In Virginia P.D. 13-84 (Feb. 28, 2013), the Department of Taxation clarified how a manufacturer who seeks single sales factor treatment can calculate the “average number of full-time employees for the base year” and “in each of the three years after the [single sales factor] election.” (click here for more information about Virginia’s single sales factor election.) The taxpayer seeking clarification proposed the following calculation methods:
1. “Average of the first day and last day numbers of qualifying employees;
2. “Average of the month-end;
3. “Total hours worked by all qualifying employees divided by 1,680.”
The Department held that the first two methods met the statutory and dictionary definition of average. However, the third method was unsatisfactory for a few reasons. If a taxpayer were “to divide total hours worked by 1,680,” they could mathematically construct more employees than actual employees, which would frustrate the intent of the statute. Further, since this calculation does not account for vacation days or other time off for full-time employees, it only takes into account actual time worked and not scheduled time worked as contemplated by the Assembly. Finally, the Department allows two part-time employees to qualify as one full-time employee, and this calculation would eliminate such an option.
The Department made two critical points in this public letter ruling. First, a manufacturer must meet two tests to qualify an employee as a full-time employee: the employee must receive fringe benefits and is required to work a minimum of 35 hours per work. Second, “the manufacturer’s ability to choose the average method each taxable year allows it to select methods that maximize the impact of vacancies in the base employment year while minimizing it in subsequent years.” [emphasis added] The second point is beneficial for employers who expect turnover or headcount changes after the base year when seeking the single sales factor election.
If you have questions about qualifying for the single sales factor election for Virginia, please contact Amol Jain at AJain@brg-expert.com or 202.480.2678.
The views expressed in this article are those of the authors and do not necessarily reflect the position or policy of Berkeley Research Group, LLC.
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