Current through Register Vol. 41, No. 3, September 23, 2024
A. In general. If the entire business of a
corporation is conducted within Virginia, the tax imposed by § 58.1-400 of
the Code of Virginia shall be upon the entire Virginia taxable income. A
corporation is presumed to be doing business entirely within Virginia unless it
is subject to one of the following taxes in another state:
1. A tax imposed on net income, or
2. A franchise tax measured by net income,
or
3. A franchise tax for the
privilege of doing business.
B. Definitions.
1. "State" is defined in § 58.1-302 of
the Code of Virginia and includes foreign countries.
2. A corporation is "subject to" one of the
taxes enumerated in subsection A above if it carries on sufficient business
activity within any other state so that the other state has jurisdiction to
impose one of the enumerated taxes, whether or not such other state actually
imposes one of the enumerated taxes. For purposes of determining whether or not
a state has sufficient jurisdiction to impose a tax the provisions of federal
law ( P.L. 86-272, 15 USC Sections 381 - 384) regulating state taxation of
interstate commerce shall be applied even if the state in question is a foreign
country provided that income from such foreign country is included in Virginia
taxable income. If jurisdiction is otherwise present, a foreign country is not
considered as without jurisdiction by reason of a treaty between the foreign
country and the United States.
C. Voluntary payment of tax. The taxpayer is
not "subject to" one of the specified taxes in another state if the taxpayer
voluntarily files and pays one or more of such taxes when not required to do so
by the laws of that state or pays a fee for qualification, organization or for
the privilege of doing business in that state, but
1. does not actually engage in business
activities in that state, or
2.
does actually engage in some activity, not sufficient for nexus, and the tax
bears no relation to the corporation's activities within such state.
D. Examples. These principles are
illustrated by the following examples:
1.
State A requires all nonresident corporations which qualify or register in
State A to pay to the Secretary of State an annual license fee or tax for the
privilege of doing business in the state regardless of whether the privilege is
in fact exercised. The amount paid is determined according to the total
authorized capital stock of the corporation; the rates are progressively higher
by bracketed amounts. The statute sets a minimum fee of $50 and a maximum fee
of $500. Failure to pay the tax bars a corporation from utilizing the state
courts for enforcement of its rights. State A also imposes a corporation income
tax. Nonresident Corporation X is qualified in State A and pays the required
fee to the Secretary of State but does not carry on any activities in State A
which exceed the limitations of P.L. 86-272. Corporation X is not subject to
tax in State A.
2. Same facts as
Example (1) except that Corporation X is subject to and pays the corporation
income tax. Payment is prima facie evidence that Corporation X is "subject to"
the net income tax of State A.
3.
State B requires all nonresident corporations qualified or registered in State
B to pay to the Secretary of State an annual permit fee or tax for doing
business in the state. The base of the fee or tax is the sum of (1) outstanding
capital stock, and (2) surplus and undivided profits. The fee or tax base
attributable to State B is determined by a three factor apportionment formula.
Nonresident Corporation X which operates a plant in State B, pays the required
fee or tax to the Secretary of State. Corporation X is subject to
tax.
4. State A has a corporation
franchise tax measured by net income for the privilege of doing business in
that state. Corporation X files a return based upon its business activities in
the state but the amount of computed liability is less than the minimum tax.
Corporation X pays the minimum tax. Corporation X is subject to State A's
corporation franchise tax.
Statutory Authority
§§ 58.1-203 and 58.1-405 of the Code of Virginia.
