Tax Type
Corporation Income Tax
Description
Ruling on warranty services provided by a third party entity in Virginia under P.L. 86-272
Topic
Nexus
Date Issued
10-17-2008
October 17, 2008
Re: Ruling Request: Corporate Income Tax
Dear *****:
This will respond to your letter in which you request a ruling with respect to corporate income tax nexus for your client (the "Taxpayer").
FACTS
The Taxpayer is commercially domiciled outside Virginia, and maintains no property or employees in Virginia. Sales solicitation activities by the Taxpayer are limited to those permitted under Public Law (P.L.) 86-272. The Taxpayer's sells two distinct products, one for commercial applications and the other for residential. Commercial products are sold directly to a contractor, who performs installation for its customer. Residential products are sold to distributors that in turn sell to retailers and contractors for sale to residential customers.
Both types of products carry a parts and labor warranty. In addition, the Taxpayer sells extended warranties. Commercial warranties are performed by the contractor that did the installation. Residential warranty claims are usually performed by the distributor, retailer or contractor. In both cases, the Taxpayer ships parts to the entity providing the warranty work and reimburses the entity for the cost of repairs, or replacements. The Taxpayer has no ownership interest in any of the distributors, retailers, or contractors operating in Virginia. The Taxpayer requests a ruling as; to whether the warranty services provided by a third party entity in Virginia would subject the Taxpayer to Virginia income tax.
RULING
Public Law (P.L.) 86-272, codified at 15 U.S.C. §§ 381-384, prohibits a state from imposing a net income tax where the only contacts with a state are a narrowly defined set of activities constituting solicitation of orders for sales of tangible personal property. The Department limits the scope of P.L. 86-272 to only those activities that constitute solicitation, are ancillary to solicitation, or are de minimis in nature. See Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214 (1992). Although P.L. 86-272 applies to tangible property, the Department's policy has been to extend the "solicitation test" of P.L. 86-272 to situations involving the sales of services. The Department has a long established policy of narrowly interpreting the provisions of P.L. 86-272.
In Public Document (P.D.) 99-278 (10/14/99), the Department affirmed that warranty services carried on in Virginia are not an activity protected by P.L. 86-272. That ruling further states that the provision of services in Virginia by an independent contractor on behalf of a taxpayer was the purchase by the taxpayer of services from a vendor that were then resold to the taxpayer's customers. Accordingly, such activity would not create nexus for the taxpayer purchasing the services.
In this case, warranty services are not purchased from a warranty company. Instead, the services are provided by unrelated distributors, retailers, and contractors. The Taxpayer reimburses these independent contractors for providing the warranty services.
The Taxpayer's operations are substantially similar to the sign manufacturer in P.D. 01-136 (9/18/2001). In that ruling, the signs were installed on-site and warranty services were provided in Virginia by unrelated third parties. The Department viewed these activities as if the sign manufacturer was purchasing the repair services from a vendor and reselling them to its customers. Based on the facts presented, the performance of warranty services by the distributors, retailers, and contractors in Virginia are purchases of services by the Taxpayer and would not exceed the protection afforded under to P.L. 86-272.
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 sections, regulations, and tax bulletin cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this ruling, you may contact ***** in the 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/1-2649680311.o
Rulings of the Tax Commissioner