Par Greg Rottjakob
In Department of Taxation v. 1887 Holdings Inc.,1 the taxpayer was successful in maintaining the availability of a manufacturing apportionment method election on an amended return in a Court of Appeals decision. The taxpayer, 1887 Holdings Inc. (“Holdings”), was a multistate corporation based in Virginia, formerly known as C. F. Sauer Company. During the audit of its 2014 and 2015 corporate income tax returns, Holdings requested an election available to manufacturers under Code Section 58.1-422 to apportion income. The Department of Taxation (“Department”) denied the request and used the standard apportionment method in its assessment. After the tax commissioner agreed with the Department, Holdings filed a complaint in the Circuit Court of the City of Richmond. The Circuit Court agreed with the taxpayer, citing that the Code was silent regarding whether a taxpayer must elect the manufacturer’s apportionment method in an original income tax return, or whether it could “make the election” in “a timely amended” return. To limit the election to only original returns would “impose a requirement not articulated by the General Assembly.” As the purpose of the election was to promote manufacturing jobs in Virginia, this could be accomplished on either an original or amended return.
On appeal, the Department argued that the Court’s interpretation of Code Section 58.1-422 is inconsistent with the language and purpose of the statute. In its analysis of the language, if the language is unambiguous, the court is bound by the plain meaning of the language. Although the Code broadly allows amended returns, it does have some limitations on what elections can be made in the amended returns. The statutory language for elections under the installment method of Section 58.1-322.04, for example, specifies that the election must be made on or before the due date prescribed by law, including extension. In contrast, the language in Code Section 58.1-422 at issue here does not specify that the manufacturer’s election must be made on or before the due date, while it does state other limitations, specifically that the election is a three-year commitment. Imposing this type of limitation illustrates that the General Assembly can and does impose limitations on elections purposefully. To limit this election to only original returns is not within the plain language of the statute. As the statute is unambiguous, it does not support the Department’s position that the Court should afford greater weight to the Department’s policy. The Court upheld the Circuit Court finding, granting summary judgment for Holdings.
There are several issues taxpayers must consider before making this election, and we recommend a careful review of the applicable Virginia law before doing so on an amended return or when filing a current year return. Please contact the Ryan experts listed below to assist in your decision-making process.
1 No. 0598-22-2.
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