Document Number
Tax Type
Retail Sales and Use Tax
Third-party contractors do not establish corporate income tax nexus with Virginia
Date Issued

April 27, 2009

Re: Request for Ruling: Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of your client (the "Taxpayer") in which you request a ruling on whether installation services provided by third-party contractors are sufficient to subject the Taxpayer to the Virginia retail sales and use tax or Virginia corporate income tax.


The Taxpayer sells storage systems for installation in buildings located in Virginia. The storage systems consist of mobile and wire shelving, lockers, cabinets, carts, plastic bins and material handling equipment. The Taxpayer is incorporated outside Virginia and maintains no physical presence in Virginia. The Taxpayer represents that it does not solicit sales in Virginia with employees or independent representatives.

The Taxpayer further represents that it purchases the systems from third-party vendors and that the storage systems are shipped by the vendors directly to the customers or contractors in Virginia. Installation of the storage systems is performed by unrelated third-party contractors. The contractors install the lockers, mobile shelving and certain types of panels that hold storage bins. These items are attached to the building in some manner, but may be removed with some amount of damage to the building and/or the equipment. Additionally, the Taxpayer maintains that it has no ownership interest in any of the installation contractors and that the contractors are independent businesses that have customers other than the Taxpayer. The Taxpayer provides the installation contractors with quality standards for installation; however, the Taxpayer does not provide any supervision over the contractors' work.


Retail Sales and Use Tax

Virginia Code § 58.1-612 A provides that "[t]he tax levied by §§ 58.1-603 and 58.1-604 shall be collectible from all persons who are dealers ... and who have sufficient contact with the Commonwealth ...."

Virginia Code § 58.1-612 B 3 defines dealer as "every person who [s]ells 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." Based on the facts presented, the Taxpayer clearly qualifies as a dealer.

Virginia Code § 58.1-612 C sets forth the "nexus" requirements that gives the Commonwealth the authority to require dealers to register for collection and remittance of the sales tax. Based on the facts provided, the Taxpayer has no physical presence in Virginia, nor does it have employees or representatives in Virginia that solicit sales. The storage systems at issue are shipped into Virginia by the Taxpayer's third party vendor. Additionally, the installation of the storage systems is provided by a third party contractor. Pursuant to Va. Code § 58.1-612, the activities associated with the sale of the storage systems to the Taxpayer's customers do not meet the criteria to qualify for retail sales and use tax nexus in Virginia. Accordingly, the Taxpayer is not required to register for the retail sales and use tax in Virginia. A change in the Taxpayer's activities in Virginia with respect to the sales could alter this nexus determination.

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 the application 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, 15 U.S.C. §§ 381-384 prohibits a state from imposing a net income tax where the only contacts with the 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.

In Public Document 01-136 (9/18/01), the taxpayer was a manufacturer and seller of signs. 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 were purchases of services by the Taxpayer and would not exceed the protection afforded under to P. L. 86-272.

In this instance, the third-party contractors install the storage systems for the Taxpayer's Virginia customers. The third-party contractors are independent businesses, and the Taxpayer does not have an ownership interest in any of the contractors. The installation services provided by the third-party contractors do not establish corporate income tax nexus with Virginia regarding the Taxpayer. Furthermore, the Taxpayer's activities in Virginia do not exceed those permitted by P.L. 86-272. Therefore, the Taxpayer is not subject to corporate income tax in Virginia.

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

The Code of Virginia sections and public document cited are available on-line at in the Tax Policy Library section of the Department's web site. 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


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46