Document Number
96-1
Tax Type
Corporation Income Tax
Description
Federal limitations on taxation of interstate commerce; Repair of products established nexus
Topic
Constitutional Provisions
Date Issued
01-04-1996

January 4, 1996



Re: § 58.1-1821 Application: Corporate Income Tax


Dear**************

This will reply to your letters of August 23, 1995, and November 9, 1995, in which you request that the department reconsider its denial of a refund claim for ***********(the "Taxpayer") for the taxable year ended December 31, 1990.

FACTS

The Taxpayer is a manufacturer of tangible personal property, and is domiciled outside Virginia. The Taxpayer has no office or place of business in Virginia, but does have sales representatives who reside in Virginia.

The salesmen carry and distribute literature on company products but do not carry a stock of inventory. Salesmen do not approve customer orders or do credit checks on potential customers. Salesmen do assist customers infrequently in the repair of company products. Company products are delivered into Virginia via common carrier as no inventory is stored in Virginia.

DETERMINATION

The Taxpayer has income from Virginia sources because the Taxpayer sold tangible personal property in Virginia in 1990. Public Law (P.L.) 86-272, codified at 15 U.S.C.A. §§ 381-384, prohibits Virginia from imposing a net income tax on the Taxpayer when the only contact with Virginia constitutes solicitation. P.L. 86-272 protection has been extended by the U.S. 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).

In Wrigley, the U.S. Supreme Court found that a "solicitation of orders" means any speech or conduct explicitly or implicitly proposing a sale, and activities entirely ancillary to soliciting orders. Activities in which a taxpayer would engage regardless of whether a sale is made are not exempt solicitation just because they are performed by salesmen, unless the activities are de minimis.

In addition to soliciting sales, the Taxpayer's salesmen occasionally help with the repair of products. Although the number of repairs made in any one year may have been small, over a period of years the repair activity appears to have been conducted on a regular and continuous basis. While this activity might appear to be small in scale to overall activity, its measurement in terms of customer value and satisfaction may have had a significant impact upon the business conducted in Virginia. Such activity exceeds the mere solicitation of orders, and is not ancillary to soliciting orders. As stated in Wrigley:
    • Repair and servicing may help to increase purchases; but it is not ancillary to requesting purchases, and cannot be converted into "solicitation" by merely being assigned to salesmen. (Emphasis in original.)

Based on the information provided, it appears the Taxpayer had sufficient nexus in Virginia in 1990 to be subject to the Virginia income tax. Therefore, your request for refund must be denied.

Sincerely,


Danny M. Payne
Tax Commissioner


OTP/10208P

Rulings of the Tax Commissioner

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