Document Number
07-37
Tax Type
Retail Sales and Use Tax
Description
The use of a Virginia Distributor by Company A does not create nexus for Company A
Topic
Nexus
Property Subject to Tax
Date Issued
04-20-2007


April 20, 2007



Re: Request for Ruling: Retail Sales and Use Tax

Dear *****:

This will reply to your letter in which you request a ruling as to whether your client ("Company A") has nexus for Virginia retail sales and use tax purposes.

FACTS


You represent that Company A is a publisher of various books and periodicals with no physical presence in Virginia. Company A owns and leases facilities and offices outside of Virginia and does not have salespeople visiting Virginia to solicit sales on its behalf. Company A utilizes a third party distributor (the "Distributor") for sales of its books. The Distributor sells these books to its own customers, in its own name. Based on the agreement between Company A and the Distributor, Company A retains title to the books shipped to the Distributor's warehouse and, therefore, has inventory in Virginia located in a warehouse owned by the Distributor.

You request a ruling regarding whether the warehouse owned by the Distributor in Virginia will give Company A sufficient activity within Virginia to require it to register for the collection and remittance of the Virginia retail sales and use tax.

RULING


Pursuant to Va. Code § 58.1-612, the sales tax is collectible from all persons who are dealers and who have sufficient contact with Virginia to require registration under Va. Code § 58.1-613. Virginia Code § 58.1-612 B defines the term "dealer" to include every person who:
    • Sells 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.
    • Based on the facts presented, the Taxpayer qualifies as a "dealer" under this definition.

Pursuant to Va. Code § 58.1-612 C 1, a dealer will be deemed to have sufficient activity within Virginia to require registration under Va. Code § 58.1-613 if the dealer "maintains or has within this Commonwealth, directly or through an agent or subsidiary, an office, warehouse, or place of business of any nature."

Title 23 of the Virginia Administrative Code 10-210-2070 is instructive to the issue raised. Subsection B of this regulation defines a "place of business" to include, but is not limited to, "a store, a sales or other office or any warehouse." In subsection C, this regulation provides the following:
    • An out-of-state dealer who has a place of business in Virginia is required to register as a dealer at that place. If the same dealer, at a place of business outside this state, receives orders from Virginia customers directly or not through a place of business in Virginia, he must also register as an out-of-state dealer.

While Company A does not maintain its own place of business in Virginia, the issue to be addressed is whether the Distributor is an agent of Company A, thereby giving Company A physical presence in Virginia sufficient to create nexus. Public Document 99-94 (4/30/99) explains the two factors necessary 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 concerning the agreement between Company A and the Distributor, a principal/agent relationship is not established between Company A and the Distributor retained to house and distribute the books and periodicals. While the work done by the Distributor is for the benefit of Company A, the information provided indicates that Company A does not control the work to be done or the manner in which it is to be done. Accordingly, under the specific facts presented, the use of the Distributor by Company A does not create nexus for Company A under Va. Code § 58.1-612 C 1.

This ruling is based on the specific facts set forth in your correspondence. Any change in the facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulation and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library of the Department's website. If you have any questions about this ruling, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,

                • Janie E. Bowen
                  Tax Commissioner



AR/1-1035048266.i


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46