Tax Type
Retail Sales and Use Tax
Description
Drop shipments; Sales for resale
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
06-05-1992
June 5, 1992
Re: Request for Ruling: Retail Sales and Use Tax
Dear ****
This will respond to your letter of March 10, 1992 seeking information on the application of the sales and use tax to third party transactions involving the issue of drop shipments.
FACTS
Seller Corporation (S) located within Virginia sells tangible personal property to Purchaser Corporation (P) located without Virginia. P makes purchases from S for resale to Third Party Corporation (T) located within Virginia and directs S to drop ship the items to T. S invoices P who subsequently invoices T. You pose specific questions regarding which corporation incurs the tax burden and the documentation required to support any exempt sales transactions.
RULING
I will respond to your questions as they are outlined in your letter.
Questions 1 and 2
Va. Code § 58.1-603 imposes the sales tax upon "every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth . . ." Va. Code § 58.1-602 defines the term "retail sale" to mean "a sale to any person for any purpose other than for resale in the form of tangible personal property . . ." (Emphasis added) Since P is purchasing for resale, S is not required to collect and remit the Virginia sales tax provided S maintains the proper resale exemption certificates in its records.
Question 3
The Virginia Department of Taxation has no authority to require out-of-state dealers to register for collection and remittance of the sales and use tax unless they have sufficient nexus with the state. Va. Code § 58.1-612, copy enclosed, provides the criteria for determining whether a dealer has sufficient activity with Virginia to require registration. A direct pay permit would not be necessary provided P does not meet the nexus requirements. However, if P were required to register, Virginia Regulation (VR) 630-10-34, copy enclosed, provides that direct pay permits may be issued to manufacturers, mine operators and/or public service corporations.
Question 4
Typically, the use tax applies to tangible personal property purchased from dealers outside Virginia who are not registered for the collection of the Virginia sales tax. Va. Code § 58.1-604 imposes a use tax upon the "use or consumption of tangible personal property in this Commonwealth . . ." The transaction between P and T constitutes a taxable sale under Virginia tax law. Therefore, if P is not subject to registration under the nexus requirements, then T is required to accrue the use tax on all purchases from P regardless of the method of delivery.
I hope the foregoing has responded to your inquiry. If you have additional questions please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner