Tax Type
Retail Sales and Use Tax
Description
Interstate commerce; Delivery outside Virginia
Topic
Exemptions
Date Issued
04-14-2000
April 14, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting correction of the consumer use tax audit assessment, ****** issued to ***** (the Taxpayer). I apologize for the delay in responding to your letter. Copies of cited resources are enclosed.
FACTS
The Taxpayer is a nonprofit association organized and operated as a labor union composed of members and their elected representatives and officers who serve on union committees and councils. An audit for the period April 1995 through March 1998 resulted in the assessment of consumer use tax on untaxed purchases of tangible personal property.
At issue is the use tax assessed on untaxed office automation equipment purchased from Virginia vendors who arranged for shipment directly to noncompensated representatives of the Taxpayer located in other states. As noncompensated representatives are not employees of the Taxpayer, the auditor considered these contested purchases to have been delivered to third parties, rather than to the Taxpayer, outside Virginia. As a result, taxable constructive possession of such property was deemed to have occurred in Virginia, and the exemption applicable to sales in interstate commerce set out under Code of Virginia § 58.1-609.10(4) was deemed inapplicable. In contrast, no tax was assessed on purchases of tangible personal property when the delivery was directly to out-of-state representatives who clearly held status as employees of the Taxpayer, as established by W-2 records of the Taxpayer.
The Taxpayer has submitted evidence that the noncompensated representatives perform official duties on behalf of the Taxpayer, and that the contested equipment is only assigned to them to perform official business on behalf of the Taxpayer. Under the terms of the Taxpayer's administrative policies, the Taxpayer also notes that any party assigned office equipment is obligated to return it to the Taxpayer when he or she vacates the position for which it was needed.
Therefore, the Taxpayer maintains that it retains title to the equipment at all times after its purchase, and the contested purchases were in effect delivered to its agents outside Virginia and should constitute purchases qualifying for the interstate commerce exemption.
DETERMINATION
Generally, when a Virginia purchaser directs a Virginia seller to ship retail merchandise to a third party outside of Virginia, it is the long established policy of the department that the purchaser has taken taxable constructive possession of the property in Virginia. Such sales do not qualify for the interstate commerce exemption, as the initial transfer of possession to the retail property occurs in Virginia. See Public Documents (P.D.) 93-217 (11/2/93), 96-63 (4/24/96), and 98-187 (11/10/98).
However, when merchandise is sold at retail and the Virginia seller arranges for its delivery directly to the purchaser outside of Virginia and no use of the property is made within Virginia, the interstate commerce exemption cited above applies. See Title 23 of the Virginia Administrative Code (VAC) 10-210-780; copy enclosed.
In this case, the only question to be settled is whether the contested equipment was delivered to the Taxpayer, as purchaser, or to an independent third party. Based on all of the facts presented, it is my conclusion that the deliveries of the contested merchandise were made to the Taxpayer outside of Virginia, and that all of the contested purchases qualify for the interstate commerce exemption.
I base this conclusion on several facts: (1) the noncompensated representatives are provided the equipment for organizational purposes only; (2) the Taxpayer exercises dominion and control over the property while the property is outside Virginia; and (3) such representatives actively and directly engage in carrying out the business of the Taxpayer and serve in official capacities for the Taxpayer. Although they are not employees of the Taxpayer, the noncompensated representatives comprise an essential, integral and subordinate part of the Taxpayer's organization in accomplishing its mission. Moreover, the contested transactions do not constitute gifts made by the Taxpayer and, therefore, are not subject to the provisions of 23 VAC 10-210-680.
Alternatively, the Taxpayer is potentially subject to sales and use taxation in the ship-to states. However, if the property at issue is subsequently returned to the Taxpayer in Virginia on a temporary or permanent basis (e.g., an out-of-state representative vacates his position) and no sales or use tax has been paid to another state on the property, the Taxpayer will become liable for use tax in Virginia based on the cost price (if brought into Virginia for use within six months of its acquisition) or fair market value (if brought into Virginia for use six months or more after its acquisition) of the property at the time of its first use in Virginia. See Code of Virginia § 58.1-604(1). If a sales or use tax has been properly paid on such property to another state and the property is subsequently used in Virginia, the provisions of 23 VAC 10-210-450 will apply.
