Must an out-of-state trucking company with Virginia routes file a Virginia corporate income tax return?

Plain-English summary

A trucking company registered in another state, working as a U.S. Postal Service contractor, asked whether it had to file a Virginia corporate income tax return. Its trucks were all registered out of state but picked up and delivered mail between Virginia postal facilities and normally parked at those Virginia facilities.

The Department's answer: yes — it has Virginia income-tax nexus and must file, apportioning its income by the vehicle-mile ratio.

Nexus: P.L. 86-272 does not protect a trucker

Federal Public Law 86-272 (15 U.S.C. §§ 381-384) bars a state from taxing income when a company's only in-state activity is soliciting orders for sales of tangible personal property. Virginia extends that "solicitation test" narrowly, limiting protection to activities that are solicitation, ancillary to solicitation, or de minimis (citing Wisconsin Dept. of Revenue v. Wrigley, 505 U.S. 214 (1992); P.D. 91-33; P.D. 93-75).

The Department has long held that a positive apportionment factor — here, vehicle miles in Virginia — creates nexus for a trucking company (P.D. 92-84). Because the taxpayer had a positive apportionment factor, it is subject to Virginia income tax.

Filing requirement

Va. Code § 58.1-441 requires every corporation with income from Virginia sources to file a return. "Income from Virginia sources" includes income attributable to a business carried on in Virginia (23 VAC 10-120-20). Because the taxpayer earned income from Virginia sources, it must file a Virginia corporate income tax return.

How a motor carrier apportions

Motor carriers do not use the standard three-factor formula. Under Va. Code § 58.1-417 and 23 VAC 10-120-240, they apportion income to Virginia using the ratio of Virginia vehicle miles to total vehicle miles.

• "Vehicle miles" means miles traveled on a scheduled route, or while carrying property or passengers for a charge.
• It does not include travel for repairs or service.
• All owned or leased vehicles' mileage is included.

The narrow exception

A motor carrier that qualifies for the exception in Va. Code § 58.1-417 B is not subject to Virginia income tax — but it must still file a return reporting that it qualifies. Based on the taxpayer's described business, the Department found it doubtful the company would qualify for that exception.

Common questions

Q: My trucks are all registered out of state. Does that keep me out of Virginia income tax?

A: No. Registration elsewhere doesn't matter if you have vehicle miles in Virginia — that positive apportionment factor creates nexus.

Q: Doesn't P.L. 86-272 protect me?

A: No. P.L. 86-272 protects only solicitation of orders for sales of tangible personal property. Hauling freight is not protected solicitation.

Q: How do I figure my Virginia share of income?

A: As a motor carrier, by the ratio of your Virginia vehicle miles to your total vehicle miles — not the standard three-factor formula.

Q: If I think I qualify for the motor-carrier exception, can I skip filing?

A: No. A carrier claiming the § 58.1-417 B exception must still file a return reporting its qualification.

Citations and references

• Public Law 86-272, 15 U.S.C. §§ 381-384 — limits state income tax to solicitation of tangible-property sales
• Va. Code § 58.1-441 — corporate return filing requirement for Virginia-source income
• Va. Code §§ 58.1-406 through 58.1-421 — allocation and apportionment
• Va. Code § 58.1-417 and 23 VAC 10-120-240 — motor-carrier vehicle-mile apportionment and the § 58.1-417 B exception
• Va. Code § 46.2-2100 — definition of motor carrier
• Wisconsin Dept. of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214 (1992)
• Related Virginia rulings: P.D. 91-33, P.D. 93-75 (extension of the solicitation test) and P.D. 92-84 (vehicle miles create nexus)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-54

Original ruling text

April 6, 2020

Re: Request for Ruling: Corporate Income Tax

Dear *:

This will respond to your letter in which you request a ruling concerning corporate income tax filing requirements on behalf of * (the “Taxpayer”).

