My online store uses banner ads that Virginia residents might see, and my parent company may have Virginia nexus through its own wholesale business -- does either of those things give MY company Virginia sales tax nexus?

Plain-English summary

This ruling gives online sellers a clear, favorable answer on one common nexus question (banner advertising) while illustrating the limits of a ruling request on another (nexus through a related company) when the facts aren't spelled out.

The company, a remote seller of shoes, clothing, and accessories with no Virginia employees, representatives, offices, or property, uses online banner advertisements as its only form of solicitation reaching Virginia. It's owned by a wholesale parent company that sells similar goods and may itself have Virginia nexus. The company asked the Department two things: does digital banner advertising alone create nexus, and does the parent's potential nexus flow down to the subsidiary?

Virginia's "dealer" definition (Va. Code § 58.1-612 B 3) is broad -- any seller of tangible personal property for use or consumption in Virginia qualifies -- but a dealer only has to actually REGISTER and collect tax if it meets one of the specific nexus-creating activities listed in Va. Code § 58.1-612 C. That list includes things like maintaining a physical presence, soliciting business through employees or agents, advertising in Virginia print media or on billboards, making regular deliveries by non-common-carrier vehicles, broadcasting solicitations from within Virginia, being commonly owned or controlled with a business located in Virginia, and (reflecting the post-Wayfair economic nexus rules) exceeding $100,000 in Virginia gross revenue or 200 separate transactions in a year.

On banner ads specifically, the Department explained how they work -- an advertiser pays a host website (per impression, click, or completed action) to display an image-based ad that Virginia visitors to the HOST's site might see -- and concluded this doesn't match ANY of the listed nexus-creating activities. A company engaging solely in banner advertising, with nothing else connecting it to Virginia, isn't required to register or collect Virginia sales tax on that basis alone.

On the parent-company question, the law does allow nexus to be found where a business is owned or controlled by the same interests that own or control a business located in Virginia (§ 58.1-612 C 7). But a ruling request only works with the facts actually provided, and here the company didn't describe the parent's specific Virginia activities, the nature of the corporate relationship, or any intercompany transactions between the two. Without those details, the Department said it couldn't definitively rule on whether the parent's presence created nexus for the subsidiary -- leaving that question open rather than resolving it either way. The ruling is expressly limited to the facts given, and different or additional facts could change the result.

What this means for you

Remote/online sellers whose only Virginia-facing activity is digital banner advertising

That alone doesn't create Virginia sales tax nexus. Banner ads (paid per impression, click, or action, displayed on third-party host sites) don't fall within any of Virginia's statutory nexus-creating activities.

Subsidiaries of a company that has its own separate nexus or physical presence in Virginia

Don't assume you're automatically safe just because your own direct activities (like banner ads) don't create nexus. Virginia law can attribute nexus to a related entity based on common ownership or control -- if you want a definitive answer on this point, you need to describe your parent's or affiliate's Virginia activities and your intercompany relationship in detail when requesting a ruling.

Any business economic-nexus-testing itself against Virginia's post-Wayfair thresholds

Even with no physical presence or advertising activity in Virginia, exceeding $100,000 in Virginia gross revenue or 200 separate Virginia transactions in the current or prior calendar year can independently create a registration obligation -- and sales by commonly controlled entities are aggregated when testing those thresholds.

Common questions

Q: Does running online banner ads that Virginia residents might see create Virginia sales tax nexus for my business?
A: No -- the Department confirmed that banner advertising (image-based ads placed on third-party host websites, paid per impression, click, or action) doesn't meet any of Virginia's statutory nexus-creating activities.

Q: My parent or affiliate company has Virginia nexus -- does that automatically create nexus for my company too?
A: Not automatically, but it's possible -- Virginia law allows nexus to be found through common ownership or control. Whether it actually applies depends heavily on the specific facts of the relationship and intercompany activity, which the Department needs described in detail to rule definitively.

Q: What Virginia sales thresholds can create nexus even without any physical presence or advertising?
A: Under Virginia's economic nexus rules, exceeding $100,000 in gross revenue from Virginia retail sales, or engaging in 200 or more separate Virginia retail transactions, in the current or preceding calendar year creates nexus -- and sales by all commonly controlled entities are aggregated for this test.

Citations and references

• Va. Code § 58.1-612 (defines "dealer" and the activities within Virginia that require sales tax collection and remittance)
• Va. Code § 58.1-612 B 3 (dealer includes any person selling tangible personal property for use, consumption, or distribution in Virginia)
• Va. Code § 58.1-612 C (lists the specific activities that create sufficient nexus to require registration under § 58.1-613, including physical presence, solicitation by representatives, Virginia print/billboard advertising, regular non-common-carrier deliveries, in-state broadcast solicitation, common ownership/control with a Virginia business, franchisee/licensee relationships, in-state property, and the $100,000 revenue / 200-transaction economic nexus thresholds)

Subject

Nexus : Activities - Online (Banner) Advertising, Related Entity Activity

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-55

Original ruling text

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:

Maintains or has within this Commonwealth, directly or through an agent or subsidiary, an office, warehouse, or place of business of any nature;

Solicits business in this Commonwealth by employees, independent contractors, agents or other representatives;

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;

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;

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;

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;

Is owned or controlled by the same interests which own or control a business located within this Commonwealth;

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;

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;

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

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