Document Number
09-172
Tax Type
Corporation Income Tax
Description
Veterinarian's sole activities at trade shows, conferences are for soliciting the sale of its products.
Topic
Nexus
Date Issued
10-23-2009



October 23, 2009





Re: § 58.1-1821 Application: Corporate Incomes Tax

Dear *****:

This will reply to your letter seeking reconsideration of the Department's determination letter, published as Public Document (P.D.) 08-142 (7/30/2008), issued to
your client, ***** (the "Taxpayer").

FACTS


In P.D. 08-142, the Department ruled that certain activities performed by the district manager and the veterinarian exceeded the protection afforded by Public Law (P.L.) 86-272, as codified at 15 U.S.C. §§ 381-384, and upheld assessments issued for the taxable years ended October 31, 2002 through 2005. The Taxpayer has asked the Department to reconsider its decision contending that the facts were misstated or inaccurately interpreted in P.D. 08-142.

DETERMINATION


In Wisconsin Department of Revenue v. William Wrigley. Jr., Co., 505 U.S. 214 (1992), the United States Supreme Court determined:
    • Once it is acknowledged, as we have concluded it must be, the "solicitation of orders" covers more than what is strictly essential to making requests for purchases, the next (and perhaps the only other) clear line is the one between those activities that are entirely ancillary to requests for purchases - those that serve no independent business function apart from their connection to the soliciting of orders - and those activities that the company would have reason to engage in anyway but chooses to allocate to its in-state sales force.

The Taxpayer asserts that the district manager and the veterinarian do not perform some of the activities attributed to them in P.D. 08-42. To that end, the Taxpayer provided testimony from a district manager and a veterinarian concerning their actual activities in Virginia.

District Manager

The district manager provided testimony that, contrary to the position description provided by the Taxpayer on which P.D. 08-142 is based, sales forecasts, budget recommendations, cost valuations, expenditure tracking, and market input on pricing, positioning and competitive activities are not performed by the district manager. Instead, these functions are performed at the Taxpayer's headquarters located in ***** (State A).

Further, the district manager testified that his responsibilities do not include recruiting and hiring sales representatives in Virginia. Although involved in these activities, the district manager does not make the final decisions.

The district manager does recruit, hire, train, define and assign responsibilities of the sales representatives who report to his position. In P.D. 94-111 (4/14/1994), the Department held that training sales personnel on how to resell merchandise is ancillary to sales solicitation. Further, in Wrigley, 505 U.S. at 235, the United States Supreme Court states "in-state recruitment, training, and evaluation of sales representatives . . . served no purpose apart from their role in facilitating solicitation,."

Veterinarian

In P.D. 08-142, the Department found that the veterinarian conducted product demonstrations and provided technical training to veterinary customers regarding the proper usage of the Taxpayer's products. These technical training activities were determined to be separate from the solicitation or ancillary to requests for orders.

The Taxpayer has presented evidence that the veterinarian demonstrates products and explains technical training prior to the sale in order to encourage other veterinarians to order the products. The Taxpayer, argues such presentations are ancillary to the solicitation of sales. All post-sale technical support is performed by the Taxpayer in State A.

In P.D. 01-70 (5/25/2001), the Department held that providing technical training to the dealer's customers exceeds the protections set out by P.L. 86-272. This public document did not distinguish between pre-sale or post-sale technical advice with regard to sales solicitation. It stands to reason, however, that technical information that is provided prior to a sale would be ancillary to sale solicitation because such activity would not occur but for the solicitation of sales. Any post-sale technical training or support provided to customers, however, is not ancillary to the solicitation of sales, and if occurring in Virginia, would create nexus.

The Department determined in P.D. 08-142 that the veterinarian's participation in trade shows, veterinary conferences, and veterinary school meetings would likely exceed the protection afforded under P.L. 86-272, but would depend on the nature and frequency of the activities. The Taxpayer has presented evidence that the veterinarian's sole activities at trade shows, veterinary conferences and veterinary school meetings are soliciting the sale of its products.

Based on the additional evidence provided by the Taxpayer, I find that the activities of the district manager and the veterinarian constituted solicitation of sales, were ancillary to sales solicitation, or provided a de minimus connection with Virginia. Accordingly, the Taxpayer does not have nexus with Virginia for the taxable years at issue. The assessments for the taxable years ended October 31, 2002 through 2005 have been abated.

The Code of Virginia section and public documents 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 *****.
                • Sincerely,

                • Janie E. Bowen
                  Tax Commissioner




AR/1-2696005377.B


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46