Tax Type
Retail Sales and Use Tax
Description
Application of sales and use taxes; Dealers
Topic
Taxability of Persons and Transactions
Date Issued
03-15-1994
March 15, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear******************
This will reply to your letter of June 23, 1992, in which********* (the "Parent") is contesting the sales and use tax assessment for the period April 1, 1986 through December 31, 1991, against **********(the "Subsidiary").
FACTS
The Subsidiary, which was acquired by the Parent during the audit period, maintained an office in Virginia until May 1989. During that time, it was engaged primarily in purchasing and selling cable and broadcast air time in order to market various specialized products for manufacturers and other clients through direct response television advertising programs. The programs were generally produced by the clients and broadcast on television during time slots which the Subsidiary purchased in blocks from cable television networks or non-cable television stations. The Subsidiary entered into arrangements with third party vendors to perform telemarketing services, (i.e., receiving orders from customers who purchased the client's products and making credit card payment arrangements), fulfillment services (i.e., filling and shipping the customer orders), and customer services (i.e. handling customer complaints). The credit card company remitted receipts from customer sales, less a company fee, to the Subsidiary. After the receipts from the credit card company were reduced by the Subsidiary's commission, the difference was remitted to the client.
The Parent contends that the Subsidiary did not act as a retailer or make retail sales within the meaning of the sales and use tax statute since they did not have the ability to transfer either title or possession of products. In addition, the contracts with their clients were for services essentially the same as those which might be provided by a commission agent soliciting sales in Virginia.
DETERMINATION
Va. Code §58.1-602 (copy enclosed) defines a retailer as "every person engaged in the business of making sales at retail, or for distribution, use, consumption, or storage to be used or consumed in this Commonwealth." Therefore, a person making retail sales of tangible personal property in Virginia is considered a retailer.
Although it is argued that the Subsidiary is not a retailer of tangible personal property, it is clear that the very nature of the business is the marketing and sale of consumer products. From a review of the typical sales agreements furnished to the department's auditor, the Subsidiary does contract with individuals and businesses (its clients) to develop videotape advertising (at the Subsidiary's expense) for the marketing of various products. At the same time, however, the agreements typically grant to the Subsidiary the "exclusive" and/or "unrestricted" right to "advertise, promote, market, and sell" the products. In exchange for developing the videos and marketing the products, the Subsidiary typically receives 60% of the sales proceeds, with its clients receiving the balance.
It is also apparent from reading these agreements that the Subsidiary accepts orders from consumers, collects payments from consumers, and causes the fulfillment of consumer orders, all of which are acts consistent with those of a retailer. The fact that the Subsidiary does not maintain an inventory of the products and relies on its clients and third parties for fulfillment of orders is of no consequence, as the Subsidiary actively solicits the retail sales and receives the orders from consumers.
A "dealer" (who is required to register for collection of the tax) is defined in Va. Code §58.1-612 (copy enclosed) as including every person who:
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- Sells 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; or
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- As 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. (Emphasis added.)
As a result, persons who sell tangible personal property, or representatives or agents, including commissioned agents, who solicit, receive or accept orders for delivery into Virginia must register as dealer, collect the tax on retail sales, and remit the tax to the department. The statute makes clear that the obligation to collect the tax is present even in instances where the seller does not have title or possession of the property sold. The mere act of offering the product for sale or accepting orders for the product is sufficient to require collection of the Virginia tax.
Accordingly, I find no basis for correction of the audit assessment. However, due to the delay in responding to your letter, I will agree to stop the accrual of interest on June 30, 1992, the date of your appeal was received in this office, provided that******which represents tax and interest of*****and ******respectively, be remitted to this office within 45 days from the date of this letter. The payment should be remitted to the attention of****** Office of Tax Policy, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282-1880.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/6268N
Rulings of the Tax Commissioner