Did a Maryland piano seller have to collect Virginia tax merely because a separate Virginia store used the same name?

Subject

Maryland piano seller lacked sufficient Virginia activity

Plain-English summary

Virginia abated the assessment because the Maryland piano seller did not meet the then-applicable sufficient-activity tests requiring it to collect Virginia sales tax. Sharing a store name with a Virginia business did not make the two companies the same entity.

The audit had assumed affiliation and movement of sales between the Maryland and Virginia stores. Virginia found no evidence of common ownership, affiliation, or a single legal entity. Although the Maryland seller was a “dealer” in the broad statutory sense, none of the listed Virginia-activity criteria was established for the audit period.

The ruling warned that future activities meeting those criteria would require registration and collection. The historical nexus standard applied here predates major changes in remote-seller law.

What this means for you

• A similar trade name alone did not establish common legal identity or attribution of activity.
• Entity ownership and operational evidence mattered to the nexus analysis.
• The assessment was limited to the seller's actual audit-period activity.
• Do not use this 2009-2011 result as current remote-seller guidance without checking later law.

Citations and references

• Va. Code §§ 58.1-612 A-C, 58.1-603, and 58.1-604.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-165

Original ruling text

September 9, 2014

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period September 2009 through September 2011. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer's principal business activity during the audit period was the sale of pianos. The Taxpayer's business is located in Maryland. The Taxpayer was assessed tax in the audit on pianos sold to Virginia customers without the Virginia retail sales and use tax being charged. The assessment was made based on the assumption that the Taxpayer's store was affiliated with a Virginia store of the same name, and that sales were moved between the two stores.

Prior to the audit, the Taxpayer was not registered for the Virginia retail sales and use tax. The Taxpayer maintains it is not affiliated with the Virginia store, and it is a separate legal entity from the Virginia company. The Taxpayer denies findings made in the audit that it and the Virginia company moved sales from the Virginia company to the Maryland company. The Taxpayer raises a number of issues and requests clarification regarding the application of the tax to the sales at issue.

DETERMINATION

Application of the Tax

Virginia Code § 58.1-612 A states, "The tax levied by §§ 58.1-603 and 58.1-604 shall be collectible from all persons who are dealers, as hereinafter defined, and who have sufficient contact with the Commonwealth to qualify under subsections B and C hereof."

Virginia Code § 58.1-612 B 2 provides that the term dealer includes "every person who imports or causes to be imported into this Commonwealth tangible personal property from any state or foreign country, for sale at retail, for use, consumption, or distribution, or for storage to be used or consumed in this Commonwealth, tangible personal property...."

Virginia Code § 58.1-612 C provides the criteria under which a dealer is "deemed to have sufficient activity within the Commonwealth to require registration under § 58.1­613."

Based upon the information presented, the Taxpayer is considered a dealer pursuant to Va. Code § 58.1-612 B. However, none of the criteria in Va. Code § 58.1­612 C have been met that would lead to a finding that the Taxpayer had sufficient activity with the Commonwealth during the audit period that would have required the Taxpayer to be registered for the collection and remittance of the Virginia retail sales and use tax. As such, the Taxpayer would not have been required to charge and collect the Virginia sales tax on the transactions at issue during the audit period. Accordingly, the tax assessed with respect to the pianos sold to Virginia customers during the audit period is abated in full.

Store Affiliation

Based on the available information, I see no evidence to find that during the audit period the Taxpayer and the Virginia company were affiliated entities, owned and operated by like owners. There is likewise no evidence that suggests that during the audit period the Taxpayer and the Virginia company were the same legal entity.

Going Forward

A copy of Va. Code § 58.1-612 is enclosed. The Taxpayer should refer to this statute, as well as other statutes and regulations that relate to the Virginia retail sales and use tax, when determining how the Virginia tax should be applied to sales made to Virginia customers. Should the Taxpayer's activities result in sufficient activity with the Commonwealth, as defined in Va. Code § 58.1-612 C, the Taxpayer must charge and collect the Virginia sales tax from its Virginia customers. Should the Taxpayer have questions regarding the correct application of the tax, the Taxpayer may call the Department for information. The Taxpayer may also file a formal ruling request with the Department.

CONCLUSION

Based upon this determination, the assessment with respect to the pianos sold to Virginia customers is abated in full. The Code of Virginia section cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5043517989.P