Tax Type
Corporation Income Tax
Description
Domestic and foreign corporations; Software sales and services
Topic
Taxpayers' Remedies
Date Issued
09-06-1995
September 7, 1995
Re: Request for Ruling: Corporate Income Tax
Dear*****************:
This will reply to your letter of July 31, 1995, sent on behalf of an anonymous taxpayer. You inquire whether the taxpayer's activities in Virginia would subject the taxpayer to the Virginia corporation income tax.
FACTS
The taxpayer is a Texas corporation which sells computer software, furnishes implementation services, maintenance, and training services to customers in Virginia. There is no office located in Virginia, or other property owned or leased in Virginia. There are no employees furnishing any services to customers in Virginia.
Implementation services are the installation of the software on the customer's equipment. Implementation services do not require a company representative on site, and this service is performed outside of Virginia.
Maintenance fees are for ongoing support as well as modifications and upgrades. These are provided from outside of Virginia via telephone, or furnished on discs directly to the customer. Training is provided to customer personnel at facilities outside of Virginia. Customer personnel may also attend courses outside of Virginia prior to the installation of software at the customers location.
RULING
You have requested a ruling with respect to whether the taxpayer has nexus in Virginia, and whether the sale of "canned" versus "custom" software makes a difference as to the determination of nexus.
Based on the facts as set forth in your letter, the taxpayer's limited activities in Virginia are not of sufficient basis to establish nexus when no other activities are present. See Public Document (P.D.) 93-75 (3/17/93), copy attached.
Public Law (P.L.) 86-272, codified at 15 U.S.C.A. §§ 381-384, prohibits a state from imposing a net income tax where the only contacts with the state are a narrowly defined set of activities constituting solicitation of orders of tangible personal property. Although P.L.86-272 only applies to "tangible" personal property, Virginia applies the same "solicitation" test to intangible personal property. Therefore, the nature of software ("canned" or "custom") would not make a difference as to nexus for purposes of the Virginia corporate income tax. See P.D. 94-181 (6/13/94), copy attached.
Separately identified sales of prewritten, "canned" software are considered to be sales of tangible personal property. These sales would be apportioned based on their destination. Sales of "custom" software, implementation services, maintenance fees, and training not involving the sale of tangible personal property are apportioned based on "costs of performance". Based on your statements, the costs of performance are likely to be greater outside than inside Virginia, and would therefore not be includible in the numerator of the sales apportionment factor. See P.D. 94-181.
This ruling is issued based on 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. If you have any questions regarding this ruling, please call***********at *************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10076P
Rulings of the Tax Commissioner