Alternative method of allocation and apportionment

# A.

All corporations are required to file returns allocating and apportioning income using the statutory methods set forth in Va. Code §§ 58.1-407 through 58.1-420, and no corporation has a right under this section to use an alternative method without specific permission from the Department. Such permission will generally be granted only on a year by year basis. Even if an alternative method has been allowed for a prior year, or is expected to be allowed for the current year, a return following the statutory method must be filed.

The policy of the department is that the statutory method is the most equitable method of determining the portion of a multistate corporation's income that is attributable to business activity in Virginia. Permission to use an alternate method of allocation and apportionment will be granted only in extraordinary circumstances.

# B.

In order to request the department to redetermine the portion of Virginia taxable income subject to Virginia income tax based on an alternate method, the taxpayer must:

# 1.

File a return using the statutory method of allocating and apportioning income and pay the resulting tax.

# 2.

File an amended return within the time prescribed for filing amended returns claiming refunds. The amended return must follow the proposed alternative method and contain the following information:

a. a statement of why the statutory method is inapplicable or inequitable as applied to taxpayer, and

b. an explanation of the proposed method of allocation and apportionment in sufficient detail for the department to make a meaningful review.

# 3.

If the situation causing the claimed inequity or inapplicability is expected to continue from year to year, the corporation may apply for permission to pay the income tax for future years based on the alternate method. If granted, such permission will relieve the corporation of the obligation to file a return based on the statutory method and the information in subdivision 2 of this subsection. If the department determines that circumstances have changed and no longer justify use of an alternate method, the department will revoke such permission effective with the change in circumstances and will assess any additional tax due.

# 4.

The department will not grant permission to use an alternate method of allocation and apportionment unless it determines:

a. That the statutory method is in fact inapplicable because it produces an unconstitutional result under the particular facts and circumstances of the taxpayer's situation; or

b. That the statutory method is in fact inequitable because:

(1) It results in double taxation of the income, or a class of income, of the taxpayer; and

(2) The inequity is attributable to Virginia, rather than to the fact that some other state has a unique method of allocation and apportionment.

c. Such determination shall be made each year based on a review and information filed.

# 5.

Permission to pay the income tax based on an alternate method will not be granted for future years unless the department also determines that the statutory method will probably be inapplicable or inequitable in future years to the same extent and for the same reasons as in the taxable period applied for.