23 VAC Title 23 Agency 10 — Virginia Tax Regulations

23VAC10-500-210

Apportionment; in general

# A.

If the taxpayer has more than one definite place of business and it is not possible or practical to determine at which definite place of business gross receipts should be taxed, gross receipts must be divided between the definite places of businesses by payroll. Some activity must occur or be controlled from a definite place of business for gross receipts to be taxed by the locality of the definite place of business. If an entity's definite place of business is in a locality that does not tax gross receipts, a different locality may not tax these gross receipts simply because the first locality does not have a license tax.

# B.

If apportionment has been used to divide the gross receipts of the business among its definite places of businesses, then the use of apportionment to assign gross receipts to a definite place of business is presumed to have compromised the ability of the taxpayer to determine the situs of the assigned gross receipts for any other purpose, such as the other-state deduction. For the purposes of this section, "other-state deducation" means a deduction for receipts attributable to business in another state in which it is subject to income tax as described in § 58.1-3732 B of the Code of Virginia. Generally, the same apportionment method used to assign gross receipts to a definite place of business must be used to subdivide those receipts unless the taxpayer has demonstrated that some other method is feasible and more accurate. This requires an analysis of the facts and circumstances applicable to each taxpayer and its definite places of business. Both of the following conditions must be satisfied before apportionment can be used to subdivide receipts assigned to a definite place of business by any method.

# 1.

The business satisfies the conditions in subsection A of this section that make it necessary to subdivide the gross receipts assigned to a definite place of business. For example, in the case of the other-state deduction this would require determining if any employees at the Virginia definite place of business participated in interstate transactions by, for example, contacting or shipping goods to customers in other states, participating with employees in other offices in transactions, etc. If there has been no participation in transactions that generate interstate receipts, then the business is not eligible for the deduction and it has no need to subdivide the receipts assigned to the definite place of business.

# 2.

It must be impossible or impractical to use specific criteria to subdivide the receipts assigned to the definite place of business. This will normally be the case when gross receipts have been assigned to a definite place of business by apportionment because apportionment ignores anything related to a specific transaction other than the criteria used for apportionment, which usually is payroll.

# C.

Examples:

# 1.

A large electronics retailer has its main sales office in City A and maintains a satellite office with its own management in the distant County B. Sales staff from City A make the initial sales contact in County B and process all sales related paperwork. Sales staff in County B make all personal and follow-up sales contacts in County B. The definite place of business is in both City A and County B since each sales office is equally responsible for sales solicitations. If it were not possible or practical to determine which definite place of business gross receipts should be attributed to, gross receipts must be apportioned between the definite places of business on the basis of the payroll of the sales staff at each respective place of business.

# 2.

A group medical practice has offices in County A and City B. County A does not tax gross receipts. Patient visits and recordkeeping functions occur in County A, but physicians see patients in the City B offices on a regular basis. City B may tax the gross receipts generated from services performed at offices located within its boundaries. However, City B may not tax the practice's gross receipts generated from County A simply because the county does not have a license tax.

# 3.

A service business has two divisions, one national and the other regional. Both divisions operate out of an office in County A. While the business can segregate its receipts by division, it cannot assign the receipts of its national division to each office, and it uses payroll apportionment to assign receipts to the office in County A. The receipts of the regional division are assigned to County A using the criteria in § 58.1-3703.1 A 3 a of the Code of Virginia. Assuming that the business meets the requirements to be eligible for the other-state deduction with respect to both divisions, the business may use the same payroll apportionment factor of the national division to subdivide the receipts of the national division assigned to County A. The business will be required to identify specific receipts of the regional division assigned to County A that are eligible for the other-state deduction unless the business can show that it is impractical or impossible to identify specific receipts for this purpose.

Last amended: Historical Notes Derived from Virginia Register Volume 24, Issue 23, eff. October 6, 2008; amended, Virginia Register Volume 33, Issue 24, eff. October 10, 2017.

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