Tax Type
Corporation Income Tax
Description
Domestic and Foreign Corporations
Topic
Taxpayers
Date Issued
07-07-1999
July 7, 1999
Re: Request for a Ruling: Corporate Income Tax
Dear ***
This will reply to your letter in which you request a ruling on whether (the "Taxpayer') is subject to any Virginia state taxes.
FACTS
The Taxpayer, a foreign corporation, intends to provide architectural and engineering services to clients within the Commonwealth. The project site is within Virginia. All employees are located out-of-state and no one will enter Virginia. The Taxpayer will have no office nor any other property within Virginia. No sales will be solicited in Virginia.
The Taxpayer requests a ruling as to whether it is subject to income tax, sales and use tax or any other state tax. Also, the Taxpayer wants to know whether the outcome would be different if one employee provides services which consist of one or two visits of brief duration in Virginia.
RULING
Corporate Income Tax
Under Code of Virginia Sec. 58.1-400, copy enclosed, 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 intangible personal property. 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.
In the scenario where none of the Taxpayer's employees enter Virginia, no activities occur in the Commonwealth which would create nexus, even though it had income from Virginia sources. In a scenario where one employee makes brief visits to Virginia to perform services, the Taxpayer's activities would clearly exceed the protection of P.L. 86-272. However, such visits, if conducted infrequently, may be considered de minimis in nature and not subject the Taxpayer to Virginia income tax.
RETAIL SALES AND USE TAX
Under Code of Virginia Sec. 58.1-612, copy enclosed, the sales tax is collectible from all persons who are dealers. That same section defines the term "dealer' to include every person who offers tangible personal property ("TPP') for sale at retail in Virginia. Because the Taxpayer does not offer tangible personal property for sale at retail in Virginia, the Taxpayer need not collect sales tax.
Under Code of Virginia Sec. 58.1-604, copy enclosed, a use tax is imposed upon the use or consumption of tangible personal property in the Commonwealth. As a service provider, the Taxpayer must pay use tax on items used in Virginia for providing service unless tax was previously paid on the purchase.
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 feel free to call ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22523B
Re: Request for a Ruling: Corporate Income Tax
Dear ***
This will reply to your letter in which you request a ruling on whether (the "Taxpayer') is subject to any Virginia state taxes.
FACTS
The Taxpayer, a foreign corporation, intends to provide architectural and engineering services to clients within the Commonwealth. The project site is within Virginia. All employees are located out-of-state and no one will enter Virginia. The Taxpayer will have no office nor any other property within Virginia. No sales will be solicited in Virginia.
The Taxpayer requests a ruling as to whether it is subject to income tax, sales and use tax or any other state tax. Also, the Taxpayer wants to know whether the outcome would be different if one employee provides services which consist of one or two visits of brief duration in Virginia.
RULING
Corporate Income Tax
Under Code of Virginia Sec. 58.1-400, copy enclosed, 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 intangible personal property. 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.
In the scenario where none of the Taxpayer's employees enter Virginia, no activities occur in the Commonwealth which would create nexus, even though it had income from Virginia sources. In a scenario where one employee makes brief visits to Virginia to perform services, the Taxpayer's activities would clearly exceed the protection of P.L. 86-272. However, such visits, if conducted infrequently, may be considered de minimis in nature and not subject the Taxpayer to Virginia income tax.
RETAIL SALES AND USE TAX
Under Code of Virginia Sec. 58.1-612, copy enclosed, the sales tax is collectible from all persons who are dealers. That same section defines the term "dealer' to include every person who offers tangible personal property ("TPP') for sale at retail in Virginia. Because the Taxpayer does not offer tangible personal property for sale at retail in Virginia, the Taxpayer need not collect sales tax.
Under Code of Virginia Sec. 58.1-604, copy enclosed, a use tax is imposed upon the use or consumption of tangible personal property in the Commonwealth. As a service provider, the Taxpayer must pay use tax on items used in Virginia for providing service unless tax was previously paid on the purchase.
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 feel free to call ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22523B
Rulings of the Tax Commissioner