Document Number
Tax Type
Corporation Income Tax
Employer Income Tax Withholding
Individual Income Tax
Exemption : Nexus (P.L. 86-272) - De Minimis, Property, Payroll
Compensation : Nonresident - Virginia Wages
Virginia Source Income : Nonresident - Apportionment
Date Issued

November 24, 2020

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 years ended December 31, 2013 through 2015. I apologize for the delay in responding to your appeal.


The Taxpayer, a parent corporation located outside of Virginia, filed consolidated Virginia corporate income tax returns with its wholly-owned subsidiaries, including *****  (Corporation A), for the taxable years at issue. Under audit, the Department determined that Corporation A lacked nexus with Virginia and removed it from the consolidated return. The Taxpayer appealed, contending that Corporation A should be included in the consolidated return because it had tangible property and performed services that created nexus with Virginia.



Virginia Code § 58.1-400 imposes the 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. The existence of positive Virginia apportionment factors clearly 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.  Under certain conditions, a corporation may have income from Virginia sources resulting from a positive apportionment factor, but not be subject to tax by virtue of the protections afforded under P.L. 86-272. See Public Document (P.D.) 94-175 (6/8/1994). P.L. 86-272 prohibits a state from imposing a net income tax on a foreign corporation when its only contact with the state constitutes solicitation of sales. This same protection has been extended by the United States Supreme Court to include activities that are ancillary to solicitation or de minimis in nature.

The Department narrowly interprets P.L. 86-272 within the context of the decision of the Court in Wisconsin Department of Revenue v. William Wrigley, Jr. Co., 505 U.S. 214 (1992). A taxpayer that engages in activities beyond solicitation may exceed the protection provided by P.L. 86-272 and be subject to the Virginia corporate income tax. Title 23 of the Virginia Administrative Code (VAC) 10-120-90 G, however, exempts activities that are de minimis in nature. 

In this case, Corporation A owned six laptop computers that were placed in the Taxpayer’s Virginia office in 2014. The laptops contained proprietary software created by Corporation A and used by the Taxpayer and all of its subsidiaries. Employees of Corporation A traveled to the Virginia office to make software updates and serve as technical and information technology support. 

The Department removed Corporation A from the consolidated return because its employees did not use the laptops and neither the Taxpayer nor any of its subsidiaries were charged for the software updates. In addition, the auditor found that the value of the laptops in Virginia was de minimus as compared to the total value of Corporation A’s property. The Taxpayer contends that the activities performed by Corporation A employees in Virginia were more than de minimus

Lack of Positive Apportionment Factor

The Taxpayer reported that Corporation A had no Virginia sales or payroll on the Virginia consolidated corporate returns for any of the taxable years at issue. Because its returns indicate that the computers were not placed into Virginia until the 2014 taxable year, Corporation A did not have a positive apportionment factor during the 2013 taxable year. 

Pursuant to P.D. 94-175, it is possible for a corporation to have nexus with Virginia even if it does not have any positive apportionment factors. In order to be included in a Virginia consolidated return, a corporation must be subject to Virginia tax if a separate return was filed. Sufficient business activities must be conducted within Virginia to make one or more of the apportionment factors positive. A positive factor establishes income from Virginia sources. The lack thereof, however, does not preclude a corporation from having income from Virginia sources but it prevents the Virginia source income from becoming subject to taxation in Virginia. See P.D. 95-203 (8/3/1995). 

Property in Virginia

Pursuant to P.D. 06-38 (4/5/2006), the ownership of equipment in Virginia typically results in a positive property factor that creates nexus for corporate income tax purposes. However, the Department has extended the protections afforded under P.L. 86-272 to computers that are provided to sales professionals for the purpose of preparing sales presentations, reports to record the sales’ professional activities, and other administrative functions. See P.D. 96-281 (10/11/1996) and P.D. 12-36 (3/28/2012). 

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 could be ancillary to sale solicitation when such activity occurs for the purpose of soliciting sales. In general, however, post-sale technical training or support provided to customers would not be considered to be ancillary to the solicitation of sales, and if occurring in Virginia, would create nexus. See P.D. 09-172 (10/23/2009). 

