Tax Type
Corporation Income Tax
Description
Federally exempt organization with taxable income in another state
Topic
Exemptions
Date Issued
03-31-1994
March 31, 1994
Re: Ruling request: Corporate income taxes
Dear*************
This will reply to your letter of January 12, 1994 in which you have requested a ruling with respect to the imposition of Virginia corporate income tax on the ************ (the "Taxpayer").
FACTS
The Taxpayer is a corporation which is exempt from taxation pursuant to §501(c)(3) of the Internal Revenue Code. The Taxpayer has federal unrelated business taxable income from advertising income. The advertising income is attributable to activities engaged in by the Taxpayer in an office outside Virginia. The Taxpayer files returns and pays taxes in the state in which its advertising activities are located. Because the Taxpayer's activities in Virginia are limited to its tax exempt purpose, and because the Taxpayer's income producing activities are carried on outside Virginia, you have requested a ruling regarding the Taxpayer's responsibility for Virginia income taxes and Virginia income tax returns.
RULING
Pursuant to Va. Code §58.1-402 B 5, Virginia taxable income includes unrelated business taxable income as defined by §512 of the Internal Revenue Code. However, where a corporation has business activity which is taxable both within and without Virginia, it is entitled to allocate and apportion its income as provided in Va. Code §58.1-406, et seq.
The Virginia sales factor for advertising type income would be determined on the basis of costs of performance in accordance with Va. Code §58.1-416. Because the Taxpayer's advertising activities are attributable to an office outside of Virginia, and because there are no advertising activities physically conducted in Virginia, it appears that the corporation would have a zero sales factor.
The Taxpayer may have property or employees in Virginia. However, property and payroll is only considered for the Virginia apportionment factors to the extent that such property or payroll is used to produce Virginia taxable income. The "exempt" activities of a tax exempt organization, outside of activities which produce unrelated taxable income, are unrelated to the production of Virginia taxable income. Thus, the Taxpayer's office in Virginia, which is unrelated to the taxable advertising activities, does not create a positive Virginia payroll or property factor.
Based on the facts which you have described, none of the Taxpayer's unrelated business taxable income would be apportioned to Virginia. Accordingly, no Virginia income tax would be owed by the Taxpayer.
The Taxpayer may be required to file a Virginia income tax return even if it owes no Virginia income taxes. If the Taxpayer is registered with the State Corporation Commission for the privilege of doing business, or has income from Virginia sources, it may be required to file returns even though no Virginia tax is due. See VR 630-3-441, copy attached. If this is the case, the department will waive late filing penalties for the 1992 and 1993 taxable years provided that the delinquent returns are filed within 60 days of the date of this letter.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7596M
Rulings of the Tax Commissioner