A company with no physical presence in Virginia is not required to register as a dealer or collect sales tax on sales for resale to its subsidiary. The company is a business that owns a subsidiary that operates as a retailer with sales to customers located in many states. The subsidiary is registered for sales and use tax collection in Virginia. The company and subsidiary are contemplating entering into a transaction with a third-party vendor located in Virginia. The company has no operations or physical presence in Virginia. The company and subsidiary neither directly nor through an agent or subsidiary maintain an office, warehouse, or place of business in Virginia. The company does not solicit business within Virginia nor does it advertise or make deliveries into Virginia. The holding of temporary title to goods as part of the proposed transactions would be the company’s only activity in Virginia.
The company seeks clarification as to whether periodically engaging in the following transactions would constitute sufficient activity to require it to register for the collection of Virginia sales tax:
-The company enters into a contract to purchase equipment from the third-party vendor, which the company intends to sell to the subsidiary.
-Customers will enter into agreements to purchase equipment from the subsidiary. Upon receipt of an order, the subsidiary will issue a purchase order for the equipment to the company.
-The company will subsequently issue a purchase order to the vendor. The vendor will sell the equipment to the company and the company will immediately resell the equipment to the subsidiary. The subsidiary will then immediately resell the equipment to the customer who placed the initial order.
-The vendor will ship the equipment directly to the customer via common carrier. Title will transfer to the company at the vendor’s location momentarily until title is transferred to the subsidiary prior to shipment to the customer. The company’s title ownership will be instant in duration.
-The subsidiary will collect sales tax from the customer depending on the location of the customer, including Virginia sales tax as applicable.
In these transactions, the company would be operating as a vendor selling tangible personal property to the subsidiary specifically for resale. Thus, the company would not qualify as a “dealer” because a dealer is identified as someone that “sells at retail.” The definition of “retail sale” specifically excludes sales for resale. While the company does not qualify as a dealer for the proposed transactions with the subsidiary, if the company takes momentary title to tangible personal property that is sold at retail, then the company would have to register as a dealer. Therefore, the company would not have to register as a dealer within Virginia and collect Virginia sales tax so long as the company is selling tangible personal property for resale and not for retail purposes. The company may document this exemption by making a written request to the Department of Taxation for a wholesaler exemption letter.
Ruling of Commissioner, P.D. 18-1, Virginia Department of Taxation, January 3, 2018, ¶206-419