In this case, Corporation A’s computers were used to maintain software that is used for client consultation and training, as well as to run simulations of client situations. These activities were performed on behalf of existing clients, not to solicit sales from new clients. As such, Corporation A’s Virginia computers were not eligible for the P.L. 86-272 protections. 

De Minimus Activities 

The software installation, technical training, and support performed by the Corporation A employees in Virginia would be considered an activity exceeding the protections provided by P.L. 86-272. See P.D. 93-75 (3/17/1993) and P.D. 13-172 (9/19/2013). However, such activities would need to be more than de minimus in order to create nexus. 

In accordance with Title 23 VAC 10-120-90 G, consideration is given to the nature, continuity, frequency and regularity of the unprotected activities in Virginia, compared to the nature, continuity, frequency and regularity of such activities outside Virginia. Under Wrigley, all nonancillary activities are examined to determine if, when considered together, they create more than a de minimus connection to Virginia. 

As the Department has observed, if a taxpayer performs some activities in Virginia beyond the mere solicitation of sales, it may not take much activity to exceed the de minimis standard set forth in Wrigley. See P.D. 14-145 (8/26/2014). In Wrigley, the Supreme Court reasoned that a “nontrivial additional connection” with a state will be established when all unprotected activities are considered together. See Wrigley, 505 U.S. at 235. One of the activities, the sales through agency stock checks, accounted for only 0.00007% of sales in the state. Id. Although this amount was not large when compared to the taxpayer's other operations in that state, the Supreme Court found that such activities were not de minimis when considered together. 

Corporation A’s employees worked on the computers located in Virginia for 37 days in 2014 and for six days in 2015. The nature of the activities are integral to the operations of entities within Corporation A’s corporate family both within and without Virginia. In addition, while 6 days may seem infrequent, the percentage of days spent working on the computers in 2015 far exceeds the percentage of activity established in Wrigley. Coupled with the nature, continuity and regularity of the activities, these activities established a nontrivial connection with Virginia in 2014 and 2015. Although the number of days that the computers worked on diminished from year to year, ongoing maintenance and software updates were required.

Employer Withholding

As stated above, Corporation A’s employees worked in Virginia during the 2014 and 2015 taxable years. Virginia Code § 58.1 460 defines employee as an individual, whether a resident or a nonresident of the Commonwealth, who performs or performed any service in the Commonwealth for wages. Consequently, unless a state has a reciprocity agreement with Virginia, an employer located outside of Virginia may be required to withhold Virginia income taxes for an employee who is not a resident of Virginia when that employee earns wages or salary while performing services for the employer in Virginia. See Virginia Code § 58.1 461 and P.D. 94-219 (7/13/1994).

Virginia Code § 58.1-475 states that an employer who fails to withhold or fails to file withholding returns is subject to a penalty equal to six percent of the amount which should properly have been withheld for the first month, and each month after that, up to a maximum of 30%. Interest is also assessed upon the tax which has not been paid. In addition, Virginia Code § 58.1-104 provides that withholding tax must be assessed within three years from the last day that the returns are due or within six years from the last day that the returns are due if no returns were filed or the returns were fraudulently filed. See P.D. 99-230 (8/11/1999). 

Nonresident Wages and Salaries

Pursuant to Virginia Code § 58.1 341, a nonresident individual who has income from carrying on a business, trade, profession, or occupation within Virginia is required to file a Virginia individual income tax return, unless the individual meets the filing exception described in Virginia Code § 58.1 321. The Virginia taxable income of a nonresident is computed by multiplying his Virginia taxable income, computed as if he were a resident by the ratio of his net income, gain, loss, and deductions from Virginia sources to his net income, gain, loss, and deduction from all sources.

Under Virginia Code § 58.1 325, individuals who are neither domiciliary nor actual residents of Virginia and have income from Virginia sources are taxed as nonresidents. Virginia Code § 58.1 302 limits the term income and deductions from Virginia sources to the items of income gain, loss and deductions attributable to the ownership of property in Virginia or the conduct of a business, trade, profession or occupation in Virginia. As such, individuals who are not residents of Virginia are required to file a Virginia nonresident individual income tax return.

For salaries and wages from an employer, the “net income, gain, loss, and deductions from Virginia sources” would be an amount equal to (1) the total annual salary from the employer, (2) multiplied by the number of days or portion thereof that the nonresident individual spent in Virginia performing duties for their employer, and (3) divided by the number of days or portion thereof spent anywhere performing duties for the employer. See P.D. 84 90 (7/3/1984).

