Tax Type
Corporation Income Tax
Description
Nexus (C Corporation)
Topic
Collection of Tax
Date Issued
08-28-2000
August 28, 2000
Re: Request for ruling: Corporate Income Tax
Dear ****
This will respond to your letter in which you request a reconsideration of a ruling which determined that the activities of your client (the "Taxpayer") would create nexus for purposes of the Virginia corporate income tax. A copy of the previous ruling, Public Document (P.D.) 99-196, 7/22/99, is enclosed.
FACTS
The Taxpayer is a C corporation headquartered outside Virginia. The Taxpayer is in the business of furnishing employees to its customers. In the instant case, the Taxpayer is leasing employees to pharmaceutical companies. These employees act as "detailmen" promoting a pharmaceutical company's products to doctors and medical facilities. The Taxpayer states that the leased employees conduct no activities in Virginia that exceeds the mere solicitation of sales for the pharmaceutical companies. The Taxpayer believes that the activities of the leased employees do not exceed the protection of Public Law (P.L.) 86-272, codified at 15 USCA §§ 381 through 384. In P.D. 99-196, the department determined that the activities of the Taxpayer created nexus for purposes of the Virginia corporate income tax. The Taxpayer requests a reconsideration of the ruling as it has cited new authority which it believes supports its position that the activities of its employees would not create nexus with Virginia.
RULING
In the department's previous ruling, it was determined that the Taxpayer has nexus with Virginia for income tax purposes. In requesting a reconsideration, the Taxpayer is relying upon rulings from other states concerning the application of P.L. 86272. You cite the Appeal of E.F. Timme & Son, Inc., California State Board of Equalization, 69-SBE-01 8 (1969), and an advisory opinion from the New York Department of Taxation and Finance, TSB-A-91(2)C (1991), as authorities which support its position that its activities would not create nexus with Virginia. Even if these rulings were afforded precedential weight in Virginia, they would not change the outcome of the department's previous ruling.
The facts of the Timme case are clearly distinguishable from the activities of the Taxpayer. In the California case, E.F. Timme & Son, Inc. (the "Appellant"), is described as a seller of tangible personal property through a unique financing arrangement. California ruled that even though the Appellant did not own the goods it was soliciting, it still qualified for the protection afforded by P.L. 86-272. Such an arrangement does not exist in the present case. While the department acknowledges that activities of the Taxpayer's employees in Virginia do not create nexus for the Taxpayer's customers (i.e., the sellers of tangible personal property), the fact remains that the Taxpayer is in the business of selling the services of its employees to its customers.
In the New York advisory opinion, you claim that New York clearly manifested an intention that the underlying activities must exceed "solicitation." The petitioner in the New York case leased employees to provide administrative services within the state of New York. New York held that the petitioner was subject to the state's franchise tax. In the Taxpayer's case, the underlying activity is the leasing of employees to third parties to perform services in Virginia. The leasing of employees to a third party to perform services for the third party in Virginia clearly exceeds the protection afforded by P.L. 86272. The nature of the services provided has little bearing on Virginia's authority to impose the income tax on the Taxpayer.
When any taxpayer's employees perform services on behalf of a third party, regardless of what those services may be, the taxpayer will be considered to be conducting activities in Virginia that exceed the protection of P.L. 86-272. As such, the Taxpayer will be subject to Virginia income tax for the years in which its employees solicited sales of tangible personal property on behalf of unrelated third parties. If you have any questions regarding this ruling, you may contact * * * of the * * * Office of Tax Policy at * * *
Danny M. Payne
Tax Commissioner
Re: Request for ruling: Corporate Income Tax
Dear ****
This will respond to your letter in which you request a reconsideration of a ruling which determined that the activities of your client (the "Taxpayer") would create nexus for purposes of the Virginia corporate income tax. A copy of the previous ruling, Public Document (P.D.) 99-196, 7/22/99, is enclosed.
FACTS
The Taxpayer is a C corporation headquartered outside Virginia. The Taxpayer is in the business of furnishing employees to its customers. In the instant case, the Taxpayer is leasing employees to pharmaceutical companies. These employees act as "detailmen" promoting a pharmaceutical company's products to doctors and medical facilities. The Taxpayer states that the leased employees conduct no activities in Virginia that exceeds the mere solicitation of sales for the pharmaceutical companies. The Taxpayer believes that the activities of the leased employees do not exceed the protection of Public Law (P.L.) 86-272, codified at 15 USCA §§ 381 through 384. In P.D. 99-196, the department determined that the activities of the Taxpayer created nexus for purposes of the Virginia corporate income tax. The Taxpayer requests a reconsideration of the ruling as it has cited new authority which it believes supports its position that the activities of its employees would not create nexus with Virginia.
RULING
In the department's previous ruling, it was determined that the Taxpayer has nexus with Virginia for income tax purposes. In requesting a reconsideration, the Taxpayer is relying upon rulings from other states concerning the application of P.L. 86272. You cite the Appeal of E.F. Timme & Son, Inc., California State Board of Equalization, 69-SBE-01 8 (1969), and an advisory opinion from the New York Department of Taxation and Finance, TSB-A-91(2)C (1991), as authorities which support its position that its activities would not create nexus with Virginia. Even if these rulings were afforded precedential weight in Virginia, they would not change the outcome of the department's previous ruling.
The facts of the Timme case are clearly distinguishable from the activities of the Taxpayer. In the California case, E.F. Timme & Son, Inc. (the "Appellant"), is described as a seller of tangible personal property through a unique financing arrangement. California ruled that even though the Appellant did not own the goods it was soliciting, it still qualified for the protection afforded by P.L. 86-272. Such an arrangement does not exist in the present case. While the department acknowledges that activities of the Taxpayer's employees in Virginia do not create nexus for the Taxpayer's customers (i.e., the sellers of tangible personal property), the fact remains that the Taxpayer is in the business of selling the services of its employees to its customers.
In the New York advisory opinion, you claim that New York clearly manifested an intention that the underlying activities must exceed "solicitation." The petitioner in the New York case leased employees to provide administrative services within the state of New York. New York held that the petitioner was subject to the state's franchise tax. In the Taxpayer's case, the underlying activity is the leasing of employees to third parties to perform services in Virginia. The leasing of employees to a third party to perform services for the third party in Virginia clearly exceeds the protection afforded by P.L. 86272. The nature of the services provided has little bearing on Virginia's authority to impose the income tax on the Taxpayer.
When any taxpayer's employees perform services on behalf of a third party, regardless of what those services may be, the taxpayer will be considered to be conducting activities in Virginia that exceed the protection of P.L. 86-272. As such, the Taxpayer will be subject to Virginia income tax for the years in which its employees solicited sales of tangible personal property on behalf of unrelated third parties. If you have any questions regarding this ruling, you may contact * * * of the * * * Office of Tax Policy at * * *
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner