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Vermont Capital Gain Allocated to Redetermined “Commercial Domicile”

Tax Development Feb 08, 2021

Vermont Capital Gain Allocated to Redetermined “Commercial Domicile”

In complete opposition to the determinations of capital gain income being subject to apportionment, Vermont recently determined that the gain from the sale of Federal Communications Commission (FCC) licenses was nonbusiness income subject to allocation. Vermont National Telephone Company (VNT) was a Connecticut corporation that sold two unused FCC licenses that granted the company the exclusive right to broadcast in upstate New York. VNT allocated the gain on the sale of the licenses to New York because the licenses could only apply there. Upon audit, the Vermont Department of Taxes (DOT) determined that the sale was subject to Vermont tax, also assessing penalties and interest.

The taxpayer appealed to the Vermont Supreme Court arguing that if not allocated to New York, where it believed the licenses had a situs, the gain from the sale of an intangible should alternatively be allocated to VNT’s legal domicile, Connecticut. The Court took the position that, by definition, intangible property has no location. The fact that the licenses conveyed rights in New York was irrelevant. The Court agreed with the taxpayer that the gain was allocable to the taxpayer’s commercial domicile. When the Court considered the facts surrounding the business operations of the taxpayer, however, the determination was that Vermont was the actual “center of authority and control,” citing the Wheeling Steel Corp.1 decision. Almost all of VNT’s employees worked in the Vermont office from where all day-to-day activities were conducted. VNT owned no property in Connecticut and had no employees there. The “principal place from which the business was directed” was determined to be Vermont.   

1Wheeling Steel Corp. v. Fox, 299 U.S. 366 (1937).


Mark L. Nachbar

Mary Bernard

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