Did common-carrier delivery into Virginia and a shared independent delivery witness create corporate income tax nexus for an out-of-state petrochemical trader?

Subject

Nexus is not created by delivery via common carrier or by the use of an independent agent in the State.

Plain-English summary

Virginia ruled that the petrochemical trader did not have corporate income tax nexus on the specific facts presented. Delivery by common carrier and the presence of a shared independent delivery witness were not enough under the Department's 2007 physical-presence analysis.

The taxpayer sold petrochemical materials delivered by common carriers into customer tanks at Virginia ports or terminals. Title typically passed when the material was discharged. An independent agent represented both buyer and seller to witness delivery, and both parties shared the agent's fee.

For the ruling, Virginia accepted that the taxpayer had no property, payroll, or sales solicitation in the state. It treated common-carrier delivery as purchased transportation service and found the witness independent because the agent served more than one principal and benefited both parties.

The taxpayer therefore was not then subject to Virginia corporate income tax. The conclusion was expressly based on the facts at that time, and this historical ruling should not be assumed to state today's nexus threshold.

What this means for you

• Common-carrier delivery alone did not create nexus under the rule applied here.
• An agent serving multiple principals can be independent when the facts show genuine independence.
• Property, payroll, employees, solicitation, and the agent's actual authority can change the outcome.
• Current corporate-income-tax nexus law should be checked separately from this 2007 physical-presence ruling.

Common questions

Did title pass in Virginia? The ruling says title typically passed when materials were discharged into the customer's Virginia tank, but still found no nexus on the accepted facts.

Why was the delivery witness independent? The agent represented both buyer and seller, the fee was shared, and the agent acted for both principals' benefit.

Did the taxpayer have Virginia property or payroll? Virginia accepted for purposes of the ruling that it did not.

Citations and references

• P.D. 99-278 (October 14, 1999).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-163

Original ruling text

October 17, 2007

Dear *:

This is in response to your letter of June 2007, in which you requested a ruling on behalf or your clients, * (The Taxpayer) regarding Virginia income tax nexus.

FACTS

The Taxpayer trades in petrochemical products used by their customers in manufacturing. The Taxpayer uses common carriers to transport materials into a customer's tank in a port or terminal located in the state. Title to the goods typically passes upon discharge of the materials into the customer's tank. An independent agent represents both the Taxpayer and the customer to serve as a witness of cargo delivery. The fees for the independent agent are split between the buyer and seller. For purposes of this ruling TAX accepts the Taxpayer's assertion that the Taxpayer does not maintain property, have payroll or solicit sales orders in the State.

You ask whether the delivery through common carrier and the presence of the independent agent in the State generates nexus for purposes of corporate income tax.

RULING

The Taxpayer does not have a substantial enough physical presence in the State to create nexus. The Taxpayer has no property or payroll in the State. It appears from the facts that all orders are made via electronic communications and therefore the Taxpayer has no sales in the State.

The use of a common carrier to deliver does not create nexus with the State. The Department of Taxation (TAX) views the use of a common carrier to deliver goods as if the Taxpayer is purchasing the services from a vendor and reselling them to its customers. See Public Document (P.D.) 99-278 (10/14/99).

The use of an independent agent to witness delivery does not create nexus with the State. An independent agent is engaged in business on behalf of more than one principal and is in fact independent from the principals. Since the Taxpayer and the Taxpayer's customer share the cost of the independent agent and the agent is acting for the benefit of both principals, the agent is in an independent agent.

The Taxpayer has no nexus with Virginia at this time because the Taxpayer has no physical presence in the State. In addition, nexus is not created by delivery via common carrier or by the use of an independent agent in the State. The Taxpayer is not currently subject to the corporate income tax in Virginia.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of TAX's web site. If you have any questions regarding this ruling, you may contact * in the Office of Policy and Administration, Policy Development, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner