Tax Type
Retail Sales and Use Tax
Description
Interstate transactions; Nexus requirement not met
Topic
Taxability of Persons and Transactions
Date Issued
04-01-1996
April 1, 1996
Re: Request for Ruling: Corporate Income Tax
Retail Sales and Use Tax
Dear******************
This will reply to your letter of November 11, 1995, in which you request a ruling on the applicability of Virginia taxes to the operations of an anonymous client (the "Taxpayer") .
FACTS
The Taxpayer is a corporation located outside Virginia which acts as an agent for its manufacturing clients by furnishing certain services related to its client's sales. The Taxpayer does not make sales for its clients, however it receives orders for its clients, ships products to the purchaser via common carrier, collects for the products, provides customer service and support, and handles returns and reorders. All of the Taxpayer's activities occur outside Virginia with the exception of occasionally attending trade shows and soliciting its service to its clients. None of the Taxpayer's clients are located in Virginia. The Taxpayer remains anonymous to the purchasers of its client's products.
RULING
Corporate Income Tax
A tax is imposed on the Virginia taxable income of every foreign corporation having income from Virginia sources, unless specifically exempted. Under Public Law (P.L.) 86-272, codified at 15 U.S.C.A. §§ 381-384, Virginia is prohibited from imposing an income tax on a corporation whose only activity within the state is the solicitation of orders for the sale of tangible personal property. Although P.L. 86-272 only applies to tangible personal property, Virginia applies the same solicitation test to intangible personal property. Based on the facts presented, the Taxpayer's only activity in Virginia is missionary work performed by its salesmen to solicit the sale of its services to new clients; therefore, the Taxpayer would be exempt from Virginia income tax. The Taxpayer's occasional attendance at trade shows will be considered de minimis if the activity at such show is limited to solicitation of new business. Likewise, assuming the Taxpayer's clients have no physical presence in Virginia, they would be exempt from tax in Virginia since their only activity would be solicitation of orders by mail or other medium, and they have no other contact with the purchaser.
Retail Sales and Use Tax
Under Code of Virginia § 58.1-612, the sales tax is collectible from all persons who are dealers and who have sufficient contact with Virginia to require registration under Code of Virginia § 58.1-613.
The Taxpayer
Code of Virginia § 58.1-61 2(B)(3) defines "dealer" to include every person who "sells at retail, or who offers to sell 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". Based on the facts presented, the Taxpayer qualifies as a "dealer" when it has tangible personal property in its possession (through consignment or a buy/sell arrangement) for sale at retail in Virginia.
Code of Virginia § 58.1-61 2(C) sets forth the "nexus" requirements which give the Commonwealth the authority to require dealers to register for collection and remittance of sales tax. Based on the facts presented, and assuming that none of the Taxpayer's manufacturing clients have any physical presence in Virginia, the Taxpayer does not have sufficient activity in Virginia to require it to register and collect the tax.
Manufacturing Clients
The manufacturing clients clearly qualify as "dealers" under Code of Virginia § 58.1-612(B)(3) because they are offering to make retail sales of tangible personal property in Virginia. However, the facts presented indicate that the manufacturing clients do not have sufficient presence in Virginia to require registration to collect the sales tax. If a manufacturer maintains a place of business in Virginia or solicits sales through employees, independent contractors, agents or other representatives, it will be required to register and collect the tax on its sales to Virginia customers.
If you have any questions regarding this ruling, please contact*********at*********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10534P
Rulings of the Tax Commissioner