FACTS

The Taxpayer, a corporation registered in * (State A), is a trucking company engaged as a contractor for the United States Postal Service. All of the Taxpayer’s trucks are registered in State A. Some of the trucks pick-up and deliver mail between postal facilities in Virginia. These trucks also normally park at the Virginia facilities. The Taxpayer requests a ruling as to whether it is required to file a Virginia corporate income tax return.

RULING

Nexus

Public Law (P.L) 86-272, codified at 15 U.S.C. §§ 381 through 384, prohibits states from imposing an income tax on a taxpayer whose only contacts with a state are a narrowly defined set of activities constituting solicitation of orders for sales of tangible personal property. Although P.L. 86-272 applies to tangible property, the Department’s policy has been to extend the “solicitation test” of P.L. 86-272 to situations involving the sale of other than tangible personal property. See Public Document (P.D.) 91-33 (3/18/1991) and P.D. 93-75 (3/17/1993). The Department limits the scope of P.L. 86-272 to only those activities that constitute solicitation, are ancillary to solicitation, or are de minimis in nature. See Wisconsin Department of Revenue v. William Wrigley, Jr., Co ., 505 U.S. 214 (1992). The Department has a long established policy of narrowly interpreting the provisions of P.L. 86-272. In P.D. 92-84 (6/1/1992), the Department determined that a positive apportionment factor, which in this case would be vehicle miles in Virginia, would create nexus for a trucking company. Because the Taxpayer has a positive apportionment factor, it appears the Taxpayer would be subject to Virginia income tax.

Filing Requirement

Virginia Code § 58.1-441 requires every corporation organized under Virginia law or having income from Virginia sources to file a return. Income from Virginia sources means income attributable to the ownership, sale, exchange or other disposition of any interest in real or tangible personal property in Virginia or attributable to a business, trade, profession or occupation carried on in Virginia or attributable to intangible personal property employed in a business, trade, profession or occupation carried on in Virginia. See Title 23 Virginia Administrative Code (VAC) 10-120-20. If the entire business of a corporation is not deemed to have been transacted or conducted within Virginia, then the income from Virginia sources means that portion of the corporation’s Virginia taxable income resulting from the allocation and apportionment formulas set forth in Virginia Code §§ 58.1-406 through 58.1-421. The facts indicate that the Taxpayer earned income from Virginia sources, and thus would be required to file a Virginia corporate income tax return.

Apportionment

Virginia Code § 58.1-417 and Title 23 VAC § 10-120-240 provide for the allocation and apportionment of income from Virginia sources of motor carriers. Pursuant to Virginia Code § 46.2-2100, motor carriers transport property for compensation over the highways of Virginia. Instead of the standard three-factor apportionment formula, they apportion their income to Virginia by using a ratio of vehicle miles in Virginia to total vehicle miles of the corporation. See Virginia Code § 58.1-417 and Title 23 VAC § 10-120-240.

The term “vehicle miles” means miles traveled on a scheduled route or, in any case, while carrying property or passengers for a charge. Vehicle miles does not include travel for repairs or service whether the vehicle is normally used for carrying property or passengers or is normally used as a service vehicle. The mileage traveled by all owned or leased vehicles is included in the apportionment factor. See Title 23 VAC 10-120-240 and P.D. 92-84. In this case, the Taxpayer would calculate its Virginia source income by allocating the relevant percentage of their total taxable income based on a ratio of vehicles miles traveled in Virginia to total vehicle miles.

Exception

A motor carrier is not subject to Virginia income tax if it qualifies for the exception provided in Virginia Code § 58.1-417 B and Title 23 VAC § 10-120-240. A motor carrier that meets the provisions of this exception is still required to file a Virginia income tax return reporting its qualification for the exception. Based on the description of the Taxpayer’s business, the Department finds it doubtful that the Taxpayer would qualify for the exception in Virginia Code § 58.1-417 B.

This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulations, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1999-C

Related Documents

19-2

91-88

91-33

93-75

92-84