October 3, 2024
Re: Request for Ruling: Retail Sales & Use Tax
Dear *****:
This will reply to your letter on behalf of a Virginia based company (the “Dealer”), in which you request a ruling on the applicability of the interstate commerce exemption for the Virginia sales and use tax. We apologize for the delay in responding.
FACTS
The Dealer, a privately-owned manufacturer that has a Virginia-based facility and warehouses, makes sales of tangible personal property from these facilities to customers around the United States. The Dealer requests a ruling on the applicability of the interstate commerce exemption for sales tax in two scenarios.
RULING
Interstate Commerce Exemption Generally
Virginia Code § 58.1-603 imposes a tax “upon every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth . . . or who stores for use or consumption in this Commonwealth any item or article of tangible personal property.”
Virginia Code § 58.1-609.10 4 provides an exemption from the retail sales and use tax for the “[d]elivery of tangible personal property outside the Commonwealth for use or consumption outside of the Commonwealth.” Tangible personal property sold by a Virginia dealer outside of the Commonwealth for use or consumption outside of Virginia constitutes a sale in interstate commerce. Under Title 23 of the Virginia Administrative Code (VAC) 10210-780, a “sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made in Virginia.”
Subsection A of this regulation further provides four examples of transactions that constitute exempt sales in interstate or foreign commerce:
1. The sale of tangible personal property delivered to the purchaser outside of the state in the seller's vehicle;
2. The sale of tangible personal property delivered to the purchaser outside of the state by an independent trucker or contract carrier hired by the seller;
3. The sale of tangible personal property delivered by the seller to a common carrier or to the U.S. Post Office for delivery to the purchaser outside of the state;
4. The purchase of tangible personal property for resale and immediate transportation out of the state by a dealer properly registered in another state provided a valid certificate of exemption is secured by the Virginia seller.
In accordance with this regulation, all interstate transactions delivered by common carrier to a purchaser outside Virginia are sales in interstate commerce and exempt from the tax. The Department has also issued several determinations consistent with the regulation. See Public Document (P.D.) 93-86 (3/29/1993) and P.D. 11-6 (1/14/2011).
Contrarily, when a purchaser directs a Virginia dealer to ship retail merchandise to a third party outside of Virginia, the purchaser is considered to have taken constructive possession of the property in Virginia. Such sales do not qualify for the interstate commerce exemption because the initial transfer of possession to the retail property occurs in Virginia. See P.D. 87-51 (2/27/1987), P.D. 93-217 (11/2/1993), 96-63 (4/24/1996), 98-187 (11/10/1998), and 00-52 (4/14/2000).
Scenario 1
Are the Dealer’s sales of products whereby the customer pays a third-party common carrier to pick up tangible personal property at the Dealer’s Virginia warehouse subject to Virginia sales tax or subject to tax in the destination state, given the Dealer has not completed its contractual obligation in Virginia, title to the property is not transferred until the property is delivered to the customers location in another state, and no use of the property is made in the state?
In this scenario, the sale would not be subject to Virginia sales and use tax because the delivery is through a common carrier and the property is not used within the Commonwealth of Virginia. See 23 VAC 10-210-780 A 3. The Department is not able to answer whether another state’s sales and use tax would be applicable in this transaction.
Scenario 2
Are the Dealer’s sales of products whereby the customers pay a third-party common carrier to pick up tangible personal property at the Dealer’s Virginia warehouse subject to Virginia sales tax given title to the property is transferred in Virginia?
In this scenario, the sale would be subject to Virginia sales and use tax because the common carrier has taken possession of goods pursuant to a contract between the carrier and the purchaser. In addition, the title to the property is transferred to the purchaser at the Virginia location. See also P.D. 96-63, P.D. 98-187, and P.D. 05-99 (6/08/2005).
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 and regulation cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this ruling, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR4438.Z