Tax Type
Corporation Income Tax
Retail Sales and Use Tax
Description
Salesman in Virginia; Out-of-state corporation; Nexus for sales and corporate taxes
Topic
Taxability of Persons and Transactions
Date Issued
09-28-1994
September 28, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Corporation Income Tax
Dear***************
This will reply to your letter of August 29, 1994 in which you request a ruling on the applicability of Virginia taxes to the operations of******** (the "Taxpayer").
FACTS
The Taxpayer is a manufacturer of screen printing equipment and a distributor of screen printing supplies. It is headquartered outside of Virginia, with two branch offices also located outside Virginia. The Taxpayer is in the process of hiring an employee who resides in Virginia. The employee will be responsible for visiting and calling on prospects and customers in Virginia. The Taxpayer will not furnish an office for the employee. All orders initiated by the employee will be approved by the corporate office located outside Virginia, and all merchandise will be shipped from an out-of-state location by common carrier directly to the customer.
You request a ruling regarding the taxability of sales for both sales tax and income tax purposes.
RULING
Retail Sales and Use Tax
Under Va. Code 58.1-612 (copy enclosed), the sales tax is collectible from all persons who are dealers. That same section defines the term "dealer" and includes every person who "[m]anufactures or produces tangible personal property for sale at retail, for use, consumption, or distribution or for storage to be used or consumed in this Commonwealth." The term "dealer" also includes every person who "sells at retail ... or who has in his possession for sale at retail, or for use consumption, or distribution, angible personal property." The Taxpayer clearly qualifies as a "dealer" under Va. Code § 58.1-612.
Va. Code 158.1-612 also 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. The statute provides, in pertinent part, that a dealer shall be deemed to have sufficient activity within this state to require registration if he "[s)olicits business in this Commonwealth by employees, independent contractors, agents or other representative,." Therefore, if the Taxpayer hires a salesman to solicit business within Virginia, it is required to register with the department and collect the tax on sales to its Virginia customers.
Sales of equipment and supplies by the Taxpayer to manufacturers may be exempt from the Virginia sales and use tax under Va. Code §58.1-609.3(2), provided that the purchaser furnishes a valid certificate of exemption (Form ST-11, copy enclosed). Sales by the Taxpayer to a retailer for resale are also exempt from the Virginia sales and use tax. The Taxpayer would be relieved of its responsibility to collect and pay sales tax only if the purchaser provides a valid resale exemption certificate (Form ST-10, copy enclosed).
Corporation Income Tax
If the Taxpayer sells and delivers tangible personal property in Virginia, it has income from Virginia sources. However, Public Law ("P.L.") 86-272 (15 U.S.C.A. §§381-384) prohibits Virginia from imposing an income tax on a taxpayer when the business' only contact with Virginia constitutes solicitation. P.L. 86-272 protection has been extended by the United States Supreme Court to include activities which are ancillary to direct sales solicitation, as well as de minimis nonancillary activities. See Wisconsin Department of Revenue v. William Wrigley Jr., Co., 112 S.Ct. 2447 (1992).
Based on the facts presented in your letter, the Taxpayer does not have sufficient nexus with Virginia for the Commonwealth to impose its corporate income tax. The mere presence of sales personnel in Virginia is not a sufficient basis upon which to impose an income tax absent any nonancillary activities of the sales personnel in the state. However, if the salesman or the Taxpayer engage in any additional activity which is not ancillary to direct sales activity, it may lose its P.L. 86-272 protection and be subject to the Virginia corporate income tax.
Enclosed is a registration application for the Taxpayer to complete and return to the department in order to register for sales and other applicable taxes. Please contact the department if you have any additional questions or if we may be of any further assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8441F
Rulings of the Tax Commissioner