Tax Type
Corporation Income Tax
Description
The existence of one employee residing and working in Virginia creates a positive payroll factor.
Topic
Persons Subject to Tax
Date Issued
09-18-2008
September 18, 2008
Re: § 58.1-1824 Application: Corporate Income Tax
Dear *****:
This will reply to your letter in which you seek a refund of corporate income tax paid by ***** (the "Taxpayer") for the taxable years ended December 31, 2005 and 2006.
FACTS
The Taxpayer is a limited liability company (LLC) that files as a C corporation for income tax purposes. The Taxpayer's corporate headquarters are located in ***** (State A). It has no sales or property in Virginia. One of its officers, however, resides in Virginia and works out of his residence. His job responsibilities do not include the solicitation of sales. The Taxpayer withholds Virginia income tax from this employee.
The Taxpayer filed Virginia corporate income tax returns for the 2005 and 2006 taxable year and paid Virginia income tax. The Taxpayer now contends it does not have Virginia source income and requests a refund of Virginia income tax paid for the 2005 and 2006 taxable years.
DETERMINATION
Pursuant to the authority granted the Tax Commissioner under Va. Code § 58.1-1824, a protective claim for refund can be held pending the outcome of another case before the courts or the claim may be decided based upon its merits pursuant to Va. Code § 58.1-1821. As permitted by statute, the Taxpayer's request has been treated as an appeal under Va. Code § 58.1-1821.
Virginia Code § 58.1-400 imposes the income tax "on the Virginia taxable income for each taxable year of every corporation organized under the laws of the Commonwealth and every foreign corporation having income from Virginia sources." Generally, a corporation will have income from Virginia sources if there is sufficient business activity within Virginia to make any one or more of the applicable apportionment factors positive. The existence of positive Virginia apportionment factors clearly establishes income from Virginia sources. See the definition of "income and deductions from Virginia sources" under Title 23 of the Virginia Administrative Code (VAC) 10-120-20.
In the instant case, the Taxpayer has one employee working and residing in Virginia from whom it withholds Virginia income tax. The existence of one employee residing and working in Virginia creates a positive payroll factor. See Public Document (P.D.) 96-123 (6/7/1996). As such, the Taxpayer had Virginia source income for the taxable years at issue and is subject to Virginia's corporate income tax. Accordingly, the Taxpayer's request for refund of corporate income taxes paid for the 2005 and 2006 taxable year is denied.
The Code of Virginia section and public document cited are available on-line at www.tax.virginia.gov. If you have any questions regarding this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-2342935785.B
Rulings of the Tax Commissioner