Tax Type
Retail Sales and Use Tax
Description
Application of sales and use taxes; Marketing of vending machines
Topic
Taxability of Persons and Transactions
Date Issued
06-29-1994
June 29, 1994
Re: Request for Ruling: Retail Sales and Use Tax
Dear**********
This will reply to your letter of March 16, 1994 in which you request a ruling on the application of the sales and use tax to transactions involving your client, ***************.
FACTS
Employees of ABC will solicit orders for a business opportunity (the Contract) from Virginia residents (Distributors) through private shows, usually held in hotels located in Virginia. The Contract will provide that ABC will use its marketing expertise to assist the Distributor in obtaining vending machines and targeting businesses and companies in which to place the machines. The Distributor is responsible for supplying the vending machines and collecting the cash proceeds. ABC does not share in any of the proceeds from the vending products.
The Contract enables ABC to locate suitable vending equipment on behalf of the Distributor. ABC will direct an affiliate, XYZ Company ("XYZ") to place a purchase order on behalf of the Distributor with an unrelated equipment manufacturer. The manufacturer will invoice the Distributor in care of ABC and cause delivery of the equipment, via common carrier, directly to the Distributor. All risks of ownership pass to the Distributor immediately upon shipment of the equipment. ABC and XYZ will not take title to or possession of the equipment.
ABC will have no physical presence in Virginia other than through its employees conducting private shows. Neither XYZ nor the manufacturer will have any physical presence or operations in Virginia.
Upon execution of the Contract, the Distributor must pay (on site at the Virginia private show) up to 20% of the purchase price of the business opportunity to ABC's employee. This amount is retained by ABC in its entirety as payment for service and is immediately forwarded to ABC's out-of-state headquarters along with the contract for approval. The Contract will direct the Distributor to forward the balance of the purchase price to an unrelated out-of-state escrow agent who will distribute the funds to the appropriate payees. These funds will consist of both the fees payable to ABC and XYZ for their services and the purchase price payable to the manufacturer for the equipment.
You request a ruling regarding possible sales and use tax collection responsibilities.
RULING
Va. Code § 58.1-603 imposes the sales tax on every person engaged in the business of selling at retail or distributing tangible personal property in Virginia. Va. Code §58.1-612 (copy enclosed) provides that the retail sales and use tax shall be collectible from all persons who are dealers and who have sufficient contact with Virginia.
ABC Company: Based on the facts presented, ABC is not engaged in the business of selling at retail or distributing tangible personal property in Virginia. ABC receives 20% of the purchase price of the Contract as payment for services (marketing), and no tangible personal property passes from ABC to the Distributor. Therefore, ABC is not responsible for collecting sales and use tax for the transaction, as it is providing a nontaxable service.
XYZ ComPany: Based on the facts presented, XYZ is providing a nontaxable service and does not sell or distribute tangible personal property in Virginia. Accordingly, it is not required to collect sales and use tax.
Manufacturer: Va. Code §58.1-612 defines dealer to include every person who "manufactures or produces tangible personal property for sale at retail, for use, consumption or distribution, or for storage to be used or consumed in this Commonwealth."
The manufacturer clearly qualifies as a "dealer" under Va. Code § 58.1-612, as it manufactures equipment for sale at retail and for use, consumption and distribution in Virginia. However, it is not clear if the manufacturer has sufficient contact with Virginia to require it to register for collection and remittance of the sales tax. The facts indicate that the manufacturer has no physical presence and no operations in Virginia. All deliveries are made by common carrier. However, your letter does not indicate the nature of the relationship between the manufacturer and ABC and XYZ. If ABC or XYZ are agents or representatives of the manufacturer and solicit business on its behalf, then the manufacturer will be deemed to have sufficient contact with Virginia and is required to register and collect the tax on its sales of vending machines. If there is no relationship between the manufacturer and ABC or XYZ, and the manufacturer does not meet any of the nexus requirements in Va. Code § 58.1-612, it may voluntarily register with the department for the collection of the tax as a service to its customers.
Similarly, if ABC and XYZ are agents or representatives of the manufacturer, they may be considered dealers under Va. Code §58.1-612.B.7, which provides that the term "dealer" includes every person who "[a]s a representative, agent, or solicitor, of an out-of-state principal, solicits, receives and accepts orders from persons in this Commonwealth for future delivery and whose principal refuses to register as a dealer under §58.1-613." ABC would have sufficient contact with Virginia by virtue of its employees soliciting business through private shows in Virginia to require it to register to collect the tax on sales of vending machines.
Distributor: Va. Code §58.1-604 imposes the use tax on the cost price of tangible personal property used, consumed or stored in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased. Therefore, if sales tax is not paid to a registered vendor at the time the vending machines are purchased, the Distributor must pay the use tax directly to the department.
If you have any additional questions regarding this matter, please contact the department.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7752F
Rulings of the Tax Commissioner