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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 120. Corporation Income Tax
1/27/2023

23VAC10-120-120. Business entirely within Virginia.

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.

Historical Notes

Derived from VR630-3-405, eff. January 1, 1985.

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