Document Number
04-4
Tax Type
Retail Sales and Use Tax
Description
Public Procurement Act, Vendor designated a "prohibited source" for state purchasing
Topic
Appropriateness of Audit Methodology
Collection of Tax
Date Issued
01-23-2004

January 23, 2004







Re: § 2.2-4321.1(F) - Application for Correction


Dear *****:

This will reply to your letter of December 24, 2003, in which you seek correction
of a determination by the Department that your client, ***** (the "Taxpayer") is prohibited from doing business with the state of Virginia as an approved vendor under Va. Code § 2.2-4321.1.
FACTS

The 2003 Virginia General Assembly enacted legislation that amended the Virginia Public Procurement Act by adding Va. Code § 2.2-4321.1. This section prohibits state agencies from purchasing goods or services from a vendor if the vendor or an affiliate of the vendor is subject to the provisions of Va. Code § 58.1-612 but has not registered to collect and remit sales and use tax on its Virginia sales. The Department of Taxation is responsible for determining if a vendor or its affiliates are not in compliance with this law and should be prohibited from selling goods or services to Virginia state agencies.

The Taxpayer was contacted by the Department and asked to complete a questionnaire to assist the Department in determining if the Taxpayer or any of its affiliates were subject to the provisions of Va. Code § 58.1-612. The Department's records indicated that one of the Taxpayer's affiliates ( ***** - hereinafter, the "Affiliate") was making sales to Virginia customers but was not registered to collect and remit Virginia sales and use tax. The Taxpayer did not provide a complete response to the questionnaire, and the Department was unable to determine if the affiliate was subject to the provisions of Va. Code § 58.1-612. After several unsuccessful attempts to obtain a completed questionnaire from the Taxpayer, the Department issued a determination on December 8, 2003, stating that the Taxpayer should be designated a "prohibited source" for state purchasing. The Department notified the Department of General Services to remove the Taxpayer from its list of vendors approved to do business with Virginia state agencies.

In your letter, you provide information regarding the activities of the Affiliate and maintain that it is not subject to the provisions of Va. Code § 58.1-612. The Taxpayer has also provided the Department with a completed questionnaire to supplement this appeal. You contend that the Affiliate does not have nexus with Virginia and, therefore, is not required to register for collection of the sales and use tax. As a result, you seek correction of the Department's determination dated December 8, 2003, designating the Taxpayer as a prohibited source.
DETERMINATION
  • The Department relies on Va. Code § 2.2-4321.1(A) to determine if a vendor is a prohibited source. This Code section states in part:
      • No state agency shall contract for goods or services with a nongovernmental source if the source, or any affiliate of the source, is subject to the provisions of § 58.1-612 and fails or refuses to collect and remit the tax on its sales delivered by any means to locations within the Commonwealth. [Emphasis added].
  • This statute creates a standard for vendors to be eligible to do business with state agencies under the Virginia Public Procurement Act. The Department is required to evaluate the activities of each vendor and the vendor's affiliates to determine if the criteria in Va. Code § 58.1-612 apply to the vendor or the vendor's affiliates. This analysis is independent from the analysis of nexus standards established under state and federal law requiring registration and collection of the sales and use tax. Virginia has established its own conditions for vendors to do business with state agencies.
  • If a vendor or a vendor's affiliate meets the definition of a "dealer" in Va. Code § 58.1-612(B), then the Department looks to the criteria in Va. Code § 58.1-612(C). If a vendor or a vendor's affiliate is subject to one or more of the criteria in § 58.1-612(C) and that vendor or affiliate is not registered to collect Virginia sales and use tax, the law prohibits state agencies from doing business with the vendor. In this case, it is clear that the Affiliate meets the definition of "dealer." The question to be addressed is whether the Affiliate meets any of the criteria under Va. Code § 58.1-612(C).

Based on the information provided in your letter and in the questionnaire, the Affiliate is subject to one or more of the criteria in Va. Code § 58.1-612(C). The Affiliate is owned or controlled by the same interests that own or control a business located in Virginia. See Va. Code § 58.1-612(C)(7). Furthermore, the responses to the questionnaire do not rule out the possibility that the Affiliate advertises in newspapers or other periodicals printed and published within Virginia. See Va. Code § 58.1-612(C)(3). It is also possible that the Affiliate solicits business in Virginia on a continuous, regular, seasonal or systematic basis by means of advertising that is broadcast or relayed from a transmitter within Virginia or distributed from a location within Virginia. See Va. Code § 58.1-612(C)(5). Because the Affiliate is subject to the provisions of Va. Code § 58.1612 and has not registered to collect and remit Virginia sales and use tax, the Taxpayer is a prohibited source under Va. Code § 2.2-4321.1. Accordingly, the Department's determination of December 8, 2003 is correct.

If the Taxpayer wishes to do business with Virginia state agencies, the Affiliate is required to register and collect Virginia sales and use tax: This determination is based on the requirements in Va. Code § 2.2-4321.1 and does not represent a change in the Department's policy with respect to dealer registration requirements for sales and use tax.

If you have any questions concerning this determination, or wish to register the
Affiliate to collect Virginia sales and use tax, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.

                • Sincerely,


                • Kenneth W. Thorson
                  Tax Commissioner


AR/49351S





Rulings of the Tax Commissioner

Last Updated 09/16/2014 15:39