92-164 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Interstate Transactions; Resales; Equipment Purchased by Parent Company for Foreign Subsidiary

Topic

Taxability of Persons and Transactions

Date Issued

08-31-1992

August 31, 1992

Re: Request for Ruling: Sales and Use Tax

Dear***************

This will reply to your letter of November 20, 1991 in which you request a ruling as to the sales and use tax application to purchases made by *************(the Taxpayer) for subsequent shipment to a foreign country.

FACTS

The Taxpayer, a Virginia corporation, will on occasion purchase equipment for their foreign subsidiaries. The equipment is purchased by the Taxpayer, billed to the Taxpayer, and shipped to the Taxpayer in Virginia. The equipment is then shipped to the Taxpayer's foreign subsidiaries. All of the Taxpayer's foreign subsidiaries are separately incorporated and stand on their own. There are basically two different types of equipment which the Taxpayer ships to foreign subsidiaries, as follows:

Manufacturing equipment is purchased from domestic vendors by the Taxpayer, rather than by the foreign subsidiary, because the Taxpayer can take advantage of better pricing or because the equipment is not available overseas. Once the manufacturing equipment is received by the Taxpayer, such equipment is re-crated and shipped to the foreign subsidiary. The Taxpayer pays the domestic vendor for the equipment and in turn bills the foreign subsidiary.

Computer equipment is purchased from domestic vendors by the Taxpayer, rather than by the foreign subsidiary, again to take advantage of pricing or because the equipment is not available overseas. The computer equipment is shipped to the Taxpayer where it is assembled, programmed, disassembled and shipped to the foreign subsidiary. The Taxpayer pays the vendor for the equipment and in turn bills its foreign subsidiary.

The Taxpayer is requesting a ruling as to the sales and use tax application to each of the above scenarios.

RULING

Va. Code §58.1-602 defines "retail sale" to mean, "a sale to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter." (Emphasis added). Due to the fact the Taxpayer and its foreign subsidiaries are separate and distinct corporations, and that consideration actually passes between the two entities, purchases made by the Taxpayer for resale to the subsidiary would be exempt from the tax as a purchase for resale.

This leads us to the question as to whether the sale of tangible personal property from the Taxpayer to its foreign subsidiary is a taxable sale. Va. Code §58.1-608(10)(d) provides a sales and use tax exemption for the following:

- Delivery of tangible personal property outside the Commonwealth for use or consumption outside the Commonwealth. Delivery of goods destined for foreign export to a factor or export agent shall be deemed to be delivery of goods for use or consumption outside the Commonwealth.

Virginia Regulation (VR) 630-10-51 (copy enclosed) addresses the sales and use tax application to interstate and foreign commerce and states, in part, the following:

- The tax does not apply to sales of tangible personal property in interstate or foreign commerce. A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia.

In accordance with the above, the purchase of the tangible personal property by the Taxpayer would be exempt as a purchase for resale, and the sale of such property to its foreign subsidiary would be exempt as a sale in interstate or foreign commerce.

If you should have any further questions, please feel free to contact the department.

Sincerely,

W. H. Forst
Tax Commissioner

OTP/5761K

Rulings of the Tax Commissioner