Tax Type
Corporation Income Tax
Description
Federal Limitation on Taxation of Interstate Commerce; Use of Va. Highways
Topic
Constitutional Provisions
Date Issued
11-09-1992
November 9, 1992
Re: Corporation Income Tax: Ruling Request
Dear *****************
This is in reply to your inquiry of April 16, 1992 in which you request clarification of the Virginia income tax filing status of the *************** (the "taxpayer").
FACTS
The taxpayer is engaged in the sale of tangible personal property, some of which is delivered to destinations in Virginia. Its own truck fleet delivers this property to destinations in and out of Virginia. These trucks sometimes pass through Virginia while delivering tangible personal property to non Virginia locations. The taxpayer has no other Virginia property, and no employees are based in Virginia.
DETERMINATION
Nexus: Based upon the facts as presented, the taxpayer has income from Virginia sources because tangible personal property is sold and delivered into Virginia on a regular basis. In addition, the taxpayer's trucks use Virginia highways and are registered to pay Virginia motor fuel tax. See Commonwealth v. B.J. McAdams, 227 Va. 548, June 15, 1984. Federal law prohibits states from imposing an income tax when a business only contacts with the state are a narrowly defined set of activities related to tangible personal property sales, referred to as "solicitation." See Public Law 86-272, 15 U.S.C.A. §§ 381 - 384. In a recent U.S. Supreme Court case, Wisconsin Dept. of Revenue v. William Wrigley, Jr. Co., No. 91-119, 6/19/92, P.L. 86-272 protection was interpreted to include activities which are ancillary to direct sales solicitation, as well as de minimis nonancillary activities.
The Department has previously had a policy of allowing taxpayers to use their own trucks to deliver goods in and through Virginia without exceeding P.L. 86-272 protection, provided that the taxpayers provide the same delivery service (and no more) provided by a common carrier. See Public Document (P.D.) 86-4 (12/23/83) (copy enclosed).
In the instant case, the operation of the taxpayer's trucks can Virginia highways clearly exceeds "solicitation" under P.L. 86-272. Truck transportation cannot be considered to be a part of the entire process associated with inviting an order (an "ancillary" activity under Wrigley). Also, the regular and continuing use of Virginia highways is not a de minimis activity. Further, truck transportation in and of itself is an independent business function, separate from solicitation.
Therefore, the previous policy allowing out-of-state taxpayers to utilize their trucks in Virginia to provide the same service as a common carrier (without becoming subject to Virginia income tax) is hereby revoked on a prospective basis, starting with the first taxable year beginning after the date of this letter. All previous rulings relying upon this policy are similarly revoked.
Because of the change in Department policy emphasizing that a taxpayer's own trucks used in Virginia create nexus, the taxpayer is required to file a Virginia income tax return for taxable years beginning after the date of this letter. The returns should he filed utilizing the same Virginia filing election of the taxpayer's parent.
Sincerely,
W.H. Forst
Tax Commissioner
TPD/6109G
Rulings of the Tax Commissioner