Were leases and other transactions between separately incorporated affiliates exempt as intracompany transfers for Virginia sales tax?

Subject

Tax is applicable to transactions between Taxpayer and its affiliates

Plain-English summary

A corporation argued that transactions with its affiliates were nontaxable intracompany transfers between departments of one business. Virginia's records and documentation instead showed separate legal entities.

The Tax Commissioner explained that affiliated corporations are treated as separate entities for sales-and-use-tax purposes. Prior rulings treated virtually any transaction for consideration between affiliates, including rentals of tangible personal property, as taxable rather than as an exempt internal transfer.

Virginia assessments are presumed correct. Because the taxpayer provided no documentation proving that the transactions occurred between departments of the same legal company, the Commissioner upheld the Department's earlier determination.

What this means for you

• Common ownership did not merge affiliated corporations into one taxpayer for sales-tax purposes.
• Leases and other consideration-based transfers between separate affiliates could be taxable.
• Entity records and transaction documentation were necessary to overcome the Department's classification and presumed-correct assessment.

Citations and references

• Va. Code § 58.1-205, presumption that a Department assessment is correct.
• Va. Code § 58.1-603, Virginia retail sales tax.
• P.D. 85-233, P.D. 88-215, and P.D. 94-271, affiliate-transaction guidance cited by the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-35

Original ruling text

April 20, 2407

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear **:

This will reply to your letter in which you contend the facts of the determination letter issued on January 11, 2007, to * (the "Taxpayer") are incorrect.

FACTS

In the Department's January 11, 2007, letter it was determined that the retail sales and use tax was applicable to transactions between the Taxpayer and its affiliates in accordance with Va. Code § 58.1-603. The Taxpayer, however, disagrees with the Department's position on the basis that the transactions between the Taxpayer and its affiliates are intracompany transactions between departments of the same company.

DETERMINATION

Based on the Department's records and documentation, the Taxpayer and its affiliates are separate legal entities. The Tax Commissioner has previously ruled that affiliated corporations must be treated as separate entities and leases of tangible personal property between them are not exempt intracompany transfers. See Public Document (P.D.) 85-233 (12/31/85), P.D. 88-215 (7/27/88) and P.D. 94-271 (8/30/94). These P.D.s state that virtually any transaction involving a consideration, including rentals between two affiliated companies, is subject to the sales and use tax.

Virginia Code § 58.1-205 provides that a tax assessment issued by the Department is deemed prima facie correct. The burden is upon the taxpayer to prove otherwise. In this case, the Taxpayer has not provided any documentation to prove that the transactions in question were between departments of the same company. Accordingly, I find that the Department's determination of January 11, 2007 correct as issued.

The Code of Virginia sections and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact * in the Department's Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

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