08-2 | Virginia Tax

Tax Type

Communications Sales and Use Tax

Corporation Income Tax

Description

Telecommunications reseller utilizes third party supplier

Topic

Exemptions

Nexus

Date Issued

01-07-2008

January 7, 2008

Re: Request for Ruling: Corporate Income Tax and Retail Sales and Use Tax

Dear *****:

This will reply to your letter in which you request a ruling as to whether your client, ***** (the "Client") has nexus for Virginia corporate income tax and retail sales and use tax purposes.

FACTS

The Client is a telecommunications reseller and utilizes certain landline services and facilities supplied by a third party to transmit calls placed by foreign offshore call centers to residents of Virginia and nationwide. The Client also, through the resale of landline services and facilities, transmits calls that originate in Virginia and nationwide to foreign offshore call centers. In both scenarios, the Client's customer is the foreign offshore call center and not the individual placing or accepting the phone call. The third party bills the Client for the use of its landline services and facilities and charges tax and surcharges on Virginia calls.

You represent that the Client does not have a physical presence in Virginia nor does it have any customers within Virginia. The Client requests a ruling as to whether the service transactions detailed above are taxable.

RULING

Corporate Income Tax

Virginia Code § 58.1-400 imposes 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, property, payroll and sales, positive. See Va. Code §§ 58.1-408 through 58.1-414. The existence of positive Virginia apportionment factors establishes income from Virginia sources.

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). The Department has a long-established policy of narrowly interpreting the provisions of P. L. 86-272.

Because the Client would have no property, payroll or sales in Virginia, it would not have a positive apportionment factor. Accordingly, the service transactions conducted by the Client would not create corporate income tax nexus for the Client.

Retail Sales and Use Tax

Pursuant to Va. Code § 58.1-612, the sales tax is collectible from all persons who are dealers and who have sufficient contact with Virginia to require registration under Va. Code § 58.1-613. Virginia Code § 58.1-612 B defines the term "dealer" to include every person who:

- Sells at retail, or who offers for sale at retail, or who has in his possession for sale at retail, or for use, consumption, or distribution, or for storage to be used or consumed in this Commonwealth, tangible personal property.

In this instance, the Client does not qualify as a dealer under Va. Code § 58.1-612. Accordingly, under the facts presented, the service transactions conducted by the Client do not create retail sales and use tax nexus.

Communications Sales and Use Tax

Effective January 1, 2007, 2006 House bill 568 (Acts of Assembly 2006, Chapter 780) replaces many of the state and local communications taxes and fees with a centrally administered communications sales and use tax. The Department of Taxation issued Public Document 06-138 (11/1/06), Guidelines and Rules for the Virginia Communications Taxes, to provide guidance to taxpayers regarding the new communications sales and use tax.

Virginia Code § 58.1-648 A imposes "a sales or use tax on the customers of communications services." Virginia Code § 58.1-647 broadly defines "communications services" as:

- [t]he electronic transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals, including cable services, to a point or between or among points, by or through an electronic, radio, satellite, cable, optical, microwave, or other medium or method now in existence or hereafter devised, regardless of the protocol used for the transmission or conveyance.

Virginia Code § 58.1-648 B (viii) provides that the sales price on which the tax is levied shall not include charges for sales for resale. In this instance, the Client is reselling the service provided by the third party to the offshore call center; therefore, the transaction between the Client and the third party is a sale for resale. Pursuant to Va. Code § 58.1-648 B (viii) the transaction would not be subject to the Communications Sales and Use Tax.

In order to enjoy this exemption the Client must present the third party with a Communications Sales and Use Tax Certificate of Exemption, Form CT-10. In order for the certificate to be valid, the Client must complete the form in full and check the box labeled Purchases of communications service for resale. In the box labeled Virginia Communications Sales and Use Tax Certificate of Registration Number, the Client should enter its federal identification number or FEIN.

CONCLUSION

Based on the fact that the Client does not have corporate income tax or retail sales and use tax nexus with Virginia, the service transactions were not taxable from August 2004 through September 2006 or under current law.

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

The Code of Virginia sections cited, along with other reference documents, including the Form CT-10, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this ruling, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/1-1629129148i

Rulings of the Tax Commissioner