Based on the foregoing, l find basis to abate the entire contested assessment, **** i.e., ****. If you have any questions about this response, please contact **** of my Tax Policy staff at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21866R
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter requesting correction of the consumer use tax audit assessment, ****** issued to ***** (the Taxpayer). I apologize for the delay in responding to your letter. Copies of cited resources are enclosed.
FACTS
The Taxpayer is a nonprofit association organized and operated as a labor union composed of members and their elected representatives and officers who serve on union committees and councils. An audit for the period April 1995 through March 1998 resulted in the assessment of consumer use tax on untaxed purchases of tangible personal property.
At issue is the use tax assessed on untaxed office automation equipment purchased from Virginia vendors who arranged for shipment directly to noncompensated representatives of the Taxpayer located in other states. As noncompensated representatives are not employees of the Taxpayer, the auditor considered these contested purchases to have been delivered to third parties, rather than to the Taxpayer, outside Virginia. As a result, taxable constructive possession of such property was deemed to have occurred in Virginia, and the exemption applicable to sales in interstate commerce set out under Code of Virginia § 58.1-609.10(4) was deemed inapplicable. In contrast, no tax was assessed on purchases of tangible personal property when the delivery was directly to out-of-state representatives who clearly held status as employees of the Taxpayer, as established by W-2 records of the Taxpayer.
The Taxpayer has submitted evidence that the noncompensated representatives perform official duties on behalf of the Taxpayer, and that the contested equipment is only assigned to them to perform official business on behalf of the Taxpayer. Under the terms of the Taxpayer's administrative policies, the Taxpayer also notes that any party assigned office equipment is obligated to return it to the Taxpayer when he or she vacates the position for which it was needed.
Therefore, the Taxpayer maintains that it retains title to the equipment at all times after its purchase, and the contested purchases were in effect delivered to its agents outside Virginia and should constitute purchases qualifying for the interstate commerce exemption.
DETERMINATION
Generally, when a Virginia purchaser directs a Virginia seller to ship retail merchandise to a third party outside of Virginia, it is the long established policy of the department that the purchaser has taken taxable constructive possession of the property in Virginia. Such sales do not qualify for the interstate commerce exemption, as the initial transfer of possession to the retail property occurs in Virginia. See Public Documents (P.D.) 93-217 (11/2/93), 96-63 (4/24/96), and 98-187 (11/10/98).
However, when merchandise is sold at retail and the Virginia seller arranges for its delivery directly to the purchaser outside of Virginia and no use of the property is made within Virginia, the interstate commerce exemption cited above applies. See Title 23 of the Virginia Administrative Code (VAC) 10-210-780; copy enclosed.
In this case, the only question to be settled is whether the contested equipment was delivered to the Taxpayer, as purchaser, or to an independent third party. Based on all of the facts presented, it is my conclusion that the deliveries of the contested merchandise were made to the Taxpayer outside of Virginia, and that all of the contested purchases qualify for the interstate commerce exemption.
I base this conclusion on several facts: (1) the noncompensated representatives are provided the equipment for organizational purposes only; (2) the Taxpayer exercises dominion and control over the property while the property is outside Virginia; and (3) such representatives actively and directly engage in carrying out the business of the Taxpayer and serve in official capacities for the Taxpayer. Although they are not employees of the Taxpayer, the noncompensated representatives comprise an essential, integral and subordinate part of the Taxpayer's organization in accomplishing its mission. Moreover, the contested transactions do not constitute gifts made by the Taxpayer and, therefore, are not subject to the provisions of 23 VAC 10-210-680.
Alternatively, the Taxpayer is potentially subject to sales and use taxation in the ship-to states. However, if the property at issue is subsequently returned to the Taxpayer in Virginia on a temporary or permanent basis (e.g., an out-of-state representative vacates his position) and no sales or use tax has been paid to another state on the property, the Taxpayer will become liable for use tax in Virginia based on the cost price (if brought into Virginia for use within six months of its acquisition) or fair market value (if brought into Virginia for use six months or more after its acquisition) of the property at the time of its first use in Virginia. See Code of Virginia § 58.1-604(1). If a sales or use tax has been properly paid on such property to another state and the property is subsequently used in Virginia, the provisions of 23 VAC 10-210-450 will apply.
Based on the foregoing, l find basis to abate the entire contested assessment, **** i.e., ****. If you have any questions about this response, please contact **** of my Tax Policy staff at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21866R
Rulings of the Tax Commissioner