Tax Type
Corporation Income Tax
Description
Taxpayer, headquartered outside of Virginia, is in the business of issuing credit cards.
Topic
Nexus
Date Issued
05-19-2008
May 19, 2008
Re: Ruling Request: Corporate Income Tax
Dear *****:
This will reply to your letter in which you request a ruling concerning nexus on behalf of your client (the "Taxpayer").
FACTS
The Taxpayer, headquartered outside of Virginia, is in the business of issuing credit cards. It is a member of a group of related entities, several of which are subject to income tax in Virginia. You represent that the Taxpayer does not own or lease property in Virginia and does not have any employees or agents in Virginia. The Taxpayer markets credit cards in Virginia by mail, telephone and internet advertising. The mailings originate from locations outside Virginia, and neither the Taxpayer nor its related entities operate a call center in Virginia.
It is my understanding that the Taxpayer is contemplating engaging in activities within Virginia that will require it to begin filing Virginia income tax returns in the near future. In order to be clear of any possible past liabilities, the Taxpayer requests a ruling on whether it has had nexus in Virginia for purposes of the corporate income tax for previous taxable years.
RULING
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 the applicable apportionment factor positive. See Va. Code §§ 58.1-408 through 58.1-414. The existence of a positive Virginia apportionment factor 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. 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 sale of other than tangible personal property. See Public Document (P.D.) 91-33 (3/18/1991) and P.D. 93-75 (3/17/1993). 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. Based on the facts presented, it is unclear whether the Taxpayer's activities in Virginia would exceed the standards set forth under P. L. 86-272.
However, even if the Taxpayer did have nexus, it may not have had income from Virginia sources. Based on the facts provided, the Taxpayer would derive more than 70% of its gross income from interest and fees to process credit card transactions. As such, for Virginia income tax purposes, the Taxpayer would be considered a financial corporation required to apportion income based on cost of performance. See Va. Code § 58.1-418.
Title 23 of the Virginia Administrative Code (VAC) 10-120-250 defines the "cost of performance" as the cost of all activities directly performed by the taxpayer for the ultimate purpose of obtaining gains or profit, except activities directly performed by the taxpayer for the ultimate purpose of obtaining allocable dividends.
According to the Taxpayer, it does not have any property or payroll in Virginia. The cost of activities directly performed for the purpose of generating income occurs where employees are working and property is located. Because the Taxpayer had no property or payroll in Virginia, it is unlikely that it had a positive apportionment factor. Based on the evidence, the Taxpayer lacked any positive apportionment factors and would therefore not be subject to Virginia corporate income tax in previous taxable years. In addition, absent any obligation to pay Virginia income tax, your request concerning voluntary disclosure agreement is unnecessary.
This ruling is issued based strictly on the facts as presented in your request as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulation, and public documents 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
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- Tax Commissioner
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- Janie E. Bowen
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AR/1-2104142325.o
Rulings of the Tax Commissioner