Rulings of the Tax Commissioner

March 30, 2022

Re: Request for Ruling: Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of ***** (the “Company”) requesting a ruling on whether nexus requirements are met through the use of banner advertisements or the relationship with the Company’s parent company. I apologize for the delay in responding to your correspondence.

FACTS

The Company, a remote seller of shoes, clothing, and accessories via the internet, does not have employees or representatives that travel within the Commonwealth, nor does the Company own or lease property in the Commonwealth. The Company uses online advertisements to promote sales, which may be viewed by Virginia residents. The Company states this is the only method of solicitation employed within the Commonwealth, but notes that it is owned by a wholesale company that sells similar goods in the Commonwealth, which may have nexus. The Company requests a ruling as to whether digital advertisements, like banner ads on websites, constitute solicitation by an agent or employee and create nexus and whether it has nexus if its parent company created nexus in the Commonwealth. 

RULING

Dealer Nexus

Under Virginia Code § 58.1-612, the sales tax is collectible from all persons who are dealers and have sufficient activity in Virginia to require registration under Virginia Code § 58.1-613. Virginia Code § 58.1-612 defines the term “dealer” and provides those activities within Virginia by a dealer that would require the collection and remittance of the Virginia sales tax. Virginia Code § 58.1-612 B 3 provides that the term dealer shall include every person who, “sells at retail, or who offers for sale at retail, or has in his possession for sale at retail, of for use, consumption, or distribution, or for storage to be used or consumed in this Commonwealth, tangible personal property.”  Based on the information provided, the Company qualifies as a “dealer” as it is selling tangible personal property for use and consumption in Virginia.
 
Virginia Code § 58.1-612 C sets forth the “nexus” requirements under which the Department can require a dealer to register for the collection and remittance of the sales tax. The ways in which the Taxpayer may have created nexus are as follows:

A dealer shall be deemed to have sufficient activity within the Commonwealth to require registration under § 58.1-613 if it:

1. Maintains or has within this Commonwealth, directly or through an agent or subsidiary, an office, warehouse, or place of business of any nature;
2. Solicits business in this Commonwealth by employees, independent contractors, agents or other representatives;
3. Advertises in newspapers or other periodicals printed and published within this Commonwealth, on billboards or posters located in this Commonwealth, or through materials distributed in this Commonwealth by means other than the United States mail;
4. Makes regular deliveries of tangible personal property within this Commonwealth by means other than common carrier. A person shall be deemed to be making regular deliveries hereunder if vehicles other than those operated by a common carrier enter this Commonwealth more than 12 times during a calendar year to deliver goods sold by him;
5. Solicits business in this Commonwealth on a continuous, regular, seasonal, or systematic basis by means of advertising that is broadcast or relayed from a transmitter within this Commonwealth or distributed from a location within this Commonwealth;
6. Solicits business in this Commonwealth by mail, if the solicitations are continuous, regular, seasonal, or systematic and if the dealer benefits from any banking, financing, debt collection, or marketing activities occurring in this Commonwealth or benefits from the location in this Commonwealth of authorized installation, servicing, or repair facilities;
7. Is owned or controlled by the same interests which own or control a business located within this Commonwealth;
8. Has a franchisee or licensee operating under the same trade name in this Commonwealth if the franchisee or licensee is required to obtain a certificate of registration under § 58.1-613;
9. Owns tangible personal property that is for sale located in this Commonwealth, or that is rented or leased to a consumer in this Commonwealth, or offers tangible personal property, on approval, to consumers in this Commonwealth;
10. Receives more than $100,000 in gross revenue, or other minimum amount as may be required by federal law, from retail sales in the Commonwealth in the previous or current calendar year, provided that in determining the amount of a dealer's gross revenues, the sales made by all commonly controlled persons as defined in subsection D shall be aggregated; or
11. Engages in 200 or more separate retail sales transactions, or other minimum amount as may be required by federal law, in the Commonwealth in the previous or current calendar year, provided that in determining the total number of a dealer's retail sales transactions, the sales made by all commonly controlled persons as defined in subsection D shall be aggregated.

Banner Advertisements

Banner advertisements are image-based digital advertisements embedded on a webpage intended to attract traffic to the website or product of the advertiser. This form of advertising generally entails the advertiser pay a host website a fee in one of three ways: cost per impression, cost per click, or cost per action. The advertisements are then placed on the host website and visitors to the host’s website are shown the advertisement. This form of advertising does not meet the requirements for nexus as set out in Virginia Code § 58.1-612 C and a dealer engaging solely in such activity in Virginia would not be required to collect and remit sales and use tax.

Parent Company

Pursuant to Virginia Code § 58.1-612 C 7, a dealer may have nexus in the Commonwealth if it is owned or controlled by the same interests which own or control a business located within Virginia. The Company mentions that the parent company may have nexus in the Commonwealth, but argues this does not create nexus for the Company even if true. 

The request does not provide the specific details of the parent’s activities in Virginia or facts concerning the nature of relationship or intercompany transactions between the Company and the parent. With the limited facts available, the Department is unable to definitively rule on whether the relationship between the Company and its parent company created nexus in this instance. 

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 cited are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions about this ruling, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****. 

Sincerely,

Craig M. Burns
Tax Commissioner

AR/2050.C