Tax Type
Retail Sales and Use Tax
Description
Nexus; Out-of-state vendors; Mail order sales
Topic
Taxability of Persons and Transactions
Date Issued
06-12-1997
June 12, 1997
Re: Request for Ruling: Income Tax and Sales and Use Tax
Dear***************
This will reply to your letter which you request a ruling on behalf of your client, an out-of-state publication sales business (the "Vendor"), in connection with a proposed contractual relationship with an instate telemarketing business (the "Contractor") on the applicability of Virginia taxes. I apologize for the delay in responding to your letter.
FACTS
The Contractor wishes to enter into an agreement with the Vendor to perform certain services. Under the proposed agreement, the Contractor would provide nonexclusive telemarketing services in connection with the sales of publications by the Vendor.
The Contractor would be limited to soliciting orders from various states, except Virginia, and possibly several foreign countries. All orders or inquiries generated as a result of the Contractor's services will be directed to the Vendor's office for acceptance.
You ask if the Vendor would be liable for Virginia income tax, and/or would be required to register for the collection and remittance of the retail sales and sales tax.
RULING
Income Tax
Every taxpayer having income from Virginia sources is subject to the Virginia income tax. A taxpayer will have income from Virginia sources when sales are made to customers located in Virginia.
However, Public Law (P.L.) 86-272 (15 U.S.C.A. §§ 381 - 384) prohibits a state from imposing a net income tax where the only contacts with the state are a narrowly defined set of activities constituting solicitation of orders for sales of tangible personal property.
Pursuant to this federal law, there are different standards which apply to the activities of a taxpayer's agent or representative versus the activities of an independent contractor. An independent contractor is defined in P.L. 86-272 as:
-
- "[a] commission agent, broker, or other independent contractor who is engaged in selling, or soliciting orders for the sale of, tangible personal property for more than one principal and who holds himself out as such in the regular course of his business activities . . . "
A taxpayer is not protected from taxation by a state pursuant to P.L. 86-272 if it, or its agents or representatives, maintains an office or place of business in such state. Nevertheless, a taxpayer is not subject to taxation merely by reason of the maintenance of an office in a state by an independent contractor whose activities on behalf of such taxpayer consist of making sales, or soliciting orders for sales of tangible personal property.
The information you have provided indicates the Contractor will represent several principals other than the Vendor. There is no common ownership between the companies, and one is neither a creditor nor debtor of the other. Consequently, the department finds the Contractor is an "independent contractor" within the meaning provided by P.L. 86-272.
The provisions of P.L. 86-272 allow an independent contractor to solicit sales and accept orders, as well as maintain an office in a state without subjecting the principal to tax. With these exceptions, any additional activities conducted by the independent contractor on behalf of the principal will subject the principal to taxation in the state to the same extent as if the activity had been conducted by an employee or representative of a principal.
In Wisconsin Department of Revenue v. William Wrigley. Jr. Co.,112 S. Ct. 2447 (1992), the U.S. Supreme Court found that a "solicitation of orders" means any speech or conduct explicitly or implicitly proposing a sale, and activities entirely ancillary to soliciting orders. The conduct of activities not falling within the definition of solicitation will cause a company to lose the protection afforded by P.L. 86-272, unless the activities, taken together, are de minimis.
Based on the information you have provided, the department concludes that the activities performed by the Contractor on behalf of the Vendor do not exceed P.L. 86-272 protection. The department finds the Contractor's order-taking activities to be part of the solicitation process, and therefore constitutes the solicitation of orders. Accordingly, the Vendor would not be liable for the Virginia income tax.
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.
Code of Virginia § 58.1-612 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 the Commonwealth, tangible personal property."
Based on the information provided, the Vendor would solicit business in Virginia by direct mail and will make retail sales and ship the merchandise by mail or common carrier to Virginia customers. As such, the Vendor qualifies as a dealer under the statute.
Code of Virginia § 58.1-612 also 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 information provided, the Vendor would not have sufficient activity in Virginia to require it to register and collect the tax. If the Vendor's activities exceed those described in the letter, it may be required to register for collection and remittance of the sales tax under Code of Virginia § 58.1-613.
I trust the foregoing has responded to your questions. If you should have any further questions regarding this ruling, you may contact********at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12270O
Rulings of the Tax Commissioner