Tax Type
Retail Sales and Use Tax
Description
Nexus; Factors required for agency relationship
Topic
Taxability of Persons and Transactions
Date Issued
04-30-1999
April 30, 1999
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 assessment issued to ***** (the "Taxpayer') for the period of May 1992 through January 1998. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is located outside Virginia and is engaged in the sale of signs and awnings throughout the country, including Virginia. All signs and awnings are fabricated outside the state of Virginia. Purchase orders from Virginia customers may be "furnish only' orders or "furnish and install' orders. All signs or awnings for Virginia customers are shipped into Virginia via common carrier. In situations that require "furnish and install' jobs, the Taxpayer contracts with sign companies in close proximity to the job site for the installation portion of the job. The Taxpayer has no office, employees, salesmen, or installation personnel in Virginia.
The Taxpayer began making sales to Virginia customers in 1990. In May 1997, the Taxpayer voluntarily registered with Virginia as an out-of-state dealer as a service to its Virginia customers. In May 1998, the department completed an audit of the Taxpayer. The auditor determined that the Taxpayer had established an agency relationship with the Virginia installation contractors sufficient to create nexus for the Taxpayer. This being the case, the auditor extended the audit to cover a period of six years. The Taxpayer takes exception to this and believes that, based on a reading of Code of Virginia § 58.1-612.C and Title 23 Virginia Administrative Code (VAC) 10-210-460, it did not have nexus with Virginia during the periods at issue.
DETERMINATION
Code of Virginia § 58.1-612.C, copy enclosed, sets forth the nexus requirements which give the Commonwealth the authority to require dealers to register for the collection and remittance of the retail sales and use tax. Based on the information provided in your letter, it is apparent that the Taxpayer's activity in Virginia is not sufficient enough to establish nexus, with the exception of Subsection 2. Subsection 2 of this code section provides that a dealer shall have sufficient activity to require registration if such dealer "solicits business in this Commonwealth by employees, independent contractor, agents, or other representatives.'
It must be determined if the Taxpayer has established an agency relationship with the Virginia contractors they retained to perform the installation of the signs. Under Virginia law, two factors are necessary in order for an agency relationship to be established. First, the agent must be subject to the principal's control, with regard to the work to be done and the manner of performing it. Actual control is not the test; it is the right to control that is determinative. Second, the work has to be done on the business of the principal or for his benefit.
Based on the information you have furnished to a member of my staff concerning the agreements between the Taxpayer and the installation contractors, I find that a principal/agent relationship was not established between the Taxpayer and the installation contractors retained to install signs in Virginia. While the work done by the installation contractors was for the benefit of the Taxpayer on "furnish and install' jobs, I find that the Taxpayer did not control the work to be done nor the manner in which it was to be done. Accordingly, under the facts presented, the use of contractors by the Taxpayer to install signs at Virginia locations did not create nexus for the Taxpayer under Code of Virginia § 58.1-612.C.2.
Based on the above, the audit assessment will be abated in its entirety. If you should have any questions, please contact *****, Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/16705K
Rulings of the Tax Commissioner