Administrative Code

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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 120. Corporation Income Tax
1/27/2023

23VAC10-120-210. Sales factor.

A. In general. The sales factor is a fraction, the numerator of which is the total sales in Virginia during the taxable year, and the denominator of which is the total sales of the corporation everywhere during the taxable year.

B. Sales. "Sales" is defined in § 58.1-302 of the Code of Virginia and means all gross receipts of the corporation except dividends allocated under § 58.1-407 of the Code of Virginia. In the case of the sale or disposition of intangible property (including, but not limited to patents, copyrights, bonds, stocks and other securities) gross receipts shall be disregarded and only the net gain from the transaction shall be included. Sales shall be included in the sales factor if the gross receipts or net gain are included in Virginia taxable income and are connected with the conduct of taxpayer's trade or business within the United States. See 23VAC10-120-150.

1. Net gain is computed on a per transaction basis. A sale or disposition of intangible property is included in the sales factor only to the extent that it results in a net gain.

2. A disposition of intangible property resulting in a loss is ignored in computing the sales factor. A loss is not used to offset gains from the sale or other disposition of intangible property, and a loss is not used to reduce other gross receipts.

3. The net gain from the transaction must be recognized, i.e., includable in federal taxable income, in order to be included in the Virginia sales factor.

4. "Sale or other disposition" includes the sale, exchange, redemption, maturity or other disposition of intangible property.

C. Example. In 1990, Corporation C, a calendar year taxpayer, redeems bonds with an adjusted basis of $46 million for $50 million, recognizing a net gain of $4 million. C also sells stock with an adjusted basis of $98 million for $95 million, recognizing a net loss of $3 million. Only the $4 million dollar net gain is reflected in C's sales factor; the $3 million loss from the sale of stock is ignored and is not used to offset the $4 million net gain in computing C's sales factor. Likewise, the loss is not used to reduce C's other gross receipts in 1990.

D. Installment sales.

1. Receipts from an installment sale of real or tangible personal property shall be included in the sales factor based on the following:

a. The basis portion of the sales proceeds shall be included in the sales factor in the year of sale. The basis portion of the sales proceeds shall be included in the numerator of the sales factor if: (i) the tangible personal property sold was received in Virginia, or (ii) the real property sold was located in Virginia.

b. The net gain portion of the sales proceeds shall be included in the sales factor to the extent and in the year recognized for federal income tax purposes. The net gain portion of the sales proceeds shall be included in the numerator of the sales factor if a greater proportion of the recordkeeping, collection and other income producing activity in the year of receipt is performed in Virginia.

c. The interest income shall be included in the sales factor in the year it is recognized for federal income tax purposes. The interest is included in the numerator of the sales factor if a greater proportion of the recordkeeping, collection and other income producing activity in the year of receipt is performed in Virginia.

2. Receipts from an installment sale of intangible property shall be included in the sales factor based on the following:

a. The net gain portion of the sales proceeds shall be included in the sales factor to the extent and in the year recognized for federal income tax purposes. The net gain portion of the sales proceeds shall be included in the numerator of the sales factor if a greater proportion of the recordkeeping, collection and other income producing activity in the year of receipt is performed in Virginia.

b. The interest income shall be included in the sales factor in the year it is recognized for federal income tax purposes and in the same manner as interest income from an installment sale of real or tangible personal property.

c. The basis portion of the sales proceeds shall not be included in the sales factor in the year of sale.

Statutory Authority

§§ 58.1-203 and 58.1-414 of the Code of Virginia.

Historical Notes

Derived from VR630-3-414 §§ 1-4, eff. January 1, 1985; amended, eff. January 30, 1991; Volume 9, Issue 20, eff. July 28, 1993.

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