Document Number
05-90
Tax Type
Corporation Income Tax
Description
Corporate Nexus
Topic
Clarification
Date Issued
06-09-2005


June 9, 2005




Re: Request for Ruling: Corporate Income Tax

Dear ***********:

This will reply to your letter in which you request a ruling on whether your client (the "Taxpayer") has nexus with Virginia for corporate income tax purposes.
FACTS

The Taxpayer, a ***** ("State A") corporation, is a parent holding corporation of one wholly owned subsidiary. The Taxpayer's sole source of income is interest on loans made to the subsidiary. The Taxpayer has no property or payroll.

The officers of the Taxpayer live either in Virginia or State A. These officers routinely perform management, finance, administrative and marketing activities on behalf of the Taxpayer in Virginia and State A. The subsidiary, headquartered in State A, operates in multiple states including Virginia. The Virginia operations include an administrative office that keeps the accounting records for the Taxpayer and pays the salaries of the officers of the Taxpayer.

The Taxpayer and the subsidiary are related to a group of corporations. The affiliated group, including the subsidiary, files a combined Virginia income tax return.

You request a ruling as to whether the Taxpayer has nexus with Virginia and, therefore, is subject to Virginia corporate income tax. In addition, if the Department finds that the Taxpayer is subject to Virginia tax, you ask how the interest income of the Taxpayer would be apportioned, and whether the combined group should file amended returns to include the Taxpayer.

RULING


Under Title 23 of the Virginia Administrative Code ("VAC") 10-120-140, the commercial domicile of a corporation is defined as the location of the principal office where "the business affairs of the corporation are normally directed or managed." This is usually a corporation's headquarters. The regulation goes on to state:
    • If the corporation has no office then the commercial domicile may be where the officers, directors and shareholders regularly meet or where the principal officer or majority shareholder/officer conducts the affairs of the corporation, depending upon the facts and circumstances.

In this case, the Taxpayer has no office, employees, or tangible assets. According to your letter, the Taxpayer's affairs are conducted primarily by officers located at the subsidiary's office in Virginia. Based on the regulation cited above, Virginia would be considered to be the commercial domicile of the Taxpayer and the Taxpayer would be subject to income tax in Virginia.


Apportionment


Under Va. Code § 58.1-405, a corporation is presumed to be doing business entirely within Virginia if its business activities within another state are such that the other state does not have jurisdiction to impose a net income tax, a franchise tax measured by net income, or a privilege tax measured by net income. The actual imposition of a net income, franchise, or privilege tax is not required, but the state must have jurisdiction, if it so chooses, to impose a tax measured by net income. See Title 23 VAC 10-120-120.

You represent that the Taxpayer is not subject to a net income tax, a franchise tax measured by net income, or a privilege tax measured by net income in any other state. In accordance with Title 23 VAC 10-120-120, the Taxpayer would be subject to Virginia income taxation on 100% of its income.


Filings Status

Virginia Code § 58.1-442 allows corporations to elect to file as separate, combined, or consolidated entities regardless of how the corporations filed their federal income tax return. Once an affiliated group has made an election, all returns for subsequent years must be filed on the same basis and the group may not change its filing status unless permission is granted by the Department. Other members of the affiliated group of corporations that are subject to Virginia income tax must conform to the initial election made by the group unless permission to change has been granted by the Department. See Title 23 VAC 10-120-320 B.

In general, a corporation that is commercially domiciled in Virginia will be subject to tax on its income and be eligible to be included in a combined Virginia income tax return. Based on the information provided, if the Taxpayer is affiliated, as defined under Va. Code § 58.1-302, with a group of corporations that file a Virginia combined income tax return, it must be included in the combined corporate income tax return.

Accordingly, if the Taxpayer should have been included in combined income tax returns for prior taxable years, amended returns must be filed. Under Va. Code § 58.1-1823, a taxpayer has three years from the date a return is due, or 90 days from the final determination of a federal change or correction, whichever is later, to file an amended return to request a refund. As such, the Department is authorized to issue refunds only for those amended returns filed within the three-year limitations period.

In addition, the amended returns may create net operating losses or result in adjustments to existing loss or deduction carryovers. Such carryovers would be carried back and forward in accordance with Title 23 VAC 10-120-325.

This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia and regulation sections cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this ruling, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,

                    • Kenneth W. Thorson
                      Tax Commissioner


AR/53899B


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46