) gross receipts shall be disregarded and only the net gain from the
transaction shall be included. Sales shall be included in the sales factor if
the gross receipts or net gain are included in Virginia taxable income and are
connected with the conduct of taxpayer's trade or business within the United
States. See
23VAC10-120-150.
1. Net gain is computed on a per transaction
basis. A sale or disposition of intangible property is included in the sales
factor only to the extent that it results in a net gain.
2. A disposition of intangible property
resulting in a loss is ignored in computing the sales factor. A loss is not
used to offset gains from the sale or other disposition of intangible property,
and a loss is not used to reduce other gross receipts.
3. The net gain from the transaction must be
recognized, i.e., includable in federal taxable income, in order to be included
in the Virginia sales factor.
4.
"Sale or other disposition" includes the sale, exchange, redemption, maturity
or other disposition of intangible property.
C. Example. In 1990, Corporation C, a
calendar year taxpayer, redeems bonds with an adjusted basis of $46 million for
$50 million, recognizing a net gain of $4 million. C also sells stock with an
adjusted basis of $98 million for $95 million, recognizing a net loss of $3
million. Only the $4 million dollar net gain is reflected in C's sales factor;
the $3 million loss from the sale of stock is ignored and is not used to offset
the $4 million net gain in computing C's sales factor. Likewise, the loss is
not used to reduce C's other gross receipts in 1990.
D. Installment sales.
1. Receipts from an installment sale of real
or tangible personal property shall be included in the sales factor based on
the following:
a. The basis portion of the
sales proceeds shall be included in the sales factor in the year of sale. The
basis portion of the sales proceeds shall be included in the numerator of the
sales factor if:
(i) the tangible personal
property sold was received in Virginia, or
(ii) the real property sold was located in
Virginia.
b. The net
gain portion of the sales proceeds shall be included in the sales factor to the
extent and in the year recognized for federal income tax purposes. The net gain
portion of the sales proceeds shall be included in the numerator of the sales
factor if a greater proportion of the recordkeeping, collection and other
income producing activity in the year of receipt is performed in
Virginia.
c. The interest income
shall be included in the sales factor in the year it is recognized for federal
income tax purposes. The interest is included in the numerator of the sales
factor if a greater proportion of the recordkeeping, collection and other
income producing activity in the year of receipt is performed in
Virginia.
2. Receipts
from an installment sale of intangible property shall be included in the sales
factor based on the following:
a. The net gain
portion of the sales proceeds shall be included in the sales factor to the
extent and in the year recognized for federal income tax purposes. The net gain
portion of the sales proceeds shall be included in the numerator of the sales
factor if a greater proportion of the recordkeeping, collection and other
income producing activity in the year of receipt is performed in
Virginia.
b. The interest income
shall be included in the sales factor in the year it is recognized for federal
income tax purposes and in the same manner as interest income from an
installment sale of real or tangible personal property.
c. The basis portion of the sales proceeds
shall not be included in the sales factor in the year of sale.
Statutory Authority
§§ 58.1-203 and 58.1-414 of the Code of Virginia.
