Tax Type
Corporation Income Tax
Description
Nexus
Topic
Collection of Tax
Date Issued
03-22-1993
March 22, 1993
Re: Ruling Request: Corporate Income Taxes
Dear******************
This will reply to your letter dated July 16, 1991 in which you request guidance regarding the sufficiency of nexus for Virginia taxation for ***************** (the "Taxpayer").
FACTS
The taxpayer's state of incorporation, leased office space, and one part time employee are all in a state other than Virginia. The taxpayer leases aircraft to one corporation, and anticipates leasing activity to more corporations in the future. At the beginning of each lease, lessor (the taxpayer) transfers possession of the leased aircraft to the lessee at an aircraft plant not located in Virginia, and has no control over the landing or use location of the aircraft. The taxpayer has no property or payroll in Virginia, and asks for a determination regarding Virginia taxability based on the above facts.
RULING
Depending upon the character of the leases in question, the income derived therefrom may be taxable in Virginia.
For "financing" leases (those leases other than "operating" leases), the taxpayer is deemed to be actually selling and financing aircraft to each "lessee". Accordingly income received under financing leases is considered to be a "fee" for financial services rendered. If the taxpayer derives more than 70% of its gross income from financing leases, it would be subject to the financial corporation apportionment provisions under Virginia Regulation (VR) 630-3-418.
Financial corporations apportion income based solely upon "costs of performance", which is deemed to be all costs incurred by the taxpayer in order to produce income. The cost of performance of the taxpayer in the instant case would appear based upon the facts presented, to be solely in the domiciliary state, which is not Virginia. Therefore, if the taxpayer qualifies as a financial corporation, it appears that there would be Virginia taxable (apportionable) income, with a zero apportionment factor See P.D. 84-124 (7/31/84) (copy enclosed).
For "operating" leases, the taxpayer is deemed to lease property in a traditional manner and is not considered to be merely financing the purchase of the property in question. If the majority of the taxpayer's business consists of operating leases the majority of the time, the sales apportionment factor numerator provisions under VR 630-3-416 would apply Under these provisions, the taxpayer would use the three factor formula in apportioning income as opposed to the single factor "cost of performance" under VR 630-3-418. The taxpayer would have Virginia apportionable income, utilizing the property, payroll, and sales factors. However, based upon the facts presented, it appears that the leasing activities of the taxpayer do not fall under the operating lease category.
This determination is issued based upon the facts as set forth in your letter. If the operations of the taxpayer change to something other than those submitted with the ruling request the taxable status of the taxpayer may change from the determination made herein .
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5373G
Rulings of the Tax Commissioner