Did an out-of-state online seller have to register for Virginia sales tax when its only Virginia presence was resale inventory stored at a fulfillment center?

Plain-English summary

Virginia ruled that an out-of-state online seller had enough activity in the Commonwealth to require sales-tax registration because it owned resale inventory stored at a Virginia fulfillment center.

The seller had no Virginia employees, offices, real estate, or delivery operation. Its out-of-state location accepted and processed orders, then sent them to the Virginia fulfillment center for packaging and shipment. But legislation effective June 1, 2017 amended Va. Code § 58.1-612 C 9 to expressly cover a dealer that owns tangible personal property for sale located in Virginia.

The seller therefore had to register and collect Virginia retail sales and use tax on all sales to Virginia customers. The ruling directed it to file the monthly out-of-state dealer return and allocate local tax based on where products were delivered.

Common questions

Did the lack of Virginia employees or offices prevent nexus? No. Ownership of inventory for sale in Virginia independently created sufficient activity under the cited 2017 amendment.

Did the ruling cover every sale nationwide? No. It required collection on sales to Virginia customers.

When did the inventory rule take effect? June 1, 2017.

Citations and references

• Va. Code §§ 58.1-602, 58.1-603, and 58.1-612 B 3 and C 9
• 2017 Acts of Assembly, Chapters 51 and 808
• Virginia Tax Bulletin 17-3 (May 3, 2017)

Subject

Taxpayer has sufficient activity in Virginia to require it to register for the collection and remittance of the Virginia retail sales and use tax.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-71

Original ruling text

May 23, 2017

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This will reply to your letter in which you request a ruling as to whether * (the “Taxpayer”) has sufficient activity within Virginia to require registration for the collection and remittance of the Virginia retail sales and use tax. I apologize for the delay in responding to your request.

FACTS

The Taxpayer operates an on-line business and is located outside Virginia. The Taxpayer's resale inventory is located in a fulfillment center in Virginia. The Taxpayer makes no deliveries into Virginia, has no employees in Virginia, and does not own any real property in Virginia. The Taxpayer receives sales orders via the Internet or telephone calls to its out-of-state location. The Taxpayer reviews the orders, processes payment, and forwards the orders to the Virginia fulfillment center, where the product is packaged and shipped to both national and international customers. You ask if the Taxpayer has sufficient nexus in Virginia to require registration for the collection and remittance of the Virginia retail sales and use tax.

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. 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 persons 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 Taxpayer clearly qualifies as a dealer for purposes of the Virginia retail sales and use tax. What needs to be determined is whether the Taxpayer has sufficient activity within Virginia to require registration as a dealer for the collection and remittance of the Virginia retail sales and use tax. You represent that the Taxpayer maintains no employees, offices, business locations, or warehouses in Virginia. The only presence the Taxpayer has in Virginia is the storage of resale inventory in a fulfillment center located in Virginia.

During its 2017 session, the Virginia General Assembly passed House Bill 2058 and Senate Bill 962 (2017 Acts of Assembly, Chapters 51 and 808) to amend Va. Code § 58.1-612 C. Virginia Code § 58.1-612 C sets forth those activities that a dealer may be engaged in that establish nexus with Virginia and require the dealer to register for the collection of the Virginia retail sales and use tax. Subsection 9 of § 58.1-612 C was amended to provide a dealer shall have sufficient activity to require registration if such dealer:

Owns tangible personal property that is for sale located in this Commonwealth, or that is rented or leased to a consumer in this Commonwealth, or offers tangible personal property, on approval, to consumers in this Commonwealth. [Emphasis added.]

The amendment is effective June 1, 2017.

Based on the nexus requirement set forth above in Va. Code § 58.1-612 C 9, and the fact the Taxpayer owns tangible personal property for sale located in a fulfillment center in the Commonwealth of Virginia, the Taxpayer has sufficient activity in Virginia to require it to register for the collection and remittance of the Virginia retail sales and use tax on all sales to Virginia customers. As an out-of-state dealer, the Taxpayer would be required to file a monthly Form ST-8, Out-of-State Dealer's Sales Tax Return, along with Form ST-8A, Schedule of Local Sales and Use Taxes, allocating the local tax to localities where the Taxpayer's products are delivered. For a more detailed explanation of the law change, see Virginia Tax Bulletin 17-3 (5/3/17). The bulletin also offers information regarding the registration process.

This response is based on the facts presented in your ruling request as summarized above. Please be advised that any change in the facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections and tax bulletin cited 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 questions concerning this response, or need assistance in registering as a dealer with the Department, please contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/600.R