Tax Type
Corporation Income Tax
Description
Federal limitation on taxation of interstate commerce; Telecommunications services
Topic
Constitutional Provisions
Date Issued
06-11-1999
June 11, 1999
Re: Ruling Request: Corporate Income Taxes
Dear*******************
This will reply to your letter in which you request a determination of nexus for * * * * * (the "Taxpayer').
FACTS
The Taxpayer provides conference calling services for customers throughout the United States and Canada. All customers contact the Taxpayer's offices in another state (State A) to reserve usage of the service. All calls originate and terminate in State A. The Taxpayer does not own or lease property in Virginia and does not have any employees or agents in Virginia. The Taxpayer does bill charges to customers who have addresses within Virginia, but does not directly solicit business in Virginia. All of the Taxpayer's business is derived through referrals or through advertisements in national magazines and industry periodicals.
The Taxpayer requests a ruling on whether it has nexus in Virginia for purposes of the corporate income tax.
RULING
Under Code of Virginia § 58.1-400, every corporation having income from Virginia sources is subject to the corporate income tax. A taxpayer will have income from Virginia sources when sales are made to customers located in Virginia. Public Law (P.L.) 86-272, however, prohibits a state from imposing an income tax on businesses when the only contacts with the state are a narrowly defined set of activities. Although P.L. 86-272 applies to tangible property, the department's policy has been to extend the "solicitation test' of P.L. 86-272 to situations involving the sale of services. The department limits the scope of P.L. 86-272 to only those activities that constitute solicitation, are ancillary to solicitation, or are de minimis in nature. Based on the facts as presented, the Taxpayer's activities in Virginia would not exceed the standards set forth under Public Law 86-272.
Further, even if the Taxpayer did not have nexus, it may not have had income from Virginia sources. The Taxpayer does not have any payroll or property in Virginia. As such, the only question would be whether the Taxpayer has sales deemed to be made in Virginia. Code of Virginia § 58.1-416 states:
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- "Sales, other than sales of tangible personal property, are in the Commonwealth if: 1. The income-producing activity is performed in the Commonwealth; or 2. The income-producing activity is performed both in and outside the Commonwealth and a greater proportion of the income-producing activity is performed in the Commonwealth than in any other state, based on costs of performance.'
For the purposes of telecommunications services, a greater proportion of the income producing activity will be presumed to have been made in Virginia if communications either originate or terminate within Virginia and the charge for the communication is billed to a service address within Virginia. 23 Virginia Administrative Code 10-120-84. In the Taxpayer's case, the calls neither originate nor terminate in Virginia. Therefore, the sales would not be deemed to have been made in Virginia and the Taxpayer does not have nexus with Virginia. The Taxpayer is not subject to the corporate income tax.
This ruling has been made subject to the facts presented to the department as summarized above. Any change in these facts or the introduction of facts by another party may lead to a different result. If you have any additional questions regarding this ruling, please fee free to call * * * * * in the Office of Tax Policy at * * * * *.
Sincerely,
Danny Payne
Tax Commissioner
Rulings of the Tax Commissioner