Tax Type
Corporation Income Tax
Description
Nexus; Federal limitation on taxation of interstate commerce; Leased property in state
Topic
Constitutional Provisions
Date Issued
04-18-1997
April 18, 1997
Re: Request for Ruling: Corporate Income Tax
Dear********************
This will respond to your letter in which you request a ruling as to whether ************* (the "Taxpayer") has the requisite nexus for filing a Virginia corporate income tax return. I apologize for the delay in responding.
FACTS
The Taxpayer is a general equipment lessor domiciled outside Virginia. The Taxpayer has no permanent employees in Virginia, but does have movable tangible personal property located in this state. The Taxpayer rents and delivers cranes, backhoes, trenchers, and other construction equipment to Virginia customers. The Taxpayer also sells parts for servicing equipment located in Virginia.
You inquire whether the Taxpayer's activities create nexus in Virginia or whether the Taxpayer is immune from Virginia taxation under Public Law (P.L.) 86-272.
RULING
For purposes of establishing nexus in Virginia, the Taxpayer must have income from Virginia sources. Code of Virginia § 58.1-302 defines income and deductions from Virginia sources as:
Items of income, gain, loss and deduction attributable to:
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- a. The ownership of any interest in real or tangible personal property in Virginia; or
-
- b. A business, trade, profession or occupation carried on in Virginia.
The Taxpayer has income from Virginia sources because it owns leased tangible personal property in Virginia and sells parts for servicing this equipment. In determining whether a corporation's activities are sufficient to create nexus in Virginia, Title 23 Virginia Administrative Code 10-120-90 G provides for a case-by-case analysis of the nature, continuity, frequency and regularity of the activities in Virginia compared to such activities everywhere. Because the Taxpayer leases tangible personal property and sells parts for servicing the equipment on a continuous basis in Virginia, the Taxpayer has Virginia source income.
A tax is imposed on the Virginia taxable income of every foreign corporation having income from Virginia sources, unless specifically exempted. Under Public Law (P.L.) 86-272, codified at 15 U.S.C.A. § 382-384, Virginia prohibited is 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 the sale of tangible personal property, Virginia applies the same "solicitation" test to sales of other than tangible personal property. Since the Taxpayer has a continued presence in Virginia by the leasing of equipment, it has income from Virginia sources as defined in Code of Virginia § 58.1-302. Further, the presence of the tangible personal property in Virginia exceeds the protection afforded by P.L. 86-272 and consequently a Virginia return would be required to be filed.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11102P
Rulings of the Tax Commissioner