Tax Type
Corporation Income Tax
Retail Sales and Use Tax
Description
Nexus; Out-of-state manufacturer
Topic
Computation of Income
Computation of Tax
Date Issued
01-08-1993
January 8, 1993
Re: Request for Ruling: Corporation Income Tax
Retail Sales and Use Tax
Dear ****
This will reply to your letter of July 29, 1992, in which you request a ruling on the applicability of Virginia taxes to the operations of one of your clients.
FACTS
Corporation A is a Michigan corporation. Corporation A has its principal place of business in Michigan and production plants in Kentucky, New York, North Carolina, and Oregon and is engaged in the business of manufacturing tangible personal property. According to the information you have provided, Corporation A has no property or payroll in Virginia. Salesmen visit Virginia approximately monthly, and technical personnel will visit clients in Virginia occasionally to discuss problems, proper applications of products, or new products.
Salesmen do not carry samples, receive damaged products, or investigate credit worthiness. Customers place orders over the phone, using an "800" number. Approval of all orders takes place in Michigan. Sales delivered within Virginia are either for resale, to the U.S. Government, or become an ingredient or component part of a finished product.
Corporation A has not obtained a certificate of authority from the State Corporation Commission (SCC). Corporation A has never collected or remitted Virginia sales tax, and has never filed Virginia income tax returns. You request a ruling that Corporation A is not subject to Virginia income tax based on the facts as presented and inquire as to the applicability of the Virginia retail sales and use tax.
RULING
Corporation Income Tax: A tax is imposed on the Virginia taxable income of every foreign corporation having income from Virginia sources, unless specifically exempted. Under Public Law 86-272, codified at 15 U.S.C.A. §381, Virginia is prohibited from imposing an income tax on a corporation whose only business activity within the state is the solicitation of orders for the sale of tangible personal property.
In Wisconsin Department of Revenue v. William Wrigley, Jr. Co., the U.S. Supreme Court found that a "solicitation of orders" means any speech or conduct explicitly or implicitly proposing a sale, and activities entirely ancillary to soliciting orders. Activities in which a taxpayer would engage regardless of whether a sale is made are not exempt solicitation just because they are performed by salesmen, unless the activities are de minimis.
In addition to soliciting sales, Corporation A also provides technical support through personnel who visit Virginia on an infrequent basis. Such activity is a business activity which exceeds the mere solicitation of orders and is not ancillary to soliciting orders.
Under Virginia Regulation (VR) 630-3-401.G. (copy enclosed), any additional activity beyond solicitation may subject the taxpayer to Virginia income tax, based upon analysis of the "nature, continuity, frequency, and regularity of the activities in Virginia compared with the nature, continuity, frequency, and regularity of its activities everywhere."
Based on the information provided, it appears that the provision of technical support in Virginia is frequent and part of a regular and continuing presence in Virginia for business purposes. Therefore, the technical support provided by the Taxpayer is sufficient to subject Corporation A to Virginia income tax.
Corporation A is required to file a Virginia income tax return and is required to allocate and apportion its Virginia taxable income as provided in Va. Code §§58.1-402 through 58.1-420.
Retail Sales and Use Tax: Va. Code §58.1-612 sets forth the nexus requirements which give the Commonwealth the authority to require a business to register for the collection and remittance of the Virginia sales tax. A dealer is deemed to have nexus with Virginia to require registration under Va. Code §58.1-613 if the dealer solicits business in Virginia by employees, independent contractors, agents or other representatives.
Based upon the foregoing, Corporation A is subject to the registration and collection requirements of the Virginia retail sales and use tax. The information provided indicates that Corporation A made sales in Virginia to two classifications of purchasers: (1) the U.S. Government, and (2) manufacturers for incorporation into a finished product. Sales by Corporation A and purchased by the U.S. Government are exempt from Virginia retail sales and use tax under Va. Code § 58.1-608(1)(e); sales by Corporation A and purchased by manufacturers for incorporation into a finished product that will ultimately be held for sale are exempt from Virginia sales and use tax under Va. Code § 58.1-608(3)(b)(i). Corporation A would be relieved of its responsibility to collect and pay sales tax only if the purchaser provided a resale exemption certificate (Form ST-10).
You request that the department accept Corporation A's voluntary registration and prospective filing as satisfaction of its filing requirement under Va. Code §58.1-603 for all periods prior to registration. Before agreeing to the terms of your offer, it will be necessary for the identity of your client to be disclosed. In addition, acceptance of any offer from Corporation A will not preclude the department from any assessment of any liabilities that may be discovered in the future for the period prior to registration if the extent of Corporation A's activities in Virginia exceed those described in your letter.
Enclosed is a registration application for Corporation A to complete and return to the department's Office of Tax Policy, P.O. Box 1880, Richmond, Virginia, 23282-1880.
If you have any questions, please contact the Office of Tax Policy at (804)367-8010.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6319F
Rulings of the Tax Commissioner