Tax Type
Corporation Income Tax
Description
Federal limitations on taxation of interstate commerce; Deliveries and servicing of product dispensers
Topic
Constitutional Provisions
Date Issued
08-26-1996
August 26, 1996
Re: Ruling Request: Corporation Income Tax
Dear**************
This will reply to your letter of December 13, 1994, in which you request a ruling regarding Virginia corporate income tax obligations of ******** (the "Taxpayer"). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is incorporated and headquartered outside of Virginia. There are two resident salesmen in Virginia who solicit sales of the Taxpayer's products. It appears orders are sent outside of Virginia for approval and shipped directly to the customer from outside of Virginia via the Taxpayer's delivery trucks. Additionally, the Taxpayer installs, services and repairs product dispensers in Virginia.
The state in which the Taxpayer's principal operations are located has asserted that all of its sales are taxable in that state. The Taxpayer's representative is requesting a ruling concerning its corporate income tax liability in Virginia.
RULING
Public Law (P. L.) 86-272 (15 U.S.C.A. §§ 381-384) provides an exemption from a state's income tax if a taxpayer's activities in such state do not exceed a narrowly defined set of activities constituting solicitation of orders for the sales of tangible personal property.
The department has a long established policy of narrowly interpreting the provisions of P.L. 86-272.
Deliveries
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 revised its previous policy regarding deliveries on a prospective basis, beginning with taxable years beginning after November 9, 1992. The department is currently in litigation regarding this issue in the Virginia Supreme Court (National Private Truck Council. Inc. v. Payne). In that action the Petitioner has challenged the department's policy regarding deliveries.
The department's policy makes clear that the utilization of a taxpayer's own vehicle to make deliveries into Virginia does not constitute solicitation which is protected by P. L. 86-272. Where delivery activity exceeds some de minimis connection to the Commonwealth there is a sufficient nexus for the imposition of the corporate income tax. In making its determination, the department will consider, among other things, whether the deliveries are a regular and continuous activity carried on in Virginia. According to the information presented in this case, deliveries of products sold in Virginia are made in the Taxpayer's trucks and the volume of sales made in Virginia is not de minimis.
Installation and Service
The installation and servicing of product dispensers are indicative of activities creating nexus. Such activities are business functions which exceed the mere solicitation of orders. Based on the information provided, the Taxpayer's activities in Virginia are not isolated transactions, but a regular and continuing presence in Virginia for business purposes. These activities subject the Taxpayer to the Virginia corporate income tax.
Ownership of Dispensers
The ownership of real or tangible personal property in Virginia will generally constitute nexus with Virginia unless it is considered de minimis. The department will consider, among other things, whether the Taxpayer regularly and continuously places dispensers, which it owns, in Virginia. The information provided does not present clear evidence for making a determination as to whether the placement of the dispensers by itself would establish nexus.
Based on all the information presented, The Taxpayer has a nexus in Virginia and is required to file annual corporation income tax returns. If you have any questions regarding this ruling, you may contact *********at ********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9309O
Rulings of the Tax Commissioner