Tax Type
Retail Sales and Use Tax
Description
Advertising and deliveries in Virginia
Topic
Taxability of Persons and Transactions
Date Issued
06-07-1993
June 7, 1993
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear*********
This will reply to your letter of August 8, 1991 in which you protest a recent statutory assessment to your client, ************ (the "Taxpayer"), for the period April 1988 through March 1991.
FACTS
The Taxpayer is a retail furniture dealer located in another state. When one of the district offices contacted the Taxpayer to arrange an audit, it was refused access since the Taxpayer maintains that it does not have nexus with Virginia. In order to preserve the statute of limitations, an estimated assessment was issued.
The auditors maintain that the Taxpayer is eligible for audit for several reasons, but primarily because (I) it has been registered with the department for the collection of the use tax on sales made to Virginia customers since October 1981, (ii) the Taxpayer advertised in the****** "Richmond Edition" of the USA Today which is published and printed in Virginia, and (iii) furniture sold by the Taxpayer is generally delivered to Virginia customers by a contract carrier hired by the Taxpayer.
The Taxpayer maintains that it does not have nexus with Virginia and thus is not required to collect the tax on sales to Virginia customers. In addition, the Taxpayer maintains that the assessment is excessive.
DETERMINATION
I will address each of the grounds for audit along with the Taxpayer's concerns below:
Dealer defined - Va. Code §58.1-612 provides that the sales and use tax shall be collectible from all persons who are dealers, as defined therein, who have sufficient contact with the Commonwealth to require registration for collection of the tax. Subdivision (B)(3) provides that the term "dealer" shall include every person who "[s]ells 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."
The Taxpayer has been making regular sales of furniture to Virginia residents for a number of years. In fact, it voluntarily registered with the department and agreed that it would begin collecting Virginia use tax on October 1, 1981. By voluntarily registering with the department, the Taxpayer effectively consented to the jurisdiction of the state. [See Insurance Corporation of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694 at 703-705, (1982)] Thus, in spite of the Taxpayer's contention that its continuous history of filing zero returns indicates that it was not a "dealer," it is a "dealer" for purposes of the tax.
Advertisements in the USA Today - Va. Code §58.1-612 also sets forth various standards defining what constitutes "sufficient contact" to require registration. It provides that a dealer who "advertises in newspapers or other periodicals printed and published within this Commonwealth,..." is deemed to have sufficient contact. The fact that the Taxpayer advertised in the********* "Richmond Edition," a regional edition of the USA Today which is published and printed in Virginia, further supports its liability for tax collection.
Delivery of furniture - One of the other standards for defining sufficient contact to require registration under Va. Code §58.1-612 is whether a dealer "[m]akes regular deliveries of tangible personal property within this Commonwealth by means other than common carrier." A person is deemed to be making regular deliveries if vehicles other than those operated by a common carrier enter the Commonwealth more than twelve times during a calendar year.
The Taxpayer maintains that the purchaser "hires" the carrier to deliver the goods to his/her designated destination. The payment for such is by the purchaser and thus it is the purchaser, not the Taxpayer, who is causing delivery to be made into Virginia. The Taxpayer maintains further that purchasers are billed directly by the delivery company and generally write separate checks, one to the Taxpayer and one to the delivery company, when furniture is delivered on a C.O.D. basis. It provided copies of invoices which illustrated shipping charges paid by purchasers.
In addition, the Taxpayer maintains that the delivery company was granted authority to operate as a contract carrier by the Interstate Commerce Commission (ICC) in July 1984, in April 1990 it applied for common carrier status and was granted an operating permit on July 5, 1990. It suggests that the department's distinction between contract and common carriers is burdensome on interstate commerce in that it requires those dealing with a contract carrier that "more specifically meets their transportation needs to pay a 'toll charge' that is not exacted when using a 'common carrier'.
