Tax Type
Retail Sales and Use Tax
Description
Interstate transactions; Merchandise sold to foreign merchant seamen
Topic
Taxability of Persons and Transactions
Date Issued
09-30-1997
September 30, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear****************
This is in response to your letter of July 7, 1997 in which you seek correction of a sales and use tax assessment issued to ****(the "Taxpayer") for the period April 1994 through March 1997.
FACTS
The Taxpayer sells merchandise primarily to foreign merchant seamen whose ships are docked at Virginia ports. I understand that the Taxpayer meets incoming ships, picks up the seamen at the dock area, and brings them to its store location. Sales to these foreign seamen consist predominantly of general merchandise, including clothing, electronic goods, magazines, video tapes, personal hygiene items, etc. The Taxpayer may then transport the seamen back to their ships.
The Taxpayer was held liable for the tax on these untaxed sales to the foreign merchant seamen. You indicate, however, that the merchandise goes on board foreign flag ships, and these ships are not United States territory. You also maintain that the merchandise is not consumed in Virginia, but rather exported and used out of the country. For these reasons, you contend that the contested sales are exempt sales in foreign commerce.
DETERMINATION
There are a number of sales and use tax laws which affect this case. Copies of the referenced citations from the Code of Virginia, the sales and use tax regulations, and other documents are enclosed.
Code of Virginia § 58.1-603 imposes the tax upon every person who engages in the business of selling at retail or distributing tangible personal property in Virginia. The term "sale" is defined in Code of Virginia § 58.1-602 to mean "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property...." That same section defines a "retail sale" to mean "a sale to any person for any purpose other than for resale...." A "retailer" is defined 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." The term "use" means "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business".
Code of Virginia § 58.1-609.10(4) provides an exemption from the tax for sales made in interstate or foreign commerce. This exemption is addressed by the department in Title 23 of the Virginia Administrative Code (VAC), Section 10-210-780 [formerly Virginia Regulation 630-10-51]. This regulation indicates that:
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- The tax does not apply to sales of tangible personal property in interstate or foreign commerce. A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia. (Emphasis added.)
With the statutes and regulation in mind, l must conclude that the Taxpayer makes taxable retail sales to its foreign seamen customers. First, it is apparent that title and possession to the contested merchandise passes to the customers in Virginia. The exemption available for interstate commerce therefore does not apply. Second, l agree that customers may subsequently take the contested items outside Virginia. Nevertheless, the customers have made a taxable first use of the merchandise in Virginia by taking possession of that merchandise in Virginia. Further, Virginia law contains no provisions for exempting foreign seamen from the sales tax on purchases made within Virginia.
There are two other issues which need to be addressed. The first concerns the reference in VAC 10-210-780 to "delivery to a factor or agent of tangible personal property for foreign export...." In the enclosed Public Document 90-112 (7/23/90), the Tax Commissioner determined that the terms "factor" and "agent" refer to a middleman or jobber who sells merchandise for a manufacturer. In your case, however, the Taxpayer sells its own merchandise. The merchandise is not delivered to a factor or agent, but is rather sold to and delivered to customers while they are in Virginia.
The second issue concerns deliveries to foreign vessels. This issue is addressed in the enclosed Public Document 87-118 (3/31/87). In that case, it was determined that delivery to a foreign vessel while it is in Virginia territorial limits is deemed to be delivery in Virginia. Accordingly, even if the Taxpayer delivered the contested merchandise to its customers aboard their ships, no exemption would apply.
Based on this determination, l find that the Taxpayer's sales of merchandise to its foreign seamen customers are taxable and that the assessment is correct. A revised bill, with interest accrued to date, will shortly be issued to the Taxpayer. No additional interest will accrue provided the assessment is paid within 30 days.
Please contact ***** in the department's Office of Tax Policy at ********, if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12739I
Rulings of the Tax Commissioner