Tax Type
Corporation Income Tax
Description
Determination of Tax
Topic
Allocation and Apportionment
Date Issued
06-30-1999
June 30, 1999
Re: Request for a Ruling: Corporate Income and BPOL Taxation
Dear*******************
This will reply to your letter in which you request a ruling as to whether ***** (the "Taxpayer') is liable for Virginia income tax or a business license tax.
FACTS
The Taxpayer is an out-of-state provider of engineering services. It will hire individuals and companies (the "Consultants') to perform the engineering services on behalf of the Taxpayer's clients. These Consultants will travel to the client's locations to perform these services. The Consultants who are individuals will be treated as employees of the Taxpayer for the duration of an assignment. Salary and withholding will be handled by a third party payroll company. The Consultants who are companies will be paid directly by the Taxpayer.
The Taxpayer requests information on which Virginia taxes it would be liable for if engineering services are performed in Virginia.
RULING
Corporate Income Tax
A tax is imposed on the Virginia taxable income of every foreign corporation having income from Virginia sources, unless specifically exempt. Public Law (P.L.) 86-272, codified at 15 U.S.C.A. §§ 381-384, prohibits Virginia from imposing a net income tax on a foreign corporation when its contacts with Virginia do not exceed solicitation of sales. This same protection has been extended by the United States (U. S.) Supreme Court to include activities which are ancillary to solicitation or de minimis in nature.
The department narrowly interprets P.L. 86-272 within the context of the decision of the U.S. Supreme Court in Wisconsin Department of Revenue v. William Wrigley Jr. Co., 112 S. Ct. 2447, (1992). A Taxpayer which engages in activities that may exceed the protection provided by P.L. 86-272 would be subject to the Virginia corporate income tax. Title 23 of the Virginia Administrative Code (VAC) 10-120-90 (G), copy enclosed, however, exempts activities which are de minimis in nature. Pursuant to Wrigley, all non-ancillary activities are examined to determine if, when considered together, they create more than a de minimis connection to the Commonwealth.
In the instant case, the Consultants will perform engineering services for the Taxpayer's clients. These service activities are a business function separate and apart from the solicitation of sales. As such, Virginia's authority to tax the income of the Taxpayer would depend on if, when, how often, how regularly and for how long the Consultants conducted activities on Virginia. The Taxpayer's activities may not exceed the protection afforded under P.L. 86-272 in one taxable year, but may allow Virginia to impose the corporate income tax in the next taxable year. In such cases, the department requires a taxpayer to register and file corporate income tax returns even for taxable years it may not be subject to tax on its income.
Business, Professional and Occupational License Tax
In addition to a state income tax, the Taxpayer may be subject to a local business license tax. Pursuant to Code of Virginia § 58.1-3700, et seq., Virginia localities are authorized to impose a Business, Professional and Occupational License Tax ("BPOL'). This local license fee and tax are imposed and administered by local officials.
In general and subject to limits set forth in the Code of Virginia, localities may charge a fee for issuing BPOL licenses or may levy a license tax on a business for the privilege of engaging in business at a definite place within the locality. Business means a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit. It implies a continuous and regular course of dealing, rather than an irregular or isolated transaction. A definite place of business means an office or a location at which occurs a regular and continuous course of dealing where one holds one's self out, or avails one's self to the public for thirty consecutive days or more, exclusive of holidays and weekends. Please see § 3.8 of the 1997 BPOL Guidelines, copy enclosed, for examples of when an individual is engaged in business in Virginia and subject to a local license fee or tax.
I would note that this ruling only addresses the Taxpayer's potential tax liability. An out-of-state business may also be responsible for registering with other state government agencies. The Taxpayer should contact the Virginia State Corporation Commission regarding its other registration requirements.
I am enclosing an R-1 registration form to register for Virginia income tax. I hope that the foregoing has answered your questions. If you have any further questions about this ruling, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21690B
Rulings of the Tax Commissioner