Tax Type
Corporation Income Tax
Description
Nexus
Topic
Taxable Income
Date Issued
04-25-1994
April 25, 1994
Re: Ruling request: Corporate income taxes
Dear*************
This will reply to your letters of June 15 and September 29, 1993, in which you requested a clarification of the department's nexus standard for corporate income taxes where a foreign corporation' B only contacts with Virginia arise when such corporation makes deliveries of merchandise to customers in Virginia using its own delivery vehicles. More specifically, you ask if deliveries alone create nexus or whether nexus is created only if deliveries are coupled with solicitation by sales personnel. I apologize for the delay in responding.
RULING
The Code of Virginia provides that the corporate income tax shall be imposed on domestic corporations (incorporated in Virginia) and on every foreign corporation which has income from Virginia sources. Where a foreign corporation makes sales of tangible personal property to customers in Virginia, such corporation will have income from Virginia sources within the meaning of VR 630-3-400, copy attached. , a corporation with income from Virginia sources is subject to Virginia income tax regardless of how the merchandise is delivered unless exempted by federal law. The primary federal law is Public Law (P.L.) 86-272 (15 U.S.C.A. §§381-384), as recently interpreted by the U. S. Supreme Court, which exempts a corporation from state income tax if its only contacts with the state are solicitation, activities ancillary to solicitation, and a minor amount of activities (called de minimis). Nexus may exist and a corporation may be subject to tax even though such corporation does not physically solicit sales in Virginia.
In Public Document (P.D.) 92-230 (11/9/92), copy attached, the department ruled that nexus for the corporate income tax existed where tangible personal property was sold and delivered into Virginia on a regular basis. In that ruling, the department revoked its previous policy regarding deliveries on a prospective basis, beginning with taxable years beginning after November 9, 1992.
The department's policy is that the utilization of a taxpayer's own vehicle to make deliveries into Virginia does not constitute solicitation which is protected by Public Law (P.L.) 86-272 (15 U.S.C.A. §§381-384). Activity which does not constitute solicitation for sales of tangible personal property is not protected by P. L. 86-272; where such activity is not de minimis it may create nexus for the Virginia income tax. Delivery activity will be considered with all other activity, if any, which does not constitute solicitation. Where all activity which does not constitute solicitation creates more than a de minimis connection to the Commonwealth, there is sufficient nexus for the imposition of the corporate income tax. The department will consider, among other things, whether the deliveries are a regular and continuous activity carried on in Virginia.
The department is currently in litigation regarding this issue in the City of Alexandria Circuit Court (National Private Truck Council, Inc. v. Payne). In that action the Petitioner has challenged the department's policy regarding deliveries, and in particular the ruling issued in P.D. 92-230.
Pending a decision in the aforementioned litigation, taxpayers have the option of filing a protective claim pursuant to Va. Code §58.1-1824 with respect to any income tax paid as a result of the department's ruling in P.D. 92-230.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7073M
Rulings of the Tax Commissioner