April 6, 2020
Re: Request for Ruling: Corporate Income Tax
Dear *****:
This will respond to your letter in which you request a ruling concerning corporate income tax filing requirements on behalf of ***** (the “Taxpayer”).
FACTS
The Taxpayer, a corporation registered in ***** (State A), is a trucking company engaged as a contractor for the United States Postal Service. All of the Taxpayer’s trucks are registered in State A. Some of the trucks pick-up and deliver mail between postal facilities in Virginia. These trucks also normally park at the Virginia facilities. The Taxpayer requests a ruling as to whether it is required to file a Virginia corporate income tax return.
RULING
Nexus
Public Law (P.L) 86-272, codified at 15 U.S.C. §§ 381 through 384, prohibits states from imposing an income tax on a taxpayer whose 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. In P.D. 92-84 (6/1/1992), the Department determined that a positive apportionment factor, which in this case would be vehicle miles in Virginia, would create nexus for a trucking company. Because the Taxpayer has a positive apportionment factor, it appears the Taxpayer would be subject to Virginia income tax.
Filing Requirement
Virginia Code § 58.1-441 requires every corporation organized under Virginia law or having income from Virginia sources to file a return. Income from Virginia sources means income attributable to the ownership, sale, exchange or other disposition of any interest in real or tangible personal property in Virginia or attributable to a business, trade, profession or occupation carried on in Virginia or attributable to intangible personal property employed in a business, trade, profession or occupation carried on in Virginia. See Title 23 Virginia Administrative Code (VAC) 10-120-20. If the entire business of a corporation is not deemed to have been transacted or conducted within Virginia, then the income from Virginia sources means that portion of the corporation’s Virginia taxable income resulting from the allocation and apportionment formulas set forth in Virginia Code §§ 58.1-406 through 58.1-421. The facts indicate that the Taxpayer earned income from Virginia sources, and thus would be required to file a Virginia corporate income tax return.
Apportionment
Virginia Code § 58.1-417 and Title 23 VAC § 10-120-240 provide for the allocation and apportionment of income from Virginia sources of motor carriers. Pursuant to Virginia Code § 46.2-2100, motor carriers transport property for compensation over the highways of Virginia. Instead of the standard three-factor apportionment formula, they apportion their income to Virginia by using a ratio of vehicle miles in Virginia to total vehicle miles of the corporation. See Virginia Code § 58.1-417 and Title 23 VAC § 10-120-240.
The term “vehicle miles” means miles traveled on a scheduled route or, in any case, while carrying property or passengers for a charge. Vehicle miles does not include travel for repairs or service whether the vehicle is normally used for carrying property or passengers or is normally used as a service vehicle. The mileage traveled by all owned or leased vehicles is included in the apportionment factor. See Title 23 VAC 10-120-240 and P.D. 92-84. In this case, the Taxpayer would calculate its Virginia source income by allocating the relevant percentage of their total taxable income based on a ratio of vehicles miles traveled in Virginia to total vehicle miles.
Exception
A motor carrier is not subject to Virginia income tax if it qualifies for the exception provided in Virginia Code § 58.1-417 B and Title 23 VAC § 10-120-240. A motor carrier that meets the provisions of this exception is still required to file a Virginia income tax return reporting its qualification for the exception. Based on the description of the Taxpayer’s business, the Department finds it doubtful that the Taxpayer would qualify for the exception in Virginia Code § 58.1-417 B.
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections, regulations, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions 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 *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1999-C