My customer arranges and pays a common carrier to pick up goods at my Virginia warehouse and ship them out of state — is that sale exempt as interstate commerce, or does it depend on who arranged the pickup and where title transfers?

Plain-English summary

A Virginia-based manufacturer with its own facilities and warehouses sells tangible personal property to customers around the country. It asked the Department to rule on the interstate commerce exemption for two closely related common-carrier pickup scenarios -- both involve a customer paying a third-party common carrier to pick up goods at the dealer's Virginia warehouse, but they reach opposite tax results because of a single difference: where title transfers.

The general rule: possession/title location controls, not the mode of transport. Virginia Code § 58.1-609.10 4 exempts the "[d]elivery of tangible personal property outside the Commonwealth for use or consumption outside of the Commonwealth." Under 23 VAC 10-210-780, a sale is in exempt interstate commerce "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 in Virginia." The regulation lists delivery by the seller's own vehicle, an independent trucker or contract carrier hired by the seller, or a common carrier or the U.S. Postal Service, as examples that qualify -- when the seller arranges and controls that delivery. But when a purchaser instead directs the Virginia dealer to ship to a third party, or otherwise takes control of the goods while still in Virginia, the purchaser is treated as taking constructive possession in Virginia, and the exemption doesn't apply -- because the first transfer of possession happened here, not out of state.

Scenario 1: exempt. The dealer's customer pays a common carrier to pick up goods at the Virginia warehouse, but the dealer's own contractual delivery obligation isn't finished until the goods reach the customer's out-of-state location, and title doesn't pass until then. Because delivery is through a common carrier and no use of the property happens in Virginia, this qualifies as an exempt interstate sale under 23 VAC 10-210-780 A 3.

Scenario 2: taxable. The only fact that changes is that title to the property transfers to the customer in Virginia, at the moment the common carrier -- acting under a contract directly with the customer, not the dealer -- takes possession at the Virginia warehouse. That's enough to make the sale fully taxable: the customer has taken constructive possession of the goods in Virginia, even though the same physical shipment ultimately crosses state lines by the same means of transport.

What the Department didn't decide. It expressly declined to say whether the destination state's own sales or use tax would apply to either scenario -- that's outside its jurisdiction.

What this means for you

Virginia manufacturers and dealers shipping out of state

Don't assume "we used a common carrier" is enough to qualify for the interstate commerce exemption. Check where and when title passes under your sales contract. If your own delivery obligation runs all the way to the customer's out-of-state door and title doesn't transfer until then, you're likely exempt. If a customer's carrier picks up at your Virginia dock under a contract between the customer and the carrier (not you), and title passes there, the sale is probably taxable in Virginia even though the goods leave the state.

Businesses structuring "customer arranges pickup" delivery terms

If you want the interstate exemption to apply, keep the delivery obligation and the passage of title with the seller until the goods are out of state -- e.g., FOB destination terms with the seller responsible for arranging the carrier. A customer-arranged pickup at a Virginia location, with title passing there, breaks the exemption regardless of the ultimate destination.

Multistate sellers

Remember the Department only rules on Virginia tax. If your destination state also imposes its own sales/use tax on the same transaction, you'll need to check that state's rules separately.

Common questions

Q: My customer pays the trucking company directly to pick up goods at my Virginia warehouse -- is that automatically exempt because it leaves the state?
A: Not automatically. It depends on where title passes. If title transfers to the customer at your Virginia warehouse (because the carrier is acting under a contract with the customer, not you), the sale is taxable in Virginia even though the goods are later delivered out of state.

Q: What if my own delivery obligation continues until the goods reach the customer out of state?
A: Then the sale is generally exempt as an interstate commerce sale under Va. Code § 58.1-609.10 4 and 23 VAC 10-210-780 A 3, since delivery is through a common carrier and no use of the property occurs in Virginia before it reaches the customer.

Q: Does it matter who hired the common carrier?
A: Yes -- it's one of the key facts. A carrier hired by the seller, delivering under the seller's own contractual delivery obligation, points toward an exempt interstate sale. A carrier hired by the customer, taking possession at the Virginia warehouse under its own contract with the customer, points toward a taxable sale with constructive possession occurring in Virginia.

Q: Will Virginia tell me whether the destination state will also tax this sale?
A: No -- the Department only addresses Virginia sales and use tax and does not rule on other states' tax treatment of the same transaction.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-603 -- imposes the retail sales and use tax on sales, distribution, or storage for use in Virginia
• Va. Code § 58.1-609.10 4 -- exemption for delivery of tangible personal property outside the Commonwealth for use or consumption outside the Commonwealth
• 23 VAC 10-210-780 -- defines exempt interstate/foreign commerce sales and lists qualifying delivery methods (including delivery to a common carrier)

Prior rulings the Department relied on (described here, not linked): P.D. 93-86 (3/29/1993) and P.D. 11-6 (1/14/2011) (consistent with the regulation's common-carrier exemption); P.D. 87-51 (2/27/1987), P.D. 93-217 (11/2/1993), P.D. 96-63 (4/24/1996), P.D. 98-187 (11/10/1998), and P.D. 00-52 (4/14/2000) (constructive possession where a purchaser directs shipment to a third party); P.D. 05-99 (6/8/2005) (taxable where a common carrier takes possession under a contract with the purchaser and title transfers in Virginia).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-100

Original ruling text

October 3, 2024

Re: Request for Ruling: Retail Sales & Use Tax

Dear *:

This will reply to your letter on behalf of a Virginia based company (the “Dealer”), in which you request a ruling on the applicability of the interstate commerce exemption for the Virginia sales and use tax. We apologize for the delay in responding.

FACTS

The Dealer, a privately-owned manufacturer that has a Virginia-based facility and warehouses, makes sales of tangible personal property from these facilities to customers around the United States. The Dealer requests a ruling on the applicability of the interstate commerce exemption for sales tax in two scenarios.

RULING

Interstate Commerce Exemption Generally

Virginia Code § 58.1-603 imposes a tax “upon every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth . . . or who stores for use or consumption in this Commonwealth any item or article of tangible personal property.”

Virginia Code § 58.1-609.10 4 provides an exemption from the retail sales and use tax for the “[d]elivery of tangible personal property outside the Commonwealth for use or consumption outside of the Commonwealth.” Tangible personal property sold by a Virginia dealer outside of the Commonwealth for use or consumption outside of Virginia constitutes a sale in interstate commerce. Under Title 23 of the Virginia Administrative Code (VAC) 10­210-780, 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 in Virginia.”

Subsection A of this regulation further provides four examples of transactions that constitute exempt sales in interstate or foreign commerce:

1. The sale of tangible personal property delivered to the purchaser outside of the state in the seller's vehicle;

2. The sale of tangible personal property delivered to the purchaser outside of the state by an independent trucker or contract carrier hired by the seller;

3. The sale of tangible personal property delivered by the seller to a common carrier or to the U.S. Post Office for delivery to the purchaser outside of the state;

4. The purchase of tangible personal property for resale and immediate transportation out of the state by a dealer properly registered in another state provided a valid certificate of exemption is secured by the Virginia seller.

In accordance with this regulation, all interstate transactions delivered by common carrier to a purchaser outside Virginia are sales in interstate commerce and exempt from the tax. The Department has also issued several determinations consistent with the regulation. See Public Document (P.D.) 93-86 (3/29/1993) and P.D. 11-6 (1/14/2011).

Contrarily, when a purchaser directs a Virginia dealer to ship retail merchandise to a third party outside of Virginia, the purchaser is considered to have taken constructive possession of the property in Virginia. Such sales do not qualify for the interstate commerce exemption because the initial transfer of possession to the retail property occurs in Virginia. See P.D. 87-51 (2/27/1987), P.D. 93-217 (11/2/1993), 96-63 (4/24/1996), 98-187 (11/10/1998), and 00-52 (4/14/2000).

Scenario 1

Are the Dealer’s sales of products whereby the customer pays a third-party common carrier to pick up tangible personal property at the Dealer’s Virginia warehouse subject to Virginia sales tax or subject to tax in the destination state, given the Dealer has not completed its contractual obligation in Virginia, title to the property is not transferred until the property is delivered to the customers location in another state, and no use of the property is made in the state?

In this scenario, the sale would not be subject to Virginia sales and use tax because the delivery is through a common carrier and the property is not used within the Commonwealth of Virginia. See 23 VAC 10-210-780 A 3. The Department is not able to answer whether another state’s sales and use tax would be applicable in this transaction.

Scenario 2

Are the Dealer’s sales of products whereby the customers pay a third-party common carrier to pick up tangible personal property at the Dealer’s Virginia warehouse subject to Virginia sales tax given title to the property is transferred in Virginia?

In this scenario, the sale would be subject to Virginia sales and use tax because the common carrier has taken possession of goods pursuant to a contract between the carrier and the purchaser. In addition, the title to the property is transferred to the purchaser at the Virginia location. See also P.D. 96-63, P.D. 98-187, and P.D. 05-99 (6/08/2005).

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 and regulation cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at or **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR4438.Z

Related Documents

87-51

93-86

93-217

96-63

98-187

00-52

05-99

11-6