Tax Type
Corporation Income Tax
Description
Federal limitation on taxation of interstate commerce; Delivery to Virginia customer
Topic
Constitutional Provisions
Date Issued
04-26-1994
April 26, 1994
RE: Ruling Request: Corporation Income Taxes
Dear****
This will reply to your letter dated March 6, 1992, in which you request clarification regarding the application of Public Law (P.L.) 86-272 (15 U.S.C.A. §§381-384) to ********(the Taxpayer). I apologize for the delay in responding.
FACTS
The Taxpayer's principal business location is outside of Virginia. Through a subsidiary, acting as a sales agent for the Taxpayer, sales are made to one Virginia customer. The merchandise is delivered into Virginia using the Taxpayer's own trucks, which are registered as private carriers with the Motor Carrier Division of the Virginia State Corporation Commission.
DETERMINATION
The Taxpayer clearly has income from Virginia sources because the Taxpayer makes sales to a customer located in Virginia, and the Taxpayer's trucks utilize Virginia highways and are registered to pay Virginia motor fuel tax. See Commonwealth v. B. J. McAdams, 227 Va. 548, June 15, 1984.
However, P.L. 86-272 prohibits a state from imposing an income tax when the only contacts with the state are a narrowly defined set of activities solicitation of for sales of tangible personal property.
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 P.L. 86-272 (15 U.S.C.A. §§381-384).
Where delivery activity, when combined with all other 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. However, the fact that the Taxpayer has registered with the Motor Carrier Division of the State Corporation Commission does not by itself create nexus for the income tax.
The Taxpayer makes deliveries to its only Virginia customer, as an accommodation to that customer. The Taxpayer has stated that its trucks are not ordinarily used to make deliveries. The delivery activity suggests a special accommodation or benefit to the customer, and therefore to the Taxpayer, from the delivery activity. Accordingly, the limited facts presented do not allow the department to conclude that the delivery activities, when taken as a whole, create only a de minimis additional connection to Virginia with respect to any particular taxable year. In fact, the activity would appear to create a nontrivial addition to the Taxpayer's activities in Virginia.
The Taxpayer is required to at least file an annual income tax return in accordance with VR 630-3-441, copy attached. If the Taxpayer believes that it is exempt from taxation pursuant to P.L. 86-272, it should clearly set forth the basis for exemption and describe all activity conducted within Virginia during such taxable year.
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, the Taxpayer may file 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/6029M
Rulings of the Tax Commissioner