Tax Type
Corporation Income Tax
Retail Sales and Use Tax
Description
Activities in Virginia sufficient for tax liability
Topic
Collection of Delinquent Tax
Taxability of Persons and Transactions
Date Issued
04-21-1999
April 21, 1999
Re: Request for Ruling: Corporate Income Tax & Retail Sales and Use Tax
Dear *****
This will respond to your letter in which you request a ruling with respect to whether the activities of your client (the "Taxpayer'), are sufficient for Virginia to impose its corporate income tax, or the retail sales and use tax.
FACTS
The Taxpayer is an out-of-state corporation which sells computer hardware and software which it develops and installs. The Taxpayer sells to a reseller located outside the Commonwealth who will in turn sell directly to the end user in the Commonwealth. The Taxpayer will then come into Virginia to install the equipment and software and to train the end user on the use of the equipment and software.
RULING
Corporate Income Tax - Generally
Every corporation having income from Virginia sources is subject to the Virginia corporate income tax. A corporation will have income from Virginia sources when it makes sales to a customer located in Virginia. However, Public Law (P.L.) 86-272 (15 U.S.C.A. §§381 - 384) prohibits a state from imposing a net income tax where the only contacts with the state are a narrowly defined set of activities constituting solicitation of orders for sales 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 business activities involving intangible personal property. The department has a long established policy of narrowly interpreting the provisions of P.L. 86-272.
In the instant case, the Taxpayer's employees furnish specialized computer services to customers in Virginia. These service activities are a business function separate and apart from the solicitation of sales. Because the Taxpayer has income from Virginia sources from the performance of services in this state and its activities exceed those permitted by P.L. 86-272, the Taxpayer is subject to Virginia corporate income tax. I have enclosed a copy of a prior ruling Public Document (P.D.) 93-75 (3/17/93) which presents further information relating to corporate income tax nexus.
Sales Tax - Generally
Under Code of Virginia § 58.1-612 (copy enclosed), the sales tax is collectible from all persons who are dealers and who have sufficient contact with Virginia to require registration under Code of Virginia § 58.1-613.
The Taxpayer sells its product to a reseller, who sells to a Virginia customer. Code of Virginia § 58.1-612 defines the term "dealer' to include every person who offers tangible personal property for sale at retail in Virginia. The reseller clearly qualifies as a "dealer' under this definition. As a result, sales of tangible personal property shipped to Virginia purchasers would be subject to the retail sales and use tax.
Code of Virginia § 58.1-612(C) sets forth the nexus requirements which give the Commonwealth the authority to require a business to register for the collection and remittance of the Virginia sales tax. Based on the information presented, I am unable to determine if there is sufficient nexus to require the reseller to register for the collection of the tax.
Based on the facts presented, and with regard to the requirements of Code of Virginia § 58.1-612, there is insufficient contact with the Commonwealth to require the Taxpayer to register for the collection of the Virginia Retail Sales and Use Tax. It should be noted, however, that the Taxpayer will be liable for the payment of the tax on all supplies used in the performance of its services when in the Commonwealth.
Additionally, when the Taxpayer conducts its training, the manner in which charges are made for training materials or manuals may require that the Taxpayer be registered for the collection and reporting of the sales tax. If the Taxpayer's charges for training include the provision of materials or manuals as a part of the training process, and there is no separate charge for the materials, the Taxpayer would not be considered a dealer with respect to Code of Virginia § 58.1-612. However, if there is a separate charge for the materials or manuals, or the Taxpayer sells additional copies of its manuals, the Taxpayer would be required to register and collect the tax on such sales. I have enclosed copies of previous rulings, P.D.'s 95-232 (9/13/95), 96-348 (11/25/96), and 98-193 (11/24/98) which provide further detail relating to the taxation of training materials used in providing services.
This ruling is issued based on the facts as set forth in your letter. If the operations of the taxpayer change to something other than those submitted with the ruling request, the taxable status of the taxpayer may change from the determination made herein. Enclosed is a registration application and instructions for the Taxpayer to complete and return to the department in order to register for the income tax.
I trust that the foregoing response has addressed your concerns. If, however, you should require any additional assistance please contact ***** of the ***** department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21327Q
Rulings of the Tax Commissioner