Tax Type
Retail Sales and Use Tax
Description
Out-of-state book seller
Topic
Taxability of Persons and Transactions
Date Issued
11-17-1986
November 17, 1986
Re: §58.1-1821 Application/ Sales and Use Tax
Dear ****************
This will reply to your letter of July 14, 1986 on behalf of taxpayer in the above referenced case seeking correction of an assessment issued by the department for the period September, 1982 through March, 1986.
FACTS
In connection with its sales of books,*************** (taxpayer), a nonresident corporation was audited by the department and held liable for its failure to collect and report the tax in making sales to Virginia customers. Taxpayer contends that it is not liable for the tax in making such sales since all of its orders from Virginia customers are made by telephone direct to its principle office located outside Virginia. In addition, taxpayer contends that it has no office, employees, sales outlet, or telephone listing in Virginia and that it does not advertise by radio, television, newspaper or billboard in this state.
Taxpayer contends further that its delivery of books purchased by Virginia customers is accomplished through the mails or through independent contractors located within Virginia who receive periodic shipments of books from taxpayer for delivery to its customers. Taxpayer states that its independent contractors act as common carriers and do not solicit business or take orders from its Virginia customers, nor do they handle any payments from customers which are instead sent directly to taxpayer's out of state sales office.
Accordingly, taxpayer maintains that the department's assessment is erroneous since it is not required to be registered with the department for collecting or reporting the tax.
Alternatively, taxpayer contends that all of its sales to Virginia customers are exempt of the tax as sales for resale and that the department should require the registration of taxpayer's customers for purposes of collecting and reporting the tax.
It is the department's understanding, as confirmed by taxpayer's July 14, 1986 memorandum, that one method used by taxpayer to effect sales of its books to Virginia schools involved the initial shipment of books to Virginia independent contractors for temporary storage. Such independent contractors were then periodically instructed by taxpayer where and when to deliver the books which had been previously ordered by the schools for sale at school book fairs. These same independent contractors were then also responsible for picking up any unsold books from the schools after the fairs and were instructed by taxpayer to either deliver them to another school or return them to taxpayer.
DETERMINATION
§58.1-612(B) of the Virginia Code provides that for purposes of establishing sufficient contact within this State to require collection and reporting of the tax, the term "dealer" includes every person who:
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- 2. Imports or causes to be imported into this State tangible personal property from any state or foreign country, for sale at retail, for use, consumption, or distribution, or for storage to be used or consumed in this State; [or...]
4. Has sold at retail, used, consumed, distributed, or stored for use or consumption in this State, tangible personal property and who cannot prove that the tax levied by this chapter has been paid on the sale at retail, the use, consumption, distribution, or storage of such tangible personal property;
- 2. Imports or causes to be imported into this State tangible personal property from any state or foreign country, for sale at retail, for use, consumption, or distribution, or for storage to be used or consumed in this State; [or...]
Therefore, even if the department accepted taxpayer's contention that its independent contractors were acting as common carriers, as soon as the books were shipped to such contractors for storage in Virginia and eventual sale to Virginia purchasers, they left the stream of interstate commerce and lost their constitutional immunity from state taxation under the Interstate Commerce Clause.
Furthermore, taxpayer's contention that all of its sales of books to Virginia customers qualify as exempt sales for resale is not supported by the facts of this case.
§58.1-602(14) of the Virginia Code provides that "[a]ll sales for resale must be made in strict compliance with rules and regulations applicable to this chapter...[and] any dealer making a sale for resale which is not in strict compliance with such rules and regulations shall be personally liable for payment of the tax." Inasmuch as the sales for resale in this case were not made pursuant to valid resale certificates of exemption, they do not qualify as exempt sales for resale.
This same code section provides further that sales for resale will be considered taxable retail sales whenever, "because of the operation of the business, or its very nature, or the lack of a place of business in which to display a certificate of registration,..or for any other reason, there is likelihood that the State will lose tax funds due to the difficulty of policing such business operations." (Emphasis added). (See also §58.1-623 of the Code.) Therefore, the department is authorized to refuse to issue certificates of registration to such persons (such as taxpayers customers), and to require vendors (such as taxpayer), making sales of tangible personal property to such persons, to collect the tax on the cost price of such tangible personal property.
Additional support for the department's long standing position in this matter is found in §630-10-20 of the Virginia Retail Sales and Use Tax Regulations which provides that in order to ensure the legitimate use of all exemption certificates, only those certificates issued by the department are valid. Since the certificates claimed by taxpayer to exempt its sales in this case were never issued by the department, they cannot be used to exempt the transactions in this case. In addition, such certificates would never have been acceptable to the department since they did not bear valid registration numbers of taxpayer's customers.
Based on all of the foregoing, I find no basis for correction of the assessment in this case and taxpayer should proceed immediately to comply with the departments requirements for collecting and reporting the tax on all of its sales to Virginia customers.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner