Did storing resale inventory in a Virginia fulfillment center require out-of-state online sellers to register for Virginia sales tax in 2015?

Subject

Fulfillment-center inventory alone did not require registration in 2015

Plain-English summary

Virginia ruled that resale inventory in independent fulfillment centers did not, by itself, require registration under the 2015 statute. The out-of-state online sellers owned the goods, but had no Virginia offices, employees, locations, warehouses, agents, or representatives.

The sellers qualified as dealers, but registration required sufficient Virginia activity listed in the statute. The fulfillment centers did not act as agents or independent contractors soliciting sales for the sellers, and the statute then contained no specific trigger for merely maintaining resale inventory in Virginia.

Result: the sellers did not have to register on the stated facts.

What this means for you

• This is a historical 2015 nexus ruling, not current remote-seller guidance.
• Distinguish dealer status from the separate duty to register and collect.
• Document ownership, fulfillment contracts, agency, solicitation, personnel, and locations.
• Any new activity or later law can change the result.

Common questions

Q: Did the sellers own the Virginia inventory?

A: Yes, but inventory storage alone was not a statutory registration trigger applied in the ruling.

Q: Were the fulfillment centers the sellers' agents?

A: No, based on the facts presented.

Citations and references

• Va. Code §§ 58.1-602, 58.1-603, and 58.1-612.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 15-194

Original ruling text

October 16, 2015

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you request a ruling regarding the retail sales and use tax application and responsibilities for on-line sales made by companies located outside Virginia. I apologize for the delay in responding to your request.

FACTS

The Taxpayer represents several on-line retailers (the "Sellers") located outside Virginia. The Sellers maintain an inventory of their products in warehouses located in Virginia (hereinafter "Fulfillment Centers"). On-line sales by the Sellers to Virginia customers are packed and shipped directly to Virginia customers by the Fulfillment Centers. The Sellers maintain no offices, employees, business locations, or warehouses in Virginia. The Sellers maintain ownership of their product located in Fulfillment Centers and may withdraw or increase their inventory at their own discretion. The Fulfillment Centers never take ownership of the Seller's inventory.

The Sellers have been advised by the Fulfillment Centers that they are responsible for the collection and remittance of Virginia sales tax on sales made to Virginia customers. The Sellers are requesting clarification of the nexus requirement with Virginia and the requirements to register for the collection and remittance of the Virginia retail sales and use tax. In the event the Sellers do have nexus with Virginia, the Sellers request prospective treatment for the collection and remittance of sales tax based on a Voluntary Disclosure agreement with the Department.

RULING

Virginia Code § 58.1-603 imposes the retail sales and use tax on every person "who engages in the business of selling at retail or distributing tangible personal property" in Virginia. The tax is collected by all persons who are "dealers" as defined in Va. Code § 58.1-612. Virginia Code § 58.1-612 lists several definitions for the term "dealer." Pursuant to Subsection B 3 of this statute, the term "dealer" includes any person who:

Sells 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.

A "sale at retail" is defined as "a sale to any person for any purpose other than for resale in the form of tangible personal property or services." A "sale" is defined as "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 and any rendition of a taxable service for a consideration." See Va. Code § 58.1-602.

Based on the information provided, the Sellers clearly qualify as dealers for purposes of the Virginia retail sales and use tax. However, the Sellers maintain no offices, employees, business locations, or warehouses located in Virginia. The only presence the Sellers have in Virginia is the storage of resale inventory in Fulfillment Centers located in Virginia. What needs to be determined is whether the Sellers have sufficient activity within the Commonwealth to require registration as a dealer for the collection and remittance of the Virginia retail sales and use tax.

Virginia Code § 58.1-612 C sets forth activities within the Commonwealth that would require a dealer to register for the collection of the retail sales and use tax. Subsection 2 of Va. Code § 58.1-612 C provides that a dealer shall have sufficient activity in Virginia to require registration if such dealer "solicits business in this Commonwealth by employees, independent contractors, agents or other representative." Based on the information provided, the Sellers solicit sales in Virginia through on-line transactions between the Sellers and the Virginia customers. The Fulfillment Centers do not act as independent contractors of the Sellers and have not established an agency relationship with the Sellers. In addition, there is no statutory requirement under Va. Code § 58.1-612 C that provides that maintaining a resale inventory in Virginia would establish nexus.

Based on all of the above, I find that the Sellers do not have sufficient activity within the Commonwealth that would require them to register for the collection and remittance of the Virginia retail sales and use tax regarding on-line sales made to Virginia customers.

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

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

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-583084876.R