Tax Type
Retail Sales and Use Tax
Description
Internet/electronic commerce; Nexus; Use of Internet servers and web hosting services
Topic
Taxability of Persons and Transactions
Date Issued
04-14-2000
April 14, 2000
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This will reply to your letter of March 21, 2000, in which you seek a ruling on behalf of ***** (the "Taxpayer").
FACTS
The Taxpayer is in the business of selling automobile parts to end users and resellers. The Taxpayer is located outside Virginia and has no physical presence in Virginia. You represent that the Taxpayer does not have sufficient activity under Code of Virginia § 58.1-612 to require it to register to collect and remit Virginia sales and use tax.
The Taxpayer has websites by which customers can view and order products. If an order is placed, the product is shipped from inventory located outside of Virginia. The Taxpayer is contemplating doing business with web hosting companies located in Virginia. One alternative is a "managed hosting" service. Under this alternative, the web hosting company will provide power and bandwidth connections, other web hosting services, and Internet servers dedicated exclusively to the Taxpayer's websites. These servers are owned by and remain the property of the web hosting company.
A second alternative is a "co-location hosting" service. Under this alternative, the web hosting company will provide power and bandwidth connections and other web hosting services to servers which are owned or leased by the Taxpayer. The Taxpayer's servers would be located in Virginia at the web hosting service's facility. The Taxpayer's servers would be dedicated exclusively to the Taxpayer's websites.
The Taxpayer requests a ruling whether it will become subject to Virginia sales and use tax collection obligations if its websites are hosted on servers located in Virginia at web hosting facilities. The Taxpayer requests that the department's ruling address both the "managed hosting" service and "co-location hosting" service alternatives.
RULING
Under Code of Virginia § 58.1-612, the sales tax is collectible from all persons who are dealers. That same section defines the term "dealer" to include every person who "[s]ells at retail, or who offers for sale at retail, or who has in his possession for sale at retail, or for use, consumption, or distribution, or for storage to be used or consumed in this Commonwealth, tangible personal property." The Taxpayer clearly qualifies as a "dealer" under § 58.1-612.
Code of Virginia § 58.1-612 also sets forth the nexus requirements which give the Commonwealth the authority to require a business to register to collect and remit Virginia sales and use tax. The statute provides in part that a dealer shall be deemed to have sufficient activity in Virginia if the dealer:
maintains in Virginia an office, warehouse, or place of business of any nature;
solicits business in Virginia by employees, independent contractors, agents or other representatives; or
makes deliveries into Virginia more than twelve times during a calendar year by means other than common carrier.
Virginia law requires dealers with a physical presence in Virginia to collect tax on all sales to its Virginia customers, including sales via the Internet. The department applies the same nexus standards to out-of-state vendors doing business over the Internet as are applied to other out-of-state vendors. As long as a vendor has a physical presence in Virginia, an obligation to collect tax on sales exists and applies to all sales to Virginia customers.
The department does not deem nexus to exist for an out-of-state seller whose only presence in Virginia is the use of a computer server to create or maintain a site on the Internet. Accordingly, nexus will not be established for out-of-state vendors whose only presence is the use of computer servers provided to them under a Virginia "managed hosting" service. Nor will nexus be established for out-of-state vendors whose only presence is the use of computer servers owned by them in connection with a Virginia "co-location hosting" service.
In addition, this ruling conforms to the department's interpretation of the Internet Tax Freedom Act (the "Act"). The Act establishes a 3-year moratorium during which states and political subdivisions may not impose, assess, collect, or attempt to collect discriminatory taxes on electronic commerce. A tax will be considered discriminatory if it includes the use of a computer server by a remote seller as a factor in determining the remote seller's tax collection obligation.
The Taxpayer does not meet the nexus requirement in Code of Virginia § 58.1-612 and is not required to collect and remit Virginia sales and use tax. The Taxpayer's Virginia customers are required to remit the consumer use tax on the cost price of tangible personal property purchased from the Taxpayer (unless such purchases are exempt under the law).
If you have any questions regarding this letter, please contact ****** in the department's Office of Tax Policy via e-mail at *****@tax.state.va.us or by phone at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/27719I
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This will reply to your letter of March 21, 2000, in which you seek a ruling on behalf of ***** (the "Taxpayer").
FACTS
The Taxpayer is in the business of selling automobile parts to end users and resellers. The Taxpayer is located outside Virginia and has no physical presence in Virginia. You represent that the Taxpayer does not have sufficient activity under Code of Virginia § 58.1-612 to require it to register to collect and remit Virginia sales and use tax.
The Taxpayer has websites by which customers can view and order products. If an order is placed, the product is shipped from inventory located outside of Virginia. The Taxpayer is contemplating doing business with web hosting companies located in Virginia. One alternative is a "managed hosting" service. Under this alternative, the web hosting company will provide power and bandwidth connections, other web hosting services, and Internet servers dedicated exclusively to the Taxpayer's websites. These servers are owned by and remain the property of the web hosting company.
A second alternative is a "co-location hosting" service. Under this alternative, the web hosting company will provide power and bandwidth connections and other web hosting services to servers which are owned or leased by the Taxpayer. The Taxpayer's servers would be located in Virginia at the web hosting service's facility. The Taxpayer's servers would be dedicated exclusively to the Taxpayer's websites.
The Taxpayer requests a ruling whether it will become subject to Virginia sales and use tax collection obligations if its websites are hosted on servers located in Virginia at web hosting facilities. The Taxpayer requests that the department's ruling address both the "managed hosting" service and "co-location hosting" service alternatives.
RULING
Under Code of Virginia § 58.1-612, the sales tax is collectible from all persons who are dealers. That same section defines the term "dealer" to include every person who "[s]ells at retail, or who offers for sale at retail, or who has in his possession for sale at retail, or for use, consumption, or distribution, or for storage to be used or consumed in this Commonwealth, tangible personal property." The Taxpayer clearly qualifies as a "dealer" under § 58.1-612.
Code of Virginia § 58.1-612 also sets forth the nexus requirements which give the Commonwealth the authority to require a business to register to collect and remit Virginia sales and use tax. The statute provides in part that a dealer shall be deemed to have sufficient activity in Virginia if the dealer:
maintains in Virginia an office, warehouse, or place of business of any nature;
solicits business in Virginia by employees, independent contractors, agents or other representatives; or
makes deliveries into Virginia more than twelve times during a calendar year by means other than common carrier.
Virginia law requires dealers with a physical presence in Virginia to collect tax on all sales to its Virginia customers, including sales via the Internet. The department applies the same nexus standards to out-of-state vendors doing business over the Internet as are applied to other out-of-state vendors. As long as a vendor has a physical presence in Virginia, an obligation to collect tax on sales exists and applies to all sales to Virginia customers.
The department does not deem nexus to exist for an out-of-state seller whose only presence in Virginia is the use of a computer server to create or maintain a site on the Internet. Accordingly, nexus will not be established for out-of-state vendors whose only presence is the use of computer servers provided to them under a Virginia "managed hosting" service. Nor will nexus be established for out-of-state vendors whose only presence is the use of computer servers owned by them in connection with a Virginia "co-location hosting" service.
In addition, this ruling conforms to the department's interpretation of the Internet Tax Freedom Act (the "Act"). The Act establishes a 3-year moratorium during which states and political subdivisions may not impose, assess, collect, or attempt to collect discriminatory taxes on electronic commerce. A tax will be considered discriminatory if it includes the use of a computer server by a remote seller as a factor in determining the remote seller's tax collection obligation.
The Taxpayer does not meet the nexus requirement in Code of Virginia § 58.1-612 and is not required to collect and remit Virginia sales and use tax. The Taxpayer's Virginia customers are required to remit the consumer use tax on the cost price of tangible personal property purchased from the Taxpayer (unless such purchases are exempt under the law).
If you have any questions regarding this letter, please contact ****** in the department's Office of Tax Policy via e-mail at *****@tax.state.va.us or by phone at *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/27719I
Rulings of the Tax Commissioner