A nonresident should compute the ratio of work days spent within Virginia to his total number of work days. As a general rule, the Department uses 260 days in the denominator of the ratio for determining wages attributable to Virginia for full time employees. Individuals who claim to have worked more than 260 days during a given taxable year must document that claim. 

Likewise, individuals who worked less than 260 days are limited to using days actually worked in the denominator of the ratio. For part-time employees, semi retired individuals, and consultants, a ratio of hours worked in Virginia divided by hours worked anywhere may be a better indicator of income from Virginia sources. See P.D. 09 66 (5/13/2009). It is unclear whether Corporation A’s employees who worked in Virginia during the 2014 and 2015 taxable years filed Virginia non-resident returns. If they were required to file, but fail to do so, the Department may issue assessments at any time pursuant to Virginia Code § 58.1-312. 

Payroll in Virginia

The activities conducted by Corporation A’s employees in Virginia may require their wages to be included in its payroll factor. Virginia’s payroll factor is a fraction, the numerator of which is the total amount paid or accrued in Virginia during the tax period by the corporation for compensation, and the denominator is the total compensation paid everywhere during the taxable year. See Virginia Code § 58.1-412. Pursuant to Title 23 VAC 10-120-190, total wages reported to the Virginia Employment Commission (VEC) are presumed to be compensation paid to employees in Virginia.

Under Virginia Code § 60.2-217 A 2, compensation must be reported to the VEC if the employment is not localized in any state but is performed to some extent in Virginia and either:

  1. the base of operations is located in Virginia,
  2. the place from which such employment is directed or controlled is in Virginia,
  3. the base of operations or place from which such employment is directed or controlled is not in any state in which a portion of the employment is performed, but the employee resides in Virginia.

Because the Department does not administer the Virginia Unemployment Compensation Act (Title 60.2 of the Code of Virginia), the Taxpayer should request guidance from the VEC to determine if it is required to report Corporation A’s employee’s wages. Even if the compensation is not subject to the Act, however, it must nevertheless be included in the numerator of the Virginia payroll factor if it is deemed paid or accrued in Virginia under Virginia Code § 58.1-413. See Title 23 VAC 10-120-190 C.

Corporation A’s employees perform services both within and without Virginia. Under such circumstances, compensation will be deemed paid or accrued in Virginia under Virginia Code § 58.1-413 3 if:

  1. The base of operations or, if there is no base of operations, the place from which the service is directed or controlled is in the Commonwealth; or
  2. The base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the employee's residence is in the Commonwealth. 

Pursuant to Title 23 VAC 10-120-200 B 2, a “base of operations” is defined as:

[A] place of more or less permanent nature from which the employee starts his work and to which he customarily returns in order to receive instructions from the taxpayer or communications from his customers or other persons, or to replenish stock or other materials, repair equipment, or perform any other functions necessary to the exercise of his trade or profession at some other point or points.

Corporation A’s employees performed their software updates and computer maintenance at the Taxpayer’s Virginia office. This office was a place of a permanent nature in which the employees started their work, received instructions from the Taxpayer and performed necessary business functions.


Pursuant to the reasons above, the Department finds that Corporation A had nexus with Virginia for the 2014 and 2015 taxable years. However, it did not have nexus with Virginia for the 2013 taxable year. As such, the Taxpayer correctly included Corporation A in its 2014 and 2015 consolidated returns, but the Department appropriately removed it for the 2013 taxable year. The case will be returned to the audit staff to adjust the assessments pursuant to the above determination. The Taxpayer should provide appropriate documentation to the auditor regarding Corporation A’s employees in order for its payroll factor to be properly reflected. 

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 Taxpayer should also file the appropriate Virginia withholding tax returns on behalf of Corporation A for the 2014 through 2015 taxable years and pay any required penalty and interest. Any Corporation A employees who performed work in Virginia during the 2014 and 2015 taxable years should file Virginia nonresident income tax returns if they have not already done so and pay any tax, penalty and interest due. 

The Code of Virginia sections, regulation and public documents cited are available on-line at in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.



Craig M. Burns
Tax Commissioner



Last Updated 01/25/2021 10:29