Could a Virginia manufacturer include executive pay when testing the wage requirement for single-sales-factor apportionment?

Plain-English summary

Virginia allowed a manufacturer to include executive compensation in its average-wage calculation when its headquarters was in Virginia or the executives otherwise worked in Virginia. The rule addressed manufacturers that elected a modified apportionment method and then had to maintain specified employment and wage levels.

The wage benchmark normally came from labor-market data published by the Virginia Employment Commission. VEC compiled the data from employer surveys. Executive wages could appear in the locality where the executives actually worked or, depending on employer reporting, in the headquarters locality; larger companies tended to use the headquarters approach.

Because the benchmark included executive-level wages for many businesses, comparable Virginia executive wages could be included in the manufacturer's calculation.

The Department was not aware of another comparable wage-data source at the time. A manufacturer could propose another statewide or locality-based source for its industry if that source showed a lower average wage and the Department approved it.

What this means for you

• Align the company's wage calculation with the workforce included in the benchmark data.
• Executive compensation can count when the headquarters is in Virginia or the executives work in Virginia.
• Preserve evidence of work location and how executive wages were assigned.
• Alternative labor-market data requires Department approval; finding a lower number alone is not enough.
• Verify current election and wage rules before using this 2013 guidance.

Common questions

Q: Where did Virginia's benchmark wage data come from?
A: Employer survey responses compiled by the Virginia Employment Commission.

Q: Were executives always assigned to their actual work locality?
A: No. Some employers reported executives at headquarters, and larger companies tended to use that method.

Q: Could the manufacturer count executive wages?
A: Yes, if its headquarters was in Virginia or the executives otherwise worked in Virginia.

Q: Could another wage-data source replace VEC data?
A: Potentially, if it provided comparable state or local industry data and the Department approved it.

Citations and references

• Va. Code § 58.1-422.
• Single Sales Factor Election for Manufacturers Guidelines, Public Document 13-6, discussed in the guidance.

Subject

Average Weekly Wage Data and Single Sales Factor Apportionment for Manufacturers

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-194

Original ruling text

October 23, 2013

Re: Average Weekly Wage Data and Single Sales Factor Apportionment for Manufacturers

Dear *:

This is in response to your request for guidance regarding the Virginia Employment Commission's ("the VEC's") average weekly wage data, which is used in determining whether a manufacturing company that elected to use the modified method of apportionment for manufacturing companies is subject to additional taxes. Specifically, you requested guidance regarding how the VEC compiles average weekly wage data and how executives are accounted for in the data; whether it is acceptable for a company to include its executives' wages in the computation of its average wages for purposes of the average weekly wage requirement; and whether the Virginia Department of Taxation ("the Department") is aware of any other entities that publish average weekly wage data that is similar to the average weekly wage data that the VEC publishes.

DETERMINATION

Under Va. Code 58.1-422, manufacturing companies may elect to use a modified method of apportioning their Virginia taxable income. A manufacturing company that elects to use the modified method of apportionment will be subject to additional taxes if the manufacturing company's average annual number of full-time employees for the first three taxable years that it used the modified method of apportionment is less than 90 percent of its base year employment, or if the average wages of the manufacturing company's full-time employees, as certified by the manufacturing company, is not greater than the lower of the state or local average weekly wage for its industry. For purposes of the average weekly wage requirement, state or local average weekly wages are based on labor market data that is published by the VEC unless the manufacturing company can provide the Department with another source of labor market data that shows an average state or local weekly wage for its industry that is lower than the VEC's state or local average weekly wages for its industry. See the Single Sales Factor Election for Manufacturers Guidelines Public Document 13-6 (01/07/2013).

The VEC compiles its average weekly wage data by sending surveys to employers. The VEC's average weekly wage data is based solely on the employers' responses to its surveys. Whether the wages of executives are included in a particular locality's average weekly wage data depends on how each company within the locality accounts for executives. Some companies report their executives as working in the localities in which they actually work, while others report all of their executives as working in the locality in which the company's headquarters is located. Larger companies tend to use the latter method when reporting where their executives work.

You requested guidance regarding whether it would be acceptable for a company to include its executives' wages in the computation of the company's average wages for purposes of determining whether the company met the average weekly wage requirement. Because the VEC's average weekly wage data includes executive-level wages for many companies, it is acceptable for a company to include the wages of executives in the computation of its average wages, so long as the company's headquarters is located in Virginia or such executives otherwise work in Virginia.

You also asked whether the Department is aware of any other entities that publish average weekly wage data that is similar to the average weekly wage data that is published by the VEC. The Department is not currently aware of any sources of average weekly wage data aside from the average weekly wage data that is published by the VEC. If you find another source of statewide or locality-based average weekly wage data for your industry that is similar to the average weekly wage data that is published by the VEC, and the Department approves of that source, you may use that data instead of the VEC's average weekly wage data. If the Department becomes aware of any other valid sources of average weekly wage data in the future, it will share that information publicly.

CONCLUSION

I hope that this has addressed your inquiry. The Code of Virginia sections cited are available online at www.tax.virginia.qov in the Laws, Rules and Decisions section of the Department's website. If you have additional questions, please contact * in the

Office of Tax Policy, Policy Development Division, at *.

Sincerely,

Craig M. Burns

Tax Commissioner

CMB/mth