Tax Type
Retail Sales and Use Tax
Description
Application of sales and use tax; Foreign sales corporation
Topic
Taxability of Persons and Transactions
Date Issued
10-30-1995
October 30, 1995
Re: Ruling Request: Corporation Income and Sales and Use Taxes
Dear*************
This will reply to your letter of August 25, 1994, in which you request a ruling under two different fact patterns ("Taxpayer 1" and "Taxpayer 2", or the "Taxpayers") regarding liability in Virginia for the corporate income tax and the collection of sales tax. I apologize for the delay in responding.
FACTS
In your first set of facts, Taxpayer 1 is incorporated in a state other than Virginia, and maintains its sole business location in that state. Taxpayer 1 is engaged in the wholesale distribution of products to the construction industry. Company employees accept orders from Virginia customers by telephone from their office outside of Virginia. Orders are delivered by company employees to job sites in Virginia in the company's own trucks. Equipment orders are not installed by the company's employees. Company salesmen also visit job sites in Virginia if necessary.
Your second set of facts are identical to the first, except that the salesmen of Taxpayer 2 occasionally solicit sales orders when they are actually in Virginia.
DETERMINATION
Corporate Income Tax - Generally
Every corporation having income from Virginia sources is subject to the Virginia corporate income tax. A corporation will have income from Virginia sources when it makes sales to a customer located in Virginia. However, Public Law (P.L.) 86-272 (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 for sales of tangible personal property.
Corporate Income Tax - Facts and Circumstances 1
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 to Virginia customers and the taxpayer regularly delivered its goods into Virginia using its own trucks. In this 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 trucks to make deliveries into Virginia does not constitute solicitation which is protected by P.L. 86-272. Where delivery activity, when combined with any other activity which does not constitute solicitation, creates more than a de minimus 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. Where the delivery activity occurs on a regular and continuous basis, the department will consider the taxpayer to have nexus for the corporate income tax.
In the instant case, the facts presented do not indicate the frequency with which the Taxpayers make deliveries into Virginia using their own trucks. 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 minimus connection to Virginia.
The Taxpayers are required to at least file an annual income tax return in accordance with Virginia Regulation 630-3-441, copy attached. If the Taxpayers believe they are exempt from taxation pursuant to P.L. 86-272, the return 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, taxpayers may file a protective claim pursuant to Code of Virginia § 58.1-1824 with respect to any income tax paid as a result of the department's ruling in P.D. 92-230.
Corporate Income Tax - Facts and Circumstances 2
The salesmen of Taxpayer 2 will occasionally solicit orders when they visit job sites in Virginia. You ask how this activity affects the liability of Taxpayer 2 for the Virginia corporate income tax.
P.L. 86-272 prohibits a state from taxing the income of a corporation if its only activities within the state are limited to the solicitation of orders for sales of tangible personal property that are sent outside the state for approval and are filled and shipped from outside the state. If the actions of Taxpayer 2 in Virginia were limited to these narrowly defined set of activities, the solicitation of orders by salesmen while in Virginia, in and of itself, would not establish liability for the Virginia corporate income tax. However, the fact that Taxpayer 2 uses its own trucks to make deliveries of tangible personal property into Virginia indicates that Taxpayer 2 engages in activities in Virginia other than those protected by P.L. 86-272.
Sales Tax - Generally
Under Code of Virginia § 58.1-612, the sales tax is collectible from all persons who are dealers and who have sufficient contact with Virginia to require registration under Code of Virginia § 58.1-613.
Code of Virginia § 58.1-610 provides that any sale, distribution or lease to a construction contractor is deemed a sale, distribution or lease for the ultimate consumer and not for resale. The dealer making the sale, distribution or lease is obligated to collect the tax if he has sufficient activity (nexus) in Virginia to require registration.
Code of Virginia § 58.1-612(B)(3) defines "dealer" to include every person who "sells at retail, or who offers to sell at retail, or who has in his possession for sale at retail, or for use, consumption, or distribution, or for storage to be used or consumed in this Commonwealth, tangible personal property." Based on the facts presented, the Taxpayers qualify as a "dealer," as they are selling tangible personal property for use or consumption in Virginia; the sales is not for resale, but rather a sale to the ultimate consumer, based on Code of Virginia § 58.1-610.
Code of Virginia § 58.1-612(C) sets forth the "nexus" requirements which give the Commonwealth the authority to require dealers to register for collection and remittance of the sales tax. The statute provides in part that a dealer shall be deemed to have sufficient activity within the state to require registration if he (1) solicits business in Virginia by employees, independent contractors, agents or other representatives; or (2) makes regular deliveries of tangible personal property within the Commonwealth by means other than common carrier. A person is deemed to be making regular deliveries if vehicles other than those operated by common carrier enter Virginia more than twelve times during a calendar year.
Sales Tax - Facts and Circumstances 1
The company salesmen that visit job sites in Virginia do not create nexus for sales tax purposes, provided their activities are limited to visitation and do not fall within the scope of those activities described in Code of Virginia § 58.1-612(C). However, the facts presented indicate Taxpayer 1 makes deliveries into Virginia using its own trucks; the frequency of these deliveries is not stated. If Taxpayer 1 makes more than twelve deliveries into Virginia during the calendar year, it has sufficient nexus under Code of Virginia § 58.1-61 2(C)(4) and is required to register and collect the tax on its sales to Virginia contractors. If the number of deliveries does not exceed twelve, and no other activities are conducted in Virginia which would require registration, Taxpayer 1 is not required to collect the tax on its sales to Virginia contractors.
Sales Tax - Facts and Circumstances 2
In addition to making deliveries into Virginia using its own trucks, Taxpayer 2 has salesmen visit job sites in Virginia if necessary and, on occasion, solicit sales orders while in Virginia. Because the salesmen solicit sales while in Virginia, Taxpayer 2 has sufficient activity under Code of Virginia § 58.1-612(C)(2) and is required to register and collect the tax on its sales to contractors in Virginia.
In both instances, if the Taxpayers do not collect the tax on its sales to Virginia contractors, the contractors are liable for the use tax on their purchases.
I trust this will answer the questions posed in your letter; however, please contact***********at*********if you have additional questions or if we may be of any further assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP8419L
Rulings of the Tax Commissioner