Tax Type
Corporation Income Tax
Description
Nexus; Salesmen in Virginia provided with company automobile
Topic
Persons Subject to Tax
Date Issued
06-20-1988
June 20, 1988
Re: Request for Ruling; Corporation Income Tax
Nexus
Dear****************
This is in response to your letters of March 13 and May 4, 1988, in which you requested a ruling on whether your client is subject to Virginia's corporation income tax for years prior to 1988.
Facts
Your client (hereafter referred to as the manufacturer) is a manufacturing corporation with its commercial domicile in another state. The manufacturer employs salesmen who reside in Virginia and provides them with the use of a company automobile. All orders are accepted at the manufacturer's office and are shipped from inventory located outside of Virginia.
Discussion
The manufacturer makes substantial sales of tangible personal property into Virginia and clearly has income from Virginia sources as defined in Va. Code §58.1-302. Federal law prohibits Virginia from taxing this income only if the manufacturer does not exceed the minimum contacts set forth in Public Law 86-272, codified at 15 U.S.C.A. §§381-384. From the facts you describe, there are three areas where the manufacturer appears to exceed the minimum contacts allowed by P.L. 86-272.
First, the salesmen carry a "small" amount of the manufacturer's perishable products which are exchanged on an item-for-item basis for out-of-date products on a retailer's display. Thus, these products are not used exclusively for the purpose of soliciting sales (e.g., as a sample), but as a means to ensure the quality of perishable products offered for sale in Virginia. The products carried by the salesmen are more in the nature of inventory than sales samples. The department has always held that the presence of any inventory in Virginia subjects a corporation to income tax.
Second, the salesmen who reside and work in Virginia are not engaged exclusively in soliciting orders. All of the salesmen have quality control responsibilities (replacing out-of-date stock) and at least one of the salesmen has some management responsibilities (training and evaluation with respect to the other salesmen).
Third, it is not clear from the facts given just what the role of the salesmen is in supplying display stands to retailers. They may have the authority to supply display stands without approval from the manufacturer's office and they may also receive, deliver and install some of the display stands.
Thus, the activity described appears to prevent the manufacturer from relying on P.L. 86-272 for exemption from Virginia income tax. Virginia regulation VR 630-3-401 G provides for a de minimus exception based on a case-by-case analysis of the nature, continuity, frequency, and regularity of the activities in Virginia compared to such activities everywhere. The determination as to whether the manufacturer qualifies for the exception can be made only after complete disclosure of the details of the manufacturer and its activities in Virginia and elsewhere. Based on the facts provided, it appears that the activities which exceed the minimum protected by P.L. 86-272 are a frequent and continuing part of the manufacturer's regular course of business.
Conclusion
Based on the facts provided in your letter, it appears that the manufacturer is not exempt from Virginia income tax under P.L. 86-272. If you desire a ruling on whether the manufacturer would be exempt from Virginia income tax for taxable years before 1988 based on the de minimus exception in VR 630-3-401 G you should submit complete information on the manufacturer and its activities.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner