Tax Type
Corporation Income Tax
Description
Income from Virginia sources
Topic
Allocation and Apportionment
Date Issued
12-23-1986
- December 23, 1983
Re: Corporation Income Tax; Income from Virginia Sources
Dear ****
The taxpayer has filed Virginia income tax returns for a number of years. After a field audit of returns for three taxable years the taxpayer reviewed its activity in Virginia and now claims that it is not subject to income tax in Virginia.
In each of the three taxable years in issue the taxpayer made sales into Virginia which, in the absence of other activity in Virginia, would not subject the taxpayer to Virginia income tax under P.L. 86-272, 15 U.S.C.A. §§381 - 384.
In each of the three taxable years the taxpayer also owned railroad tank cars and was subject to the Virginia tax on rolling stock under §58.1-2652. The tank cars were used to deliver the taxpayer's products to its customers. Thus the taxpayer has property located in Virginia and has received income from Virginia sources in the form of payment by the railroad for the miles traveled in Virginia.
Although the tank cars may be used to deliver the taxpayer's products to a customer in Virginia, the Department has a long standing policy of allowing a taxpayer to use his own trucks to deliver goods in Virginia without exceeding the minimum activity allowed by P.L. 86-272 as long as the taxpayer does no more than provide the same delivery service provided by a common carrier. The same policy applies to tank cars leased to a common carrier for the purpose of delivering taxpayer's products. Under these circumstances the movement of taxpayer's railroad tank cars through Virginia will not by itself, or in combination with P.L. 86-272 sales, subject the taxpayer to income tax in Virginia.
It should be noted that if other activity within Virginia subjects the taxpayer to Virginia income tax then the P.L. 86-272 sales will be included in the sales factor and the tank cars will be included in the property factor for the taxable year.
In two of the taxable years the taxpayer employed a Virginia resident who worked in the taxpayer's office located outside of Virginia. Employment of a Virginia resident who commutes to an office outside of Virginia does not subject the taxpayer to Virginia income tax. If the taxpayer is otherwise subject to Virginia income tax, wages paid to such an employee would not be deemed compensation paid in Virginia under Virginia Code §58.1-413. (Payroll factor.)
In one taxable year the taxpayer shipped unfinished goods to an independent contractor in Virginia for processing. Upon completion of the processing in Virginia the goods were shipped back to the taxpayer's factory located outside Virginia. The return shipment apparently took place in the following taxable year. This processing in Virginia appears to be unrelated to the P.L. 86-272 sales and the tank car shipments discussed above.
The department has always held that any inventory located in Virginia subjects a corporation to Virginia income tax. However the goods in question were not being stored for the taxpayer's convenience or for sale to others. They were in Virginia for the limited purpose of processing by an independent contractor and returned to the taxpayer immediately upon conclusion of processing. An isolated transaction of the type described does not by itself, or in combination with unrelated P.L. 86-272 sales or unrelated tank car movements, subject the taxpayer to Virginia income tax.
In one taxable year the taxpayer employed a salesman who operated out of his Virginia residence. The taxpayer states that the "...salesman did not have the authority to accept or approve orders and did not maintain a stock of goods within Virginia. The place from which his services were directed or controlled was located outside of Virginia."
Since at least 1964 the Department has held that a corporation is not subject to Virginia income tax solely because salesmen, who reside in Virginia and use their homes for maintaining records only, solicit orders in Virginia without authority to accept orders. See outline of response to questionnaires submitted to the Special Subcommittee on State Taxation of Interstate Commerce of the U.S. House Judiciary Committee reproduced at paragraph 10-030.60 of the CCH Virginia State Tax Reporter.
Accordingly, the taxpayer is not subject to Virginia income tax for any of the taxable years in question.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner