United States

Virginia: Inventory Stored in Virginia did Not Establish Nexus for Remote Sellers

Nov 16, 2015
From KPMG TaxWatch

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The Virginia Tax Commissioner recently addressed whether several online sellers located outside Virginia were required to register and collect sales tax on sales to Virginia customers. The remote sellers did not have offices, employees, business locations, or warehouses in Virginia; however, they maintained inventory at fulfillment warehouses operated by third parties that were located in the state. The remote sellers did not own the fulfillment warehouse, but maintained ownership and control of the inventory housed in the warehouse. Under Virginia law, retail sales tax is imposed on every person “who engages in the business of selling at retail or distributing tangible personal property” in the state. Persons meeting the statutory definition of “dealer” are required to register and collect sales tax if they have sufficient activity in Virginia. Specifically, a dealer will have sufficient nexus with the state if the dealer “solicits business in [the state] by employees, independent contractors, agents or other representative.” In this case, the Commissioner determined that the remote sellers met the definition of dealer under Virginia statutes. However, the Commissioner determined that the fulfillment centers did not act as independent contractors or agents of the remote sellers, and thus did not establish nexus for the remote sellers under Virginia law. Additionally, the Commissioner noted that nothing in Virginia law provides that maintaining an inventory for resale in Virginia establishes sales and use tax nexus. As a result, the Commissioner concluded that the remote sellers were not required to register to collect Virginia sales and use tax. For more information regarding Tax Comm’r Ruling 15-194 (Oct. 16, 2015), please contact Sarika Bakshi at 703-286-8467.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.