Tax Type
Individual Income Tax
Description
Nonresident magazine publisher; Virginia source income
Topic
Persons Subject to Tax
Date Issued
07-26-1988
July 26, 1988
Re: Ruling Request/ Individual Income Tax
Dear******************
This will reply to your letter of June 17, 1988 seeking a ruling that your client is not subject to Virginia income tax based on its activities in Virginia.
FACTS
As the sole proprietor of a non-resident publishing business, your client publishes a bi-weekly magazine advertising the sale of homes. Your client's advertisers are almost exclusively Virginia realtors who pay for space in the magazine by purchasing pages or fractions thereof, and who supply your client with photographs and copy for the homes to be advertised in the magazine.
In addition to residing outside Virginia, your client maintains no business office in Virginia, has no printing performed in this State, and solicits almost all of its advertising from Virginia realtors by telephone from outside the State. On occasion however, your client may come into Virginia to consummate an agreement with a realtor. Your client also enters Virginia to receive photographs and copy from its realtor/ advertisers.
After the printing of its magazines, your client ships them to a warehouse which it maintains in Virginia, for temporary storage prior to being picked up by independent contractors for delivery to drugstores, supermarkets, banks, etc., located in this State for free distribution to the public.
Based on the foregoing, you contend that your client is not liable for Virginia individual income tax on income received from sales of advertising to its Virginia customers, and accordingly is not subject to Virginia filing requirements with respect to such income.
RULING
Virginia Code §58.1-325 requires a nonresident individual to file a return and pay the tax if he or she has income, gain, loss or deductions from Virginia sources. §58.1-302 of the Virginia Code then defines the term "Income and deductions from Virginia sources" to include, "[i]tems of income, gain, loss and deduction attributable to: ...[t]he ownership of any interest in real or tangible personal property in Virginia; or ... [a] business, trade, profession or occupation carried on in Virginia." (Emphasis added) In accord with the foregoing, see Virginia Regulation 630-2-325, a copy of which is enclosed.
Based on the facts presented, your client clearly has Virginia source income within the meaning of the Virginia Code sections cited above. However, federal law prohibits a state from imposing a net income tax on a foreign corporation having no place of business within the state, whose sole activity within the state is solicitation of orders which are accepted and filled by shipment via common carrier from places outside the state. See Public Law 86-272 (15 U.S.C §§381-384) for full details and definitions. This same concept applies to individuals who are sole proprietors of businesses having no place of business within a state.
However, unlike the businesses addressed under federal law, your client's business involves much more than the mere solicitation of orders from customers in this State. For example, your client maintains on a continuous basis an interest in real property, (a warehouse) located in this State, and temporarily stores items of tangible personal property (magazines) in this State. Accordingly, federal law does not preclude the imposition of Virginia income tax in this case.
Based on the foregoing, your client will be required to file a nonresident return and pay Virginia individual income tax on all income attributable to Virginia sources. However, under §58.1-332.B of the Virginia Code your client may claim a credit against his Virginia income tax liability for income tax paid to his state of residence (Maryland) on such Virginia source income.
I hope that this has answered your questions but let the department know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner