Tax Type
Retail Sales and Use Tax
Description
Internet and catalogue gift purchases; Situs of sale
Topic
Exemptions
Property Subject to Tax
Date Issued
05-12-2000
May 12, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit of your client, ***** (the "Taxpayer"), for the period of May 1996 through March 1999.
FACTS
The Taxpayer is a licensed Virginia retailer with retail outlets throughout Virginia and the United States. The Taxpayer also provides website and catalogue sales, the merchandise of which is shipped from the Taxpayer's headquarters location outside Virginia. The audit findings at issue are the result of an audit of the Taxpayer's website and catalogue sales, which are filled separately from the Taxpayer's retail locations in Virginia.
The Taxpayer was audited and assessed Virginia sales and use tax on orders (1) taken by the Taxpayer's employees located outside Virginia from customers who have provided them with a Virginia billing address, (2) orders filled by the Taxpayer from outside Virginia, and (3) shipped by the Taxpayer to customers' locations outside Virginia. The Taxpayer is taking exception to these transactions being held taxable and requests that the audit assessment be abated. The Taxpayer believes that purchases by a Virginia customer from an out-of-state company and shipped directly to third party recipients located outside Virginia are not subject to Virginia tax. The Taxpayer is also disputing the methodology used by the auditor in calculating the percentage of taxable transactions in relationship to total gross sales in Virginia and also requests waiver of audit penalty.
DETERMINATION
Under Code of Virginia § 58.1-612, copy enclosed, the sales tax is collectible from all persons who are dealers. The same section defines the term "dealer" to include every person who offers tangible personal property for sale at retail in Virginia. The fact that the Taxpayer qualifies as a licensed Virginia dealer is not in dispute in this case. The tax application to certain retail transactions conducted by the Taxpayer's out-of-state website and catalogue business is at issue.
As a licensed out-of-state dealer, the Taxpayer is required to collect the Virginia tax on all sales of tangible personal property shipped to Virginia customers. Based on information furnished to this office by the auditor, "bill to", "ship to", and "gift box" information is contained on all website and catalogue sales records. The auditor has advised this office that only untaxed sales which were "shipped to" Virginia customers were included in the audit findings. An out-of-state dealer with nexus in Virginia is required to collect the Virginia tax on all sales of tangible personal property delivered to Virginia, regardless of where the order is taken.
With regard to tangible personal property shipped by the Taxpayer to customers located outside Virginia, the 1995 Virginia General Assembly passed House Bill 2286 which provided an exemption for third party gift transactions. This legislation provides that when a nonresident, by mail, telephone, website, etc., directs a Virginia business to deliver tangible property as a gift to another nonresident such transaction will be exempt from the tax. However, gifts delivered to a Virginia resident at the direction of an out-of-state purchaser, and gifts purchased by a Virginia resident for delivery to an out-of-state recipient, remain taxable.
In regard to the methodology used by the auditor to estimate the taxable measure of gift sales, i.e. 25%, the taxpayer has not provided evidence which would support their contention that this estimate is incorrect. It should also be pointed out that no audit penalty was assessed.
Based on all of the above, I find that the audit assessment is correct as issued. Please remit full payment in the amount of $**** within 30 days from the date of this letter. Payment may be sent to ****, Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26082K
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the retail sales and use tax audit of your client, ***** (the "Taxpayer"), for the period of May 1996 through March 1999.
FACTS
The Taxpayer is a licensed Virginia retailer with retail outlets throughout Virginia and the United States. The Taxpayer also provides website and catalogue sales, the merchandise of which is shipped from the Taxpayer's headquarters location outside Virginia. The audit findings at issue are the result of an audit of the Taxpayer's website and catalogue sales, which are filled separately from the Taxpayer's retail locations in Virginia.
The Taxpayer was audited and assessed Virginia sales and use tax on orders (1) taken by the Taxpayer's employees located outside Virginia from customers who have provided them with a Virginia billing address, (2) orders filled by the Taxpayer from outside Virginia, and (3) shipped by the Taxpayer to customers' locations outside Virginia. The Taxpayer is taking exception to these transactions being held taxable and requests that the audit assessment be abated. The Taxpayer believes that purchases by a Virginia customer from an out-of-state company and shipped directly to third party recipients located outside Virginia are not subject to Virginia tax. The Taxpayer is also disputing the methodology used by the auditor in calculating the percentage of taxable transactions in relationship to total gross sales in Virginia and also requests waiver of audit penalty.
DETERMINATION
Under Code of Virginia § 58.1-612, copy enclosed, the sales tax is collectible from all persons who are dealers. The same section defines the term "dealer" to include every person who offers tangible personal property for sale at retail in Virginia. The fact that the Taxpayer qualifies as a licensed Virginia dealer is not in dispute in this case. The tax application to certain retail transactions conducted by the Taxpayer's out-of-state website and catalogue business is at issue.
As a licensed out-of-state dealer, the Taxpayer is required to collect the Virginia tax on all sales of tangible personal property shipped to Virginia customers. Based on information furnished to this office by the auditor, "bill to", "ship to", and "gift box" information is contained on all website and catalogue sales records. The auditor has advised this office that only untaxed sales which were "shipped to" Virginia customers were included in the audit findings. An out-of-state dealer with nexus in Virginia is required to collect the Virginia tax on all sales of tangible personal property delivered to Virginia, regardless of where the order is taken.
With regard to tangible personal property shipped by the Taxpayer to customers located outside Virginia, the 1995 Virginia General Assembly passed House Bill 2286 which provided an exemption for third party gift transactions. This legislation provides that when a nonresident, by mail, telephone, website, etc., directs a Virginia business to deliver tangible property as a gift to another nonresident such transaction will be exempt from the tax. However, gifts delivered to a Virginia resident at the direction of an out-of-state purchaser, and gifts purchased by a Virginia resident for delivery to an out-of-state recipient, remain taxable.
In regard to the methodology used by the auditor to estimate the taxable measure of gift sales, i.e. 25%, the taxpayer has not provided evidence which would support their contention that this estimate is incorrect. It should also be pointed out that no audit penalty was assessed.
Based on all of the above, I find that the audit assessment is correct as issued. Please remit full payment in the amount of $**** within 30 days from the date of this letter. Payment may be sent to ****, Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/26082K
Rulings of the Tax Commissioner