Tax Type
BPOL Tax
Local Taxes
Description
Marketing and Sales Via Television
Topic
Local Power to Tax
Local Taxes Discussion
Date Issued
11-25-1987
[Opinion - Virginia Attorney General: 1987 at 512]
REQUEST BY: Honorable L. Wayne Carter Commissioner of the Revenue for the City of Salem P.O. Box 869 Salem, Virginia 24153
OPINION BY: Mary Sue Terry, Attorney General
OPINION:
You ask a question concerning the liability of a particular retail merchandising company for the local gross receipts business license tax imposed by a local ordinance enacted pursuant to § 58.1-3703 et seq. of the Code of Virginia. This company markets and sells goods to purchasers in their homes via television programming. Specifically, you ask for a method which may be used to determine the taxable gross receipts of the company in the following circumstances.
I. Facts
You state that the company has its corporate headquarters in Florida and a second facility in the City of Salem. The company sells merchandise by describing, modeling and offering the merchandise for sale on television. The television program invites the viewer to order a particular item by calling a toll-free telephone number. I understand that this toll-free telephone number generally is answered in Florida. If the Florida telephone lines are not available, however, the telephone call is automatically switched to the company's facility in Salem. The company employs hundreds of operators in Salem to answer these telephone orders. The company also has management personnel and warehousing facilities located in Salem.
When an operator in Salem answers the telephone, he or she takes the order and credit card number of the customer. This information is entered into a computer terminal, both in Salem and at the Florida location. You state that the determination whether an order will be filled is made at the Florida facility. If the order is filled, the merchandise is shipped from a warehouse facility in Salem.
II. Applicable Statutes
Section 58.1-3703 provides that a locality may assess a license tax on any person, firm or corporation operating a licensable business within that jurisdiction. § 58.1-3706 provides a rate limitation for retail sales1 with the rate based on "gross receipts." § 58.1-3708 provides that the situs for local taxation of a licensable business is the locality in which the firm has a definite place of business or maintains an office.
III. Gross Receipts Generated by Sales Within Virginia Are Taxable
The interstate nature of the business you describe raises the question whether taxation by a locality may be a burden on interstate commerce in violation of the Commerce Clause of the United States Constitution. It has long been settled that a state seeking to tax the gross receipts of a foreign corporation with sufficient nexus to the state is not prohibited by the Commerce Clause from imposing a gross receipts tax on its sales in that state. Standard Steel Co. v. Wash. Revenue Dept., 419 U.S. 560 (1975); General Motors v. Washington, 377 U.S. 436 (1964), overruled in part on other grounds, Tyler Pipe Inds. v. Dept. of Revenue, 483 U.S. , 97 L. Ed. 2d 199, 107 S. Ct. 2810 (1987); Norton Co. v. Dept. of Revenue, 340 U.S. 534 (1951).
It is my opinion that the company's facility located in Salem establishes a sufficient nexus in Virginia to sustain the imposition of the tax on the company. See Norton Co. v. Dept. of Revenue. In the case you present, therefore, gross receipts generated from sales in Virginia are taxable. The issue in your case, then, is determining which sales occur in Virginia.
IV. For Purposes of Gross Receipts Tax, Sale in Virginia Occurs when Property Delivered to Buyer in Virginia
In interstate sales transactions, when the various components of the transaction occur in different states, the state of destination of the property sold has the authority to impose a tax on gross receipts generated from that transaction. Norton Co. v. Dept. of Revenue; General Motors v. Washington; Standard Steel Co. v. Wash. Revenue Dept.
V. Gross Receipts Tax Computed on All Sales of Merchandise Received by Virginia Buyers
Based on the above, it is my opinion that, in the circumstances you describe, the gross receipts license tax should be computed upon revenues generated by sales of all merchandise which is received by buyers in Virginia.2
1 "Retail" means "[t]o sell by small quantities, in broken lots or parcels, not in bulk, directly to consumer." Black's Law Dictionary 1182 (5th ed. 1979).
2 I assume for purposes of this Opinion that the company does not have a definite place of business in another Virginia locality. All gross receipts taxable in Virginia, therefore, would be taxable by the City of Salem. See 1985-1986 Att'y Gen. Ann. Rep. 314.
Attorney General's Opinion