January 5, 2018
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you request a ruling regarding the Virginia retail sales and use tax sourcing rules in light of recent legislation passed by the 2017 Virginia General Assembly.
FACTS
The 2017 Virginia General Assembly passed House Bill 2058 and Senate Bill 962 (2017 Acts of Assembly, Chapters 41 and 808), which became effective June 1, 2017. The legislation added a new nexus standard for Virginia retail sales and use tax dealers by amending Virginia Code § 58.1-612 C 9. Due to the creation of the new nexus standard, you request clarification of the Virginia retail sales and use tax sourcing rules for the collection of local and regional sales and use taxes. You have presented several scenarios that are addressed separately in the section that follows.
RULING
Virginia Code § 58.1-612 defines the term “dealer” and sets out the nexus requirements which give the Commonwealth the authority to require out-of-state businesses to register for the collection and remittance of the Virginia retail sales and use tax. House Bill 2058 and Senate Bill 962 amended Virginia Code § 58.1-612 C 9 by adding language to require out-of-state businesses to register with the Commonwealth as a dealer if the business “[o]wns tangible personal property that is for sale located in the Commonwealth ....” Prior to June 1, 2017, Virginia law did not stipulate that ownership of inventory in Virginia constituted sufficient activity to establish nexus and require a business to register for the collection of the Virginia retail sales and use tax. Virginia Tax Bulletin 17-3 (5/3/17), also issued as Public Document 17-59, provides a detailed explanation of the law change.
Based on the new nexus requirement, an out-of-state business with no other physical presence in the state that meets the definition of a dealer as set out in Virginia Code § 58.1-612 B and owns sales inventory located in a fulfillment center in Virginia is required to register as an out-of-state dealer to collect and remit the Virginia sales and use tax on all sales to Virginia customers. The tax collected and remitted by such dealers is referred to as a use tax and is coded UT. In actuality, the tax is a sales tax and the out-of-state dealer is required to file a monthly Form ST-8, Virginia Out-of-State Dealer's Use Tax Return. The sourcing of local taxes is achieved by the filing of Form ST-8B, Virginia Schedule of Local Sales and Use Taxes and Form ST-R, Virginia Schedule of Regional State Sales and Use Tax. These supplemental forms are filed with the Form ST-8.
Keeping the above in mind, I will respond to the individual scenarios in the same order as presented in your letter.
Scenario 1: “An out-of-state dealer of tangible personal property, without any other contacts creating a requirement to register and collect the Virginia sales and use tax, stores its inventory in a third-party's fulfillment center located in Locality A, which is in Virginia. The dealer's tangible personal property is offered for sale on the third-party's website. All orders are initially received electronically and accepted at the third-party's data center located in Locality B, which is in Virginia. The details of the orders are made available to the out-of-state dealer. The items are purchased by a Virginia customer located in Locality C. The purchased items are shipped by common carrier directly from the Virginia fulfillment center to the Virginia customer.”
Question: Which jurisdiction should the applicable local sales taxes and regional taxes be collected for and remitted to?
Answer. Pursuant to Virginia Code § 58.1-612 C 9, the out-of-state dealer is required to collect from the customer and remit to the Department the Virginia use tax due on the sales transaction. Based on the sales tax filing requirements for out-of-state dealers, the sourcing for the local use tax and the regional use tax implemented in certain transportation districts, would be the locality of the Virginia customer, i.e., Locality C.
Scenario 2: Same facts as Scenario 1; however, the out-of-state dealer also self-fulfills orders directly from its out-of-state location and ships the product by common carrier to the customer.
Question: To which locality should the applicable local and regional use taxes be collected and remitted?
Answer. Same answer as Scenario 1. The sales transaction is between the out-of-state dealer and the Virginia customer. The local use tax and regional use tax should be sourced to the locality in which delivery to the Virginia customer is made, Locality C.
Scenario 3: “A dealer of tangible personal property has a location in Virginia, Locality D. The dealer does not have a storefront location in Virginia but has a home office in this state from which its business operations are conducted. The dealer stores all inventory in a third-party fulfillment center located in a different locality in Virginia, Locality E. All the dealer's inventory is sold through a third-party data center located in a third Virginia locality, Locality F. The details of the sales orders are subsequently sent to the dealer in Locality D and the purchased items are delivered directly from the fulfillment center to the dealer's Virginia customer located in Locality G.”
Question: To which jurisdiction should the applicable local and regional sales taxes be collected and remitted?
Answer. Title 23 of the Virginia Administrative Code (VAC) 10-210-2070 addresses situs of sale for purposes of sourcing the retail sales and use tax. Subsection B 1 provides, in part, the following:
Sales tax. Sales by dealers located in Virginia are generally subject to the sales tax and sourced to the city or county of the place of business of the dealer collecting the tax, without regard to the city or county of possible use by the purchaser .... The remote sale (by telephone, Internet, or mail) of tangible personal property from an in-state dealer with a place of business in Virginia is sourced to the location in which the order was first taken (by the dealer), even if the goods are ultimately delivered to the purchaser at another location.
The term “place of business” is defined in Title 23 VAC 10-210-2070 A as:
the business location in Virginia that first takes the purchaser's order, whether in person, by purchase order, or by letter or telephone, regardless of the location of the merchandise or the point of acceptance of the order or shipment. “Place of business” includes a store, a sales or other office or any warehouse. (Emphasis added.)
Under Scenario 3, the initial order for tangible personal property for sale by the Virginia dealer is taken by a third-party data center. The third-party data center is not a licensed Virginia dealer and is not an entity related to the Virginia dealer. The order for the tangible personal property is first taken at the Virginia dealer's place of business in Locality D when the third-party data center conveys the order information to the dealer. This being the case, the local sales tax and regional sales tax would be sourced to the locality in which the Virginia dealer is located, i.e., Locality D.
I trust the information provided responds to your inquiry. This response is based on the facts provided as summarized above. Any change in the facts or the introduction of new facts may lead to a different result.
The Code of Virginia and regulation sections cited, along with the Virginia Tax Bulletin and public document, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you have any questions concerning this ruling, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1371.S