Tax Type
Retail Sales and Use Tax
Description
Out-of-State Furniture Retailer; Nexus; Deliveries into Virginia
Topic
Taxability of Persons and Transactions
Date Issued
03-04-1994
March 4, 1994
Re: §58.1-1821 Application: Sales and Use Tax
Dear********
This will reply to your letter of October 2, 1992, in which you seek correction of a sales and use tax assessment for******************(the "Company") for the six year period ending May 1992.
FACTS
The Company is a North Carolina furniture retailer. The Company does not maintain an office, warehouse, or other place of business in Virginia. The Company does not advertise or actively solicit business within Virginia, although it has made numerous sales to Virginia residents. The Company has hired private carriers to transport into Virginia the items sold to Virginia residents.
The Company claims that its activities in Virginia do not establish its physical presence within the Commonwealth either for personal jurisdiction purposes or for commerce clause nexus purposes. The Company further asserts that since Virginia lacks jurisdiction over the Company, Virginia cannot impose its sales and use tax requirements upon the Company. The Company, therefore, requests that the assessment be abated.
DETERMINATION
Va. Code §58.1-612 defines a dealer to include a person who sells at retail tangible personal property for use or consumption in the Commonwealth. This section of the Code requires a dealer to register with the department to collect use tax on the sale of tangible personal property purchased outside of Virginia and delivered into Virginia if the dealer makes regular deliveries into the Commonwealth other then by common carrier on more than 12 occasions within a calendar year.
The Company engages in the sale of tangible personal property to individuals who use such property within Virginia. The Company's activities clearly fall into the Virginia definition of dealer. The only issue in this case is whether the Company's activities within Virginia are sufficient to establish nexus thus requiring the Company to register with the department to collect Virginia use tax on its sales to Virginia customers. The facts clearly establish that the Company made numerous sales to Virginia customers during each calendar year under audit and a majority of these sales were delivered to locations within Virginia by carriers hired by the Company.
The department has consistently held that unless a resident or nonresident carrier obtains a certificate of necessity from the Interstate Commerce Commission (the "ICC") or a resident carrier obtains a certificate of public convenience and necessity from the Virginia State Corporation Commission (the "SCC"), the carrier is not a common carrier within the meaning of Va. Code §58.1-612(C)(4). This is best illustrated by the department's handling of domestic carriers that try to qualify for the sales and use tax exemption contained in subdivision 3 of Va. Code §58.1-609.3.
In such cases, the department has held that carriers are not entitled to the exemption unless they are registered with the ICC or the SCC and possess a certificate of convenience or a certificate of public convenience and necessity. See P.D. 92-28 (April 20, 1992); P.D. 89-214 (April 4, 1989); P.D. 86-201 (October 17, 1986); and, P.D. 85-191 (October 15, 1985, copies enclosed). More recently, the department determined that a furniture dealer, with activities in Virginia similar to the Company's activities in Virginia, had nexus with Virginia and was, therefore, required to collect the Virginia use tax from Virginia customers. See P.D. 93-141 (copy enclosed).
Further, a common carrier that engages in activities that are conducted by contract carriers, e.g., privately contracting to ship property for a specific principal, is required to apportion the use of its equipment and pay tax on the portion that is allocated to activities that are typically conducted by contract carriers. Therefore, to the extent that the carriers hired by the Company are common carriers but such carriers privately contracted with the Company, the deliveries are not considered to be made by a common carrier within the meaning of the Code.
Through the examination of the records of the delivery companies hired to deliver furniture to the Company's Virginia customers, the department discovered that such delivery companies were not licensed as common carriers during the audit period. The records also revealed that the delivery companies engaged in activities beyond mere delivery.
In addition to the delivery of furniture into Virginia, the delivery companies also collected outstanding amounts due to the Company, performed minor repairs to damaged items, assembled furniture when required, and returned rejected items to the Company. These activities go beyond the mere delivery of goods into Virginia thus, establishing nexus for the Company in Virginia. See P.D. 93-141 (June 7, 1993).
While the audit assessment was based upon an estimate of Virginia sales, since the Company refused access to its records for the purpose of an audit, the assessment is deemed correct until information to the contrary can be examined. The assessment cannot be revised without a thorough examination of the Company's records. Should the Company agree to an actual audit of its records, it should contact the ******* District Office within 30 days. Otherwise, the assessment will be immediately due and payable, and collection actions will resume.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/64990
Rulings of the Tax Commissioner