Tax Type
Corporation Income Tax
Description
Federal limitation on taxation of interstate commerce; Use of leased trucks on Virginia highways
Topic
Constitutional Provisions
Date Issued
03-11-1993
March 11, 1993
Re: §58.1-1821 Application: Corporate Income Tax
Dear*******
This will reply to your letter dated May 21, 1992, sent on behalf of **************(the "Taxpayer"). You asked the Department to abate the penalties and interest assessed against the Taxpayer for failure to file Virginia corporate income tax returns for the years 1987-1990.
FACTS
The taxpayer manufactures and sells tangible personal property in a number of states, including Virginia. Orders for the goods are approved in and shipped from New Jersey. The Taxpayer has no office, place of business, or employees in Virginia.
The Taxpayer delivers goods directly to its customers, including those in Virginia, using leased trucks. The Taxpayer has motor carrier authority from the State Corporation Commission to use Virginia's highways for transporting its products. Thus, trucks leased by the Taxpayer and driven by Taxpayer's employees sometimes pass through Virginia while delivering tangible personal property to non-Virginia locations.
DETERMINATION
Based on the facts as presented, the taxpayer has income from Virginia sources because the Taxpayer sold and delivered tangible personal property in Virginia between 1987-1990. Public Law ("P.L.") 86-272, codified at 15 U.S.C.A. §381, prohibits Virginia from imposing an income tax on the taxpayer when the business' only contact with Virginia constitutes solicitation. P.L. 86-272 protection has been extended by the U.S. Supreme Court to include activities which are ancillary to direct sales solicitation, as well as de minimis nonancillary activities. See Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 112 5. Ct. 2447 (1992),
The operation of a truck by an employee of the Taxpayer on Virginia highways exceeds solicitation as defined in 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)." See Public Document (P.D. 92-230 (11/9/92) (copy enclosed).
The fact that the trucks used by the Taxpayer are leased and not owned is not determinative. The Taxpayer is still making regular and continued use of Virginia highways for the delivery of its goods by its employees. This activity is not de minimis but rather, is an independent business function separate from solicitation. The Virginia Supreme Court has held that a motor carrier's use of Virginia's highways is sufficient to subject the motor carrier to income tax. Commonwealth v. B. J. MacAdams, 227 Va. 548 (1984).
If the Taxpayer were engaged solely in the motor carrier business it would clearly be subject to Virginia income tax under MacAdams. The fact that it also manufactures the products it delivers does not extend the federal exemption under P.L. 86-272 to the independent business function that uses Virginia's highways, and for which it has registered to pay Virginia road and fuel taxes.
Accordingly, the Taxpayer has sufficient nexus with the Commonwealth of Virginia and is required to file a Virginia income tax return for taxable years beginning after November 9, 1992 and to pay income tax on its income from Virginia sources. The assessments for earlier taxable years will be abated.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6192L
Rulings of the Tax Commissioner