Tax Type
Corporation Income Tax
Description
Registered Investment Advisor
Topic
Returns and Payments
Date Issued
03-17-1993
March 17, 1993
Re: Ruling request: Corporate Income Taxes
Dear***********
This will reply to your letter dated December 1, 1992 in which you request a ruling regarding Virginia corporate income taxes on behalf of your client (the "Taxpayer") whom you do not identify.
FACTS
The Taxpayer is a corporation, located outside Virginia. The Taxpayer is a registered investment advisor, whose client services include purchasing of stocks and bonds for individuals, pensions, etc. under a contract arrangement. The actual buying and selling of the stocks takes place outside of Virginia. The Taxpayer has no assets, employees or independent contractors acting on their behalf in Virginia. The Taxpayer's employees may visit Virginia for purposes of solicitation, goodwill or by client request. The Taxpayer anticipates becoming an electing small business (S Corporation) for the 1993 taxable year. You ask if the Taxpayer's level of activity will subject it to the Virginia income tax.
RULING
Generally, Virginia corporate income tax is imposed on foreign corporations if they have income from Virginia sources. See Virginia Regulation (VR) 630-3-400, (copy enclosed). A corporation will have income from Virginia sources if it has sufficient business activity within Virginia to result in a positive apportionment factor (VR 630-3-302, copy enclosed).
Based upon the facts presented, the Taxpayer would meet the definition of a financial corporation, as defined in VR 630-3-418 (copy enclosed). Financial corporations apportion their income using a single apportionment factor based solely on "cost of performance." Therefore, to the extent that the Taxpayer incurs costs associated with the performance of services, i.e. travel, the cost of performance factor for Virginia will be positive. Accordingly, the Taxpayer will have income from Virginia sources and be subject to the corporate income tax. See VR 630-3-418 and Public Document (PD) 91-179 (08/26/92) (copy enclosed).
An S corporation is exempted from the corporate income tax. The income from such corporation becomes taxable to the shareholder(s) under law and regulations applicable to individuals. Such corporations are required to file a Virginia return even though exempt from the Virginia tax. See VR 630-3-401 (copy enclosed).
An S Corporation with income from both within and without Virginia must compute its Virginia source income in accordance with the corporate statutory formula set forth in the Code of Virginia. Therefore, after electing S Corporation status, the Taxpayer will continue to apportion its Virginia source income using the cost of performance as provided in VR 630-3-418. Income received by an S Corporation which is deemed to be income from Virginia sources will remain Virginia source income in the hands of the shareholders. Accordingly, after the Taxpayer becomes an S corporation, the individual shareholder(s) will be deemed to have income from Virginia sources and become subject to the Virginia individual income tax. See PD 88-165 (6/29/92) (copy enclosed).
Sincerely,
W. H. Forst
Tax Commissioner
TPD/6574M
Rulings of the Tax Commissioner