Tax Type
Corporation Income Tax
Description
Nexus; Federal limitation on taxation of interstate commerce; Lottery winnings
Topic
Constitutional Provisions
Date Issued
04-16-1997
April 16, 1997
Re: § 58.1-1824 Application: Corporation Income Taxes
Dear***************
This will reply to your letter in which you request a refund of tax withheld from lottery proceeds for your client, ****** (the "Taxpayer") for the taxable years 1994 and 1995. I apologize for the delay in responding.
FACTS
In late 1993, the Taxpayer obtained the rights to receive future proceeds of a winning Virginia lottery ticket from the original holder. Pursuant to Virginia law, the Virginia Lottery Commission ("VLC") withheld Virginia income tax from the payments. The Taxpayer filed corporation income tax returns for 1994 and 1995 to claim the refund of all amounts withheld.
The Taxpayer contacted the department when they did not receive the requested refunds. It was discovered that, due to the unusual circumstances of the refund claim, the case had been forwarded to the Office of Tax Policy for review. The Taxpayer claims no nexus with Virginia. As a result, the Taxpayer believes it is not subject to Virginia corporation income tax, and is entitled to a full refund of the taxes withheld by VLC.
DETERMINATION
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.
The Taxpayer has only a limited presence in Virginia. For the tax years in question, the Taxpayer's primary connection with Virginia is the receipt of state lottery winnings mailed annually to its office located in another state by the VLC. Although, it is clear that the Taxpayer has income from Virginia sources, the facts presented show the Taxpayer did not have sufficient nexus with Virginia for the Commonwealth to impose its corporation income tax in 1994 and 1995.
Accordingly, since the Taxpayer did not have sufficient nexus with Virginia to be subject to Virginia corporation income tax, the Taxpayer is entitled to a full refund for tax withheld from the lottery proceeds in 1994 and 1995. If you have any questions regarding this ruling, you may contact*****at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11557O
Rulings of the Tax Commissioner