Who collected Virginia tax when an out-of-state consignor sold goods for resale to a separate online seller that lacked Virginia nexus?

Subject

Consignment sales left use tax with Virginia customers under 2014 law

Plain-English summary

Under the 2014 facts, X did not collect tax because it sold to Y for resale, and Y did not collect because it lacked Virginia nexus; the Virginia customer owed use tax. Y bought the goods from X immediately before reselling them online to the consumer, and common carriers delivered them from outside Virginia.

X was under common control with Z, which operated a Virginia store, but X itself did not make retail sales to Virginia consumers. Y was the retail seller and retained the difference between its selling price and its purchase price.

Y should provide X a valid resale certificate. If X otherwise had nexus, its Virginia return would report its gross sales to Y and subtract the documented resale sales; X would not report Y's consumer sales.

What this means for you

• Identify the legal retail seller rather than assuming a consignor or affiliate made the consumer sale.
• Document resale transactions with a valid exemption certificate.
• Affiliate activity mattered under the statute, especially if an affiliate facilitated delivery.
• This 2014 no-nexus result predates modern economic-nexus and marketplace rules; do not use it as current remote-seller guidance.

Citations and references

• Va. Code §§ 58.1-612 and 58.1-613.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-139

Original ruling text

August 12, 2014

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in reply to your letter in which you request a ruling regarding the application of the retail sales and use tax to sales to Virginia customers by an out-of-state company. You question if the company is required to collect and report the retail sales and use tax on certain sales transactions.

FACTS

There are three companies - X, Y and Z. All three companies sell the same or similar lines of products, have different company names and are separately managed with separate officers. Company X is under common control with Company Z. Company Z has retail sales tax nexus with Virginia and operates a retail store in Virginia.

Company Y enters into a consignment agreement with X whereby Y purchases products from X for resale through the Internet to Virginia consumers. Any resale inventory is maintained by X outside of Virginia. Company X will have title to the goods and risk of loss until an instant before the sale to the Virginia consumer is made. At the point of sale title to the goods and risk of loss passes to Y and from Y to the Virginia consumer. The goods will be delivered to the Virginia consumers by common carrier. Company Y will collect the sales price from the Virginia consumer and remit payment for the purchase price of the goods to X. The difference between the selling price and the purchase price will be retained by Company Y.

With the foregoing scenario as a background, you ask a number of questions regarding establishment of nexus with Virginia and the application of the sales tax. I will respond to the questions in the same manner in which they are presented in your letter.

RULING

1. Does Company X have affiliate nexus in Virginia?

Virginia Code § 58.1-612 A provides that the sales or use tax is collectible from all persons who are dealers and have sufficient contact with the Commonwealth. As provided in Va. Code § 58.1-612 B 3, a dealer is defined to include every person who "[s]ells 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 ...." Virginia Code § 58.1-612 C lists the statutory criteria that establish nexus and require a business to register for the collection of the Virginia retail sales and use taxes.

While Company X has goods for sale, it is my understanding that X does not make sales to Virginia consumers. As a result, while X is under common control with Z, X does not sell goods at retail or through the Internet to Virginia consumers. In the scenario provided, X is not a dealer with respect to Virginia sales and is not required to register for the collection of the tax.

As a point of interest, the 2012 Session of the Virginia General Assembly amended Va. Code § 58.1-612. The amendment provides that a dealer as defined within Va. Code § 58.1-612 B is presumed to have sufficient activity within the Commonwealth to require registration under Va. Code § 58.1-613 (unless such presumption is rebutted as provided within the amended wording) if any commonly controlled person maintains offices within the Commonwealth that facilitates the delivery of tangible personal property, sold by the dealer to its customers. Accordingly, if X, as a dealer, were to make sales to Virginia customers and the commonly controlled counterpart Z were to facilitate the delivery of the product sold by X, there would be sufficient contact by X to require its registration under Va. Code § 58.1-613. A copy of the fiscal impact statement is enclosed for your review.

2. Should Y issue a resale certificate to X?

Yes. In the scenario provided, Y should present the resale exemption certificate issued by the state in which Y is registered as a dealer.

3. Assuming that X has affiliate nexus in Virginia, is either X or Y required to collect the Virginia retail sales tax on the sale of goods to the Virginia consumers?

In the scenario provided, even if X has nexus in Virginia, X would not be required to collect the Virginia retail sales tax because the sales transaction is between Y and the Virginia consumer. Because Y has no nexus in Virginia and is not required to register for the collection of the Virginia retail sales and use tax, the responsibility for payment of the use tax rests with the Virginia consumer. The Virginia consumer would make payment directly to the Virginia Department of Taxation for the use tax that would be due on goods purchased on which the Virginia use tax was not paid.

4. Assuming that X has affiliate nexus in Virginia, should X report on its Virginia sales tax return the amount of sales made to Y or the amount of sales made by Y to Virginia consumers?

X would file an out-of-state dealer's use tax return, Form ST-8. X would report in its Virginia return the gross receipts for sales made to Y. X would then subtract out exempt sales for resale that are supported by valid resale certificates of exemption. Sales by Y would not be reported by X on the Virginia out-of-state dealer's return.

I trust that the foregoing responds to your request. This response is based on the facts provided as summarized above. Any change in the facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections cited are available on-line in the Laws, Rules and Decisions section of the Department's website located at www.tax.virginia.gov . If you have any questions regarding this matter, please contact * of the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

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