By Terry Barrett, CPA, Senior Tax Manager | State & Local Tax Team
Virginia recently ruled in Ruling of the Tax Commissioner PD 15-194 (10/16/15) based upon a very specific set of facts that sellers who have inventory in a fulfillment center in Virginia are not required to register for the collection of the Virginia retail sales and use tax on on-line sales made to Virginia customers. The Commissioner stated that while sellers qualify as dealers for purposes of the Retail Sales and Use tax, they did not have “sufficient activity in Virginia to require registration.” The Commissioner pointed out that for a dealer to have sufficient activity in the state it must solicit business in the Commonwealth “by employees, independent contractors, agents or other representative.” Based upon the information provided, the sellers solicit sales through on-line transactions between the sellers and the Virginia customers and the fulfillment centers do not act as independent contractors for the sellers or have not established an agency relationship with the sellers. The Commissioner further noted that there is no statutory requirement under the law, specifically Va. Code § 58.1-612 C, that “maintaining a resale inventory in Virginia would establish nexus.”
This ruling appears to be based upon at a very specific fact pattern and we caution against using it as general guidance in making nexus determinations in Virginia or other states. Generally speaking, nexus or a connection with a state sufficient to create a tax registration and collection requirement is established through a physical presence in a state, whether through people, offices, warehouses, fixed assets, or inventory. If a seller has that physical presence it is generally deemed to have that tax collection requirement on taxable sales into the state – whether those sales are made online, through physical locations, mail-order, employees, independent contractors, or other agents.
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