Tax Type
Individual Income Tax
Description
Nonresident Partnerships; Income from Investment Advisory Services
Topic
Partnerships
Date Issued
08-26-1991
August 26, 1991
Re: Request for Ruling: Individual Income Tax
Dear******************
This will reply to your letter dated February 26, 1991, in which you request a ruling on the whether your client, based upon the operations as described herein. will be subject to any Virginia tax.
FACTS
Your client is a Pennsylvania general partnership rendering investment advisory services to individuals, as well as government and corporate retirement funds, with regard to their security portfolios.
All services are performed in Pennsylvania. including computer maintenance of activity within the client's account. As advisors, your client places orders with a broker to buy or sell a security. Your client is not a broker nor does the partnership in any way handle the securities or cash funds. The only funds the partnership receives are its fees, which are mailed to its office in Pennsylvania.
Your client will have a Pennsylvania based staff person, or partners, make contact with residents of Virginia to sell its services. Thereafter, all services will be performed in Pennsylvania, as described above. It is anticipated that, other than the sales contacts and a possible annual meeting to discuss how the portfolio is doing, there will be no other services performed in Virginia.
There will be no tangible assets or payroll sited within Virginia.
RULING
Income Tax
Virginia does not impose an income tax on partnerships. A partner, however, who is a Virginia resident, is subject to Virginia income tax on the distributive share of income, as reported on Federal schedule K-1, to the extent that such income is included in federal adjusted gross income, and as modified by Virginia.
Nonresident partners are subject to Virginia income tax based upon Virginia source income. To determine the Virginia source income, the Virginia partnership income tax regulations require a partnership to allocate and apportion income to Virginia as if the partnership were a corporation (VR 630-4-391).
Based upon the facts presented, your client would meet the definition of a financial corporation. if it were a corporation. as defined in Virginia Regulation (VR) §630-3-418, copy enclosed. As such, it will apportion its income to Virginia based solely on cost of performance. Therefore, to the extent that the partnership incurs costs associated with the performance of services for Virginia customers i.e., travel costs. the costs of performance factor will be positive. Accordingly the partnership could be deemed to have Virginia source income; consequently! the nonresident partners could incur Virginia income tax liability.
Sales Tax
Under Va. Code §58.1-608(5)(a), "[p]rofessional, insurance, or personal services transactions which involve sales as inconsequential elements for which no separate charges are made ... " are exempt from the Virginia Sales and Use Tax.
This ruling is limited to the specific facts as you have presented them. and as summarized herein. Absent changes in applicable law, you may rely upon this ruling as representing the position of the Department of Taxation.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner