Tax Type
Corporation Income Tax
Description
Nexus
Topic
Basis of Tax
Taxpayers' Remedies
Date Issued
12-30-1982
December 30, 1982
Re: Application for Correction
Corporate Income Tax Assessments
For the Fiscal Years Ended 5/31/77 and 5/31/78,
For Seven Month Period Ended 12/31/78 and
The Calendar Year 1979
Dear **************
In response to your letter of November 15, 1982, and additional data submitted by letter dated November 30, 1982, and in telephone conversation with ********* this ruling revises and supersedes a previous ruling dated October 8, 1982.
Facts
Taxpayer is a multinational corporation engaged in the manufacture of various automobile components for new cars, selling of builder's hardware and machine tools, and selling refrigeration cases to large supermarket chain stores and distributors.
You have advised us that the corporation has no place of business in Virginia, that it has no inventory in Virginia; and that its operations in Virginia were limited to selling refrigeration cases. Such operations were conducted only by the corporation's ************** Division and during the years under audit, that division had only four field service representatives to cover the entire United States. You advised that the duties of field service representatives are substantially limited to the inspection of new installations and to assuring proper installation. You further advised that a field representative would have been in Virginia only once or twice in 1979 and the activities in Virginia were similarly limited in each of the other fiscal periods involved in audit.
For each of the periods under audit, the taxpayer timely filed Virginia income tax returns reflecting allocable income, and property, payroll and sales factors relating to apportionable income. None of the allocable income was allocable to Virginia and the property and payroll attributed to Virginia in filed returns was based on a portion of compensation of sales and service representatives and a portion of the capitalized value of leased vehicles utilized by them.
Proposed audit adjustments were reported to taxpayer on February 6, 1981, and additional tax and interest was assessed for all audit years on April 1, 1981.
By letter dated May 26, 1981, taxpayer filed a timely application for correction pursuant to §58-1118 of the Code of Virginia alleging a lack of "nexus" with Virginia and protesting audit treatment of certain royalty income certain capital gains, and income of (a DISC under federal law).
Determination
Taxpayer's allegation of a lack of "nexus" with Virginia has been carefully considered in the light of additional data submitted. Such "nexus" is determined by Virginia law, subject to the limitations of U.S.C.A., §§ 381-385.(Public Law 86-272). Virginia law imposes an annual tax on the Virginia taxable income of corporations having income from Virginia sources. Income from Virginia sources means the entire Virginia income of a corporation transacting or conducting its entire business in Virginia or the portion of income resulting from allocation and apportionment of total taxable income of a corporation having income from business activity which is taxable both within and without Virginia.
Public Law 86-272 restrains a state from imposing a tax on an out-of-state corporation on income derived within the state from interstate commerce, if the only activities within the state are (a) the solicitation of orders which are approved or rejected outside the State and filled by delivery from outside the state and (b) sales within the state by independent contractors.
While the corporation's activities in Virginia exceed the mere solicitation of orders, I am convinced that such other activities are insignificant and represent insufficient nexus to subject the corporation's income to Virginia tax. The remaining issues are therefore moot and need not be discussed. Assessments for additional income taxes will be abated.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner