Tax Type
Corporation Income Tax
Description
Federal Limitation on Taxation of Interstate Commerce; Salespersons in Virginia
Topic
Constitutional Provisions
Date Issued
08-24-1992
August 24, 1992
Re: Ruling Request: Corporation Income Taxes
Dear**************
This will reply to your letter received by the Department on November 5, 1991, in which you request clarification regarding the interaction of certain Virginia activities with Public Law (P.L.)86-272.
FACTS
You have proposed three scenarios, and ask if any of them exceeds P.L. 86-272 protection. To summarize the proposed activities, salesmen would solicit business in Virginia personally and by telephone. In one scenario, orders would be approved by the taxpayer's non-Virginia home office; in another scenario, this office would only check customers' credit, without approving orders. Goods, the title to which would pass in Virginia, would be delivered in company owned vehicles. In one scenario, salesmen would handle customer complaints.
DETERMINATION
Based upon the facts presented, the taxpayer clearly has income from Virginia sources because tangible property is sold in Virginia.
However, Public Law 86-272, 15 U.S.C.A §§381-384 prohibits the imposition of a tax on Virginia source income, if the taxpayer's only activity is solicitation, or activities ancillary to solicitation.
P.L. 86-272 Protection Exceeded: In one scenario, salesmen will occasionally handle customer complaints. Any activity not ancillary to facilitating requests for purchases exceeds P.L. 86-272 protection unless it is de minimis. See Wisconsin Dept. of Revenue v. William Wrigley, Jr. Co. No 91-119, June 19, 1992. The handling of customer complaints is clearly such an activity.
A Virginia activity is not de minimis if it is continuing, frequent, and regular in comparison to activity everywhere. See Virginia Regulation (VR) 630-3-401.
In another scenario, sales orders are subject to a home office "credit check requirement," and are not subject to home office approval. If a particular sale made by a salesperson in Virginia is for cash, P.L. 86-272 protection is exceeded, because the salesperson approved the order in Virginia. However, for a noncash sale, if a credit check is required for each sale, order approval without Virginia is deemed to occur, resulting in P.L. 86-272 protection remaining intact for this scenario.
Return Filing Requirement: Every corporation having income from Virginia sources shall file a return with the Department of Taxation. See VR 630-3-441. In the event that the taxpayer's activities do not exceed P.L. 86-272 protection, zero would be shown in all apportionment factor numerators.
If you have further questions regarding this issue, please do not hesitate to call.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner