By Todd Betor

A nonresident corporation requested a ruling from the Virginia Tax Commissioner as to whether the corporation was required to withhold Virginia state income tax and pay Virginia unemployment insurance for an employee who worked and resided in Virginia. The employee’s in-state activities consisted solely of performing legal services on behalf of the corporation from her Virginia home. The Commissioner briskly concluded the corporation was required to withhold Virginia income tax from the employee’s wages and deferred to the Virginia Employment Commission on any liability for unemployment insurance tax. While not requested by the corporation, the Commissioner then examined whether nexus existed for Virginia corporate income tax purposes. The Commissioner concluded that legal services, even if related to the sale of tangible products, are generally considered to be the type of activity that exceeds the protections of P.L. 86-272, unless they are found to be de minimis. Consequently, the Commissioner determined that the employee’s activities appeared to create nexus for Virginia corporate income tax purposes. Va. Pub. Doc. Rul. No. 13-203 (Nov. 1, 2013). This is the third ruling to discuss the nexus effects of a single employee in the state that the Commissioner has issued in the last two years. See Va. Pub. Doc. Rul. No. 12-37 (Mar. 30, 2012) and Va. Pub. Doc. Rul. No. 13-172 (Sept. 19, 2013).