CCH Tax Day Report
The Virginia Tax Commissioner has issued a bulletin to provide guidance regarding previously enacted legislation that requires any dealer owning inventory for sale located in Virginia to register for collection of the retail sales and use tax, effective June 1, 2017 (Ch. 51 (H.B. 2058) and Ch. 808 (S.B. 962). (TAXDAY, 2017/02/23, S. 20; TAXDAY, 2017/04/10, S. 20) Specifically, the legislation provides that the ownership by a dealer of tangible personal property for sale located in Virginia is deemed to be sufficient activity within Virginia to require the dealer to register for the collection of the retail sales and use tax, effective June 1, 2017. Previously, Virginia law did not specifically enumerate that the ownership of inventory in Virginia was an activity that constitutes sufficient contact with Virginia to give rise to the obligation for a dealer with no other connection to Virginia to register with the Department of Taxation as a retail sales and use tax dealer. Thus, some dealers who stored inventory in Virginia facilities owned by third parties were not required to collect the tax because ownership of tangible personal property for sale located in Virginia was not one of the factors triggering the obligation to register. However, effective June 1, 2017, the new law provides that the ownership of inventory stored at a Virginia warehouse or fulfillment center will give rise to an out-of-state dealer’s obligation to register and to collect retail sales and use tax on its sales to Virginia customers.
The duty to register is not mitigated by the fact that the out-of-state dealer has no offices, real property, affiliates, subsidiaries, agents, or other physical presence within Virginia. The presence of the dealer’s inventory in the form of tangible personal property within Virginia is sufficient to require the dealer to register for the collection of the tax on the dealer’s sales to Virginia consumers. The result is the same regardless of whether or not the specific item of tangible personal property received by the Virginia consumer was stored inside Virginia before the sale. The duty to register is also unaffected by whether the dealer uses a third-party fulfillment service to store the inventory and/or to provide order processing.
Dealer requirement unchanged: As a threshold matter, an entity must qualify as a dealer under Virginia law in order for the storage of inventory to give rise to the obligation to register and to collect retail sales and use Tax. The other criteria for determining dealer status is unaffected by the law change described in this bulletin. Out-of-state entities, with no other connection to Virginia, that are also not making sales to Virginia consumers, are not required to register and collect retail sales and use tax. Consequently, tangible personal property that is passing through Virginia or that is stored in Virginia and that is owned by an out-of-state entity that is not making sales in Virginia does not require the out-of-state entity to register and to collect Virginia retail sales and use tax.
Tax Bulletin 17-3, Virginia Department of Taxation, May 3, 2017, ¶206-329