Tax Type
Retail Sales and Use Tax
Description
Resales; Middlemen's collection responsibility.
Topic
Taxability of Persons and Transactions
Date Issued
11-19-1997
November 19, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear**************
This will reply to your letters in which you request a ruling regarding ****** ("Taxpayer") responsibility for collecting and remitting sales and use tax on certain transactions. I apologize for the delay in responding to your letter.
FACTS
The taxpayer is a merchant selling goods and has nexus in Virginia. The taxpayer uses middlemen to promote its products to companies running employee or customer incentive programs. Employees and other participants in incentive programs select an item from the taxpayer's catalog. The item is paid for by the company running the program. The taxpayer receives an order form from incentive program participants, processes orders, and ships goods to such participants.
The taxpayer bills its middleman for goods selected by incentive program participants. The middleman will then bill the company sponsoring the incentive program. The middleman is free to charge whatever price it negotiates with the sponsoring company.
You ask who is responsible for collecting and remitting sales and use tax and what is the basis of the tax under the following scenarios:
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- (1) The middleman and sponsoring company are both located in another state and neither have nexus in Virginia but merchandise is being shipped to participants who live in Virginia;
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- (2) The middleman and sponsoring company are located in Virginia, both have nexus in Virginia, and merchandise is being shipped to participants in Virginia;
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- (3) The sponsoring company is located in Virginia, the middleman is located in another state and does not have Virginia nexus, and merchandise is shipped into Virginia; and
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- (4) The sponsoring company is located in Virginia, the middleman is located in another state but does have Virginia nexus, and merchandise is being shipped into Virginia.
RULING
A retail sales and use tax is imposed on persons engaging in the business of making retail sales of tangible personal property in Virginia. Code of Virginia § 58.1-603 (copy enclosed). A retail sale "means a sale to any person for any purpose other than for resale in the form of tangible personal property or [taxable] services". Code of Virginia § 58.1-602 (copy enclosed). The tax is not applicable to those transactions in which goods are purchased for resale.
In this case, the responsibility for collecting and remitting sales and use tax under each of the scenarios depends upon whether the middleman purchases or takes title to the goods that are ultimately sold to sponsoring companies (i.e., if a sale for resale takes place between the taxpayer and the middleman). Sufficient information is unavailable to make a determination of whether the middleman takes title to the goods. Therefore, I will outline the taxpayer's responsibility for collecting and remitting sales and use tax under circumstances where (1) the middleman takes title to the goods; and (2) title to the goods does not pass to the middleman.
Title to the Goods Acquired by the Middleman
The transfer of title to the goods from the taxpayer to the middleman, under the facts presented, means that a sale for resale has taken place between the two. A sale for resale is excluded from the definition of a retail sale. Consequently, the taxpayer would not be required to collect and remit sales and use tax for sales to the middleman.
However, the middleman is required to collect and remit sales and use tax on sales made to sponsoring companies if, under Code of Virginia § 58.1-612, the middleman is a dealer and has sufficient activity within the state. A dealer is defined under Code of Virginia § 58.1-612 (copy enclosed) to include every person who "sells 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". The middleman would clearly qualify as a "dealer" since it transfers its title to goods to sponsoring companies and the goods will be used or consumed in Virginia (i.e., the middleman is making a retail sale of its goods for use or consumption in Virginia).
The middleman must also have sufficient activity within Virginia as set out in Code of Virginia § 58.1-612(C) before it can be required to collect and remit sales and use tax. Those activities which constitute sufficient activity or nexus with Virginia are enumerated in § 58.1-612(C). Provided that the middleman satisfies one or more of these activities, the middleman must register as a dealer and collect and remit sales and use tax to the department for goods sold in Virginia or which will be used or consumed in Virginia. The basis for the tax is the sales price charged by the middleman to the sponsoring company. See Code of Virginia § 58.1-602 and Title 23 of the Virginia Administrative Code (VAC) 10-210-4000 (copies enclosed) for the definition of "sales price".
Title to the Goods do not Pass to the Middleman
If title to the goods remain with the taxpayer, the taxpayer is not making sales to the middleman. In this case, the middleman's efforts would be directed to assisting the taxpayer in making retail sales to sponsoring companies. Because the taxpayer has nexus in Virginia and is a "dealer" as defined above, the taxpayer must register as a dealer and collect and remit sales and use tax for goods sold in Virginia or which will be used or consumed in Virginia. The basis for the tax is the sales price charged to the sponsoring company. See the relevant enclosures for the definition of "sales price".
You also asked if Virginia law provides that the taxpayer will be relieved of sales and use tax liability when it accepts an exemption certificate. 23 VAC 10-210-280(A) (copy enclosed) states that all sales, leases and rentals of tangible personal property are subject to the retail sales and use tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. Only those merchants accepting a certificate of exemption in good faith are relieved of sales and use tax liability.
If you have any questions, please call *********in the Office of Tax Policy at *********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11891C
Rulings of the Tax Commissioner