A review of the contract between the Taxpayer and the delivery company dated October 22, 1984, however, indicates that the "Shipper (the Taxpayer) agrees to pay on delivery the rates and charges as set forth in Carrier's applicable Schedule of Actual Rates." (Clause #4) In addition, the contract provides that the shipping company agreed "to accept all lawful shipments...offered to it by the Shipper" (the Taxpayer) and to "transport such commodities to the destination or destinations designated by the Shipper." (Clause #2) (Emphasis added)
While the contract states that the delivery company "shall be an independent contractor and not an agent or employee of the Shipper," the fact that the delivery company not only delivers the furniture to a Virginia customer, but also, in many instances, collects payment for the furniture (that which is shipped C.O.D.), indicates that the delivery company is stepping beyond the role of a traditional carrier which operates its business only within the confines of interstate commerce. Compare Wisconsin Dept. of Revenue v. William Wrigley, Jr. Co., U.S. Sup. Ct. No. 91-119, 6/19/92. Thus, the collection activities of the delivery company would be deemed beyond the protections of the Commerce Clause.
Furthermore, physical presence within a state can be established through the activities of an independent contractor. See Scripto, Inc. v. Carson, 362 U.S. 207 (1960) in which an entity that did not maintain any property or employ any individuals in another state had nexus with the other state through activities performed by agents and independent contractors.
With respect to the common carrier status of the delivery company, an auditor in the district office was informed by the ICC in April 1991 that while common carrier status had been applied for, as of that date it had not been granted. Thus, during the entire audit period the delivery company was acting as a contract carrier And not a common carrier.
While the invoices and bills of lading provided by the Taxpayer which were issued by the delivery company and other carriers indicate that customers themselves paid the carrier for the shipping, that is not the controlling point (rather the carrier acts as an agent and confers nexus). In any event, these are too few in number to show if this was the normal method of operation. Furthermore, while you maintain that the customers themselves and not the Taxpayer actually contracted with the delivery company, there is no evidence to indicate that this was the case. From the information provided, it appears that the Taxpayer arranged the shipping.
However, if the Taxpayer's customers actually contracted with the delivery company as you maintain, this effectively causes their purchases to be subject to North Carolina's retail sales tax since first use would be deemed to be made in North Carolina. In that instance, the Taxpayer would be required to collect the North Carolina tax on such sales.
Furthermore, since the Taxpayer is making deliveries into the state via contract carrier which the Taxpayer hires, first use of the merchandise is attributable to the Taxpayer in Virginia, and thus the transactions are taxable under subdivision B of VR 630-10-51. This provides that "[t]he tax applies to the first use in Virginia of tangible personal property purchased elsewhere in a transaction which would have been taxed had the transaction occurred in Virginia, regardless of the fact that such property may have been, or may be used in interstate commerce...."
In addition, by imposing use tax collection responsibilities on the Taxpayer, the department is not imposing a "toll charge," since the tax is collectible from Virginia residents purchasing furniture from the Taxpayer. This same use tax would be due from the Virginia purchaser even if the furniture were shipped by common carrier.
The Taxpayer also suggests that the ruling in P.D. 90-49 (3/20/90) does not support the department's assessment. P.D. 90-49 specifically states that the taxpayer was delivering furniture into Virginia by means other than common carrier. More specifically, the taxpayer was delivering the furniture in its own vehicles and had made considerable sales into Virginia. In the instant case, while the Taxpayer shipped furniture into Virginia via contract carrier, the department has always considered this type of carrier to fall within the "other carrier" language of the statute. In addition, the Taxpayer had made regular and substantial sales to Virginia residents. Thus, P.D. 90-49 does support the assessment.
Thus, in light of the information provided to date, I find that the Taxpayer meets the nexus requirement under the above provisions.
Reasonableness of assessment - The Taxpayer maintains that the department's assessment is excessive and requests that the proposed assessment be amended to reflect its actual sales volume for the audit period. Documentation of its actual Virginia sales volume was provided with its application for erroneous assessment.
While the audit assessment may be excessive, since the Taxpayer refused access to its records for the purposes of an audit, it is deemed correct until information to the contrary can be examined. Although the Taxpayer submitted documentation of its actual Virginia sales for the audit period, the assessment cannot be revised without a thorough examination of its records. However, should the Taxpayer agree to an actual audit of its records, it should contact the ***********District Office within 30 days. If the District Office is not contacted within the allotted time period, the assessment will be immediately due and payable, and collection action will resume
Sincerely
W. H. Forst
Tax Commissioner
OTP/5478H
Rulings of the Tax Commissioner