Tax Type
Corporation Income Tax
Description
Taxpayer did not have nexus with Virginia for the taxable year
Topic
Filing Status
Nexus
Records/Returns/Payments
Date Issued
08-02-2011
August 2, 2011
Re: § 58.1-1821 Application: Corporate Income Tax
Dear:
This will reply to your letter in which you seek correction of the corporate income tax assessment issued to ***** (the "Taxpayer"), for the taxable year ended December 31, 2007. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer, a corporation commercially domiciled in ***** (State A), provides engineering technology and consulting services. The Taxpayer's affiliates filed a Virginia consolidated income tax return for the 2007 taxable year. Under audit, the Department determined that the Taxpayer had nexus with Virginia and included it in the Virginia consolidated return. The Department issued an assessment for additional tax and interest. The Taxpayer appeals the audit assessment, contending the, activities in Virginia were not sufficient to establish nexus.
DETERMINATION
Virginia Code § 58.1-400 imposes an 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 positive.
Public Law (P.L.) 86-272, as codified at 15 U.S.C. §§ 381-384, however, 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 longstanding policy of narrowly interpreting the provisions of P.L. 86-272.
During 2007, the Taxpayer had no property or sales in Virginia. The Taxpayer did employ two employees who resided in Virginia. The Taxpayer registered with Virginia to withhold income tax on behalf of the resident employees.
The Taxpayer was located outside Virginia and had no contracts to perform services in Virginia. The employees that lived in Virginia performed services pursuant to a contract in ***** (State B) during 2007. The employees performed no activities on behalf of the Taxpayer in Virginia. As such, the Taxpayer did not have nexus with Virginia for the 2007 taxable year and should not have been included in the Virginia consolidated return.
Based on this determination, the audit will be returned to the audit staff to adjust the assessment as noted above. After the auditor makes the appropriate adjustments, the Taxpayer will receive a revised bill. The Taxpayer should remit its payment for the outstanding balance as shown on the revised bill within 30 days from the date of the bill to avoid the accrual of additional interest.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of Tax's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
- Craig M. Burns
-
- Tax Commissioner
-
- Craig M. Burns
-
-
-
-
-
-
AR/1-4415582328.D
Rulings of the Tax Commissioner