Tax Type
Corporation Income Tax
Description
Federal limitations on taxation of interstate commerce; Employee's activities and office could create nexus
Topic
Constitutional Provisions
Date Issued
06-07-1996
June 7, 1996
Re: Request for Ruling: Corporate Income Tax
Dear**************
This will reply to your letter of March 26, 1996, in which you requested a ruling with respect to the activities of ********** (the "Taxpayer") and whether such activities would create nexus for purposes of the Virginia corporate income tax.
FACTS
The Taxpayer is a provider of software system engineering services and is located outside this state. The Taxpayer will have one employee who resides in this state and who will furnish services to a business located outside this state. The employee will accomplish his work at either a home office or on the premises of the customer. You request a ruling as to whether the Taxpayer would have taxing nexus in Virginia given these circumstances.
RULING
Based upon the facts presented, we will address the issue on a hypothetical basis as to when the Taxpayer could become subject to the Virginia income tax.
Public Law (P.L.) 86-272, codified at 15 U.S.C.A. §§ 382-384, prohibits Virginia from imposing an income tax on the Taxpayer "if the only business activities within [Virginia] by or on behalf of [the taxpayer] during [the] taxable year are..." the solicitation of orders for the sale of tangible personal property. Although P.L. 86-272 only applies to sale of tangible personal property, Virginia applies the same "solicitation" test to intangible personal property. When the activities of the Taxpayer exceed the solicitation test by providing functional business services nexus is created.
In this case the Taxpayers' employee works from an office or place of business (in-home or otherwise) that is paid for directly or indirectly by the Taxpayer and the office or place of business is formally attributable to the Taxpayer. The "solicitation" test would be exceeded since such activities serve a business function apart from soliciting sales. The Taxpayer would have income from Virginia sources because of the employee's actions and would be subject to the Virginia income tax. The Taxpayer would use the three factor formula of property, payroll, and sales to determine the income apportionable to Virginia.
If you have any questions regarding this ruling, please contact **** at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11089P
Rulings of the Tax Commissioner