State Tax Ruling

Plain-English summary

P.D. 20-188 is not a fresh ruling — it is the Tax Commissioner's response to a taxpayer's request for reconsideration of an earlier determination, P.D. 20-78 (issued 5/5/2020). In P.D. 20-78, the Department had denied the taxpayer's attempt to retroactively elect the modified apportionment method available to manufacturing companies under Va. Code § 58.1-422, on amended returns for tax years ended March 31, 2014 and March 31, 2015, and upheld the resulting audit assessments. The taxpayer asked the Department to reconsider that outcome, arguing the Department had misapplied its own policy by not following the "plain language" of § 58.1-422, which the taxpayer read as giving it an absolute right to elect the modified method at any time within the limitations period of Va. Code § 58.1-1823.

The Tax Commissioner denied reconsideration. Under 23 VAC 10-20-165 F, a reconsideration request can succeed only if one of four narrow conditions is met: misstated facts, an intervening change in the law, misapplied policy that would change the result if the correct policy were used, or newly discovered evidence. The Commissioner found none of these applied here. Critically, the Commissioner explained that "misapplied policy" under the regulation means the Department used the wrong policy altogether — not that the parties disagree about how to interpret the one policy that both agree governs. Here, the taxpayer and the Department agreed that Va. Code § 58.1-422 was the controlling provision; they simply disagreed about what it meant. That kind of interpretive disagreement, standing alone, does not meet the reconsideration standard.

Because none of the four regulatory criteria were satisfied, the Commissioner found no basis to reverse P.D. 20-78. The original assessments were upheld as issued, and the letter states that updated bills, including accrued interest, would be sent to the taxpayer, with a warning to pay promptly to avoid further interest and collection action. The ruling expressly states that it constitutes the Department's final determination in the matter.

What this means for you

Manufacturing companies considering the modified apportionment election

This ruling does not resolve, on the merits, whether Va. Code § 58.1-422 lets a manufacturer retroactively elect the modified apportionment method on an amended return — that substantive question was decided in the earlier P.D. 20-78, not here. What P.D. 20-188 shows is how hard it is to get the Department to revisit a determination once issued: simply re-arguing that the Department read the statute incorrectly is not enough on its own to trigger reconsideration.

Taxpayers weighing a reconsideration request

If you are considering asking the Department to reconsider a determination letter, this ruling is a useful illustration of the four-part test in 23 VAC 10-20-165 F. A request built solely on "the Department applied the right statute but reached the wrong conclusion" is unlikely to succeed — you generally need misstated facts, a change in law, evidence that a genuinely different policy should have applied, or new evidence unavailable at the time of the original appeal.

Accountants and tax professionals

When advising a client after an adverse P.D., distinguish between an interpretive dispute (disagreement over how to read a statute the Department already applied) and a true misapplication of policy (the Department applied the wrong rule entirely). Only the latter fits the reconsideration standard as the Commissioner construed it here. If the real disagreement is interpretive, the next step after a final determination is typically judicial appeal rather than a second administrative reconsideration request.

Common questions

Q: Did the Department decide, in this ruling, whether the taxpayer could retroactively elect the modified apportionment method?
A: No. That substantive question was decided in the earlier ruling, P.D. 20-78. P.D. 20-188 only addresses whether that earlier decision should be reconsidered, and concludes it should not be.

Q: Why did the Tax Commissioner deny reconsideration?
A: Because the taxpayer's argument was that the Department misread Va. Code § 58.1-422, not that the Department applied the wrong policy altogether. The Commissioner held that 23 VAC 10-20-165 F's "misapplied policy" ground requires that an entirely different policy should have governed — not merely a different reading of the same, agreed-upon statute.

Q: What happens to the assessments now?
A: They are upheld and final. The letter states this is the Department's final determination, and that updated bills (including accrued interest) would be issued, with a caution to pay promptly to avoid further interest or collection action.

Q: Does this ruling apply to other taxpayers with similar apportionment disputes?
A: No. Like all Rulings of the Tax Commissioner, it is a redacted determination binding the Department only as to this taxpayer and these facts. It illustrates the Department's approach to the reconsideration standard, but another taxpayer's situation would need its own analysis.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1821 (application for correction of erroneous assessment)
• Va. Code § 58.1-422 (modified apportionment method for manufacturing companies)
• Va. Code § 58.1-1823 (limitations period)
• 23 VAC 10-20-165 F (four criteria for reconsideration of a Tax Commissioner determination)

Related public document:

• P.D. 20-78 (5/5/2020) — the original determination that this ruling declined to reconsider

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-188

Original ruling text

November 10, 2020

Re: § 58.1-1821 Application: Corporate Income Tax

Dear *:

This will reply to your letter in which you seek reconsideration of the Department’s determination letter, issued as Public Document (P.D.) 20-78 (5/5/2020), to * (the “Taxpayer”) for the taxable years ended March 31, 2014, and March 31, 2015.

FACTS

At the conclusion of an audit, the Taxpayer advised the Department that it wished to elect the modified apportionment method for manufacturing companies permitted under Virginia Code § 58.1-422. The Department denied the request and the Taxpayer appealed. In P.D. 20-78, the Department determined that the Taxpayer did not have the ability to elect the method retroactively on an amended return. As a result, the assessments arising out of the audit were upheld as issued. The Taxpayer seeks reconsideration of that determination, arguing that the Department misapplied policy.

DETERMINATION

Under Title 23 of the Virginia Administrative Code (VAC) 10-20-165 F, a taxpayer’s request for reconsideration must meet one of the four following requirements:

The facts upon which the original determination is based are misstated by the Tax Commissioner or are inaccurate, and the determination would have a different result based on a correction of the Tax Commissioner's misstatement of the facts presented or a clarification of the original facts presented in the taxpayer's administrative appeal;

The law upon which the original determination is based has been changed by legislation, court decision or other authority effective for the tax period(s) at issue;

The policy upon which the original determination is based is misapplied, and the determination would have a different result based on the application of the proper policy; or

The taxpayer has discovered additional evidence or documentation that was not available to the taxpayer at the time the original administrative appeal was filed with the Department, and the additional evidence or documentation could produce a result different from the original determination.

In this case, the Taxpayer argues that the Department misapplied policy in P.D. 20-78 by not applying the plain language of Virginia Code § 58.1-422. The Taxpayer contends that this statute gives it the absolute right to chose the modified apportionment method described therein at any time within the limitations period provided by Virginia Code § 58.1-1823.

In the Department’s opinion, the criteria for reconsideration have not been met in this case. The regulation requires that the determination would have a different result based on the application of the proper policy rather than whatever policy was applied. In other words, the context of the regulation indicates that an entirely different policy must actually be the correct policy to be applied in the case.

The Taxpayer and the Department agree that the same policy applies in this case, i.e. , the provisions governing the modified apportionment method described under Virginia Code § 58.1-422. The parties simply disagree as to the interpretation of the statute. In any event, P.D. 20-78 fully sets forth the Department’s position as to whether taxpayers may retroactively apply for the modified apportionment method. Although I recognize the Taxpayer’s disagreement with that position, I find no basis for reversing it at this time. The assessments, therefore, are upheld.

This letter constitutes the Department’s final determination in this matter. Updated bills will be issued to the Taxpayer shortly, which will include accrued interest to date. The Taxpayer should remit the balance due upon receipt to avoid the accrual of additional interest and possible collections actions.

The Code of Virginia sections, regulation and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3457.M

Related Documents

20-78