Company’s Sales for Resale to Subsidiary Don’t Require Registration and Collection of Virginia Sales Tax

A company with no operations or physical presence in Virginia is not required to register or collect sales tax on sales for resale it makes to a subsidiary. The subsidiary is a retailer of industrial machinery that makes sales to customers located in numerous states. The subsidiary is registered for sales and use tax collection in Virginia. The company and subsidiary do not directly or through an agent or subsidiary maintain an office, warehouse, or place of business in Virginia. The company does not solicit business in Virginia and it does not advertise or make deliveries into Virginia. The holding of temporary title to goods would be the company’s only activity within Virginia. The company sought guidance on whether the following transactions would constitute sufficient activity to require the company to register to collect Virginia sales tax:

  • The company plans to enter into a contract to purchase equipment from a third-party vendor, which the company would sell to its subsidiary.
  • S. customers will enter into agreements to purchase equipment from the subsidiary. Upon receipt of an order, the subsidiary will issue a purchase order to the company.
  • The company will then issue a purchase order to the third-party vendor. The vendor will sell the equipment to the company, who will then immediately resell the equipment to its subsidiary. The subsidiary will immediately resell the equipment to the customer who placed the order.
  • The third-party vendor will ship the equipment directly to the subsidiary’s customer via common carrier. Title will transfer to the company at the third-party vendor’s location momentarily until title is transferred to subsidiary prior to shipment to the customer. The company’s title ownership will be instant in duration.
  • Subsidiary will collect sales tax from U.S. customer depending on location of the customer, including Virginia sales tax as applicable.

In the above transactions, the company would be considered a vendor making sales for resale to its subsidiary. The company would not qualify as a “dealer” because a dealer is identified as someone that “sells at retail.” Virginia’s definition of “retail sale” specifically excludes sales for resale. While the company would not qualify as a dealer for the above transactions, if the company takes momentary title to tangible personal property sold at retail, then the company would create nexus. Although the momentary title could qualify as de minimus, regular and recurring transactions as well as the value of the property exceed a de minimus threshold. Therefore, the company is considered a dealer. However, as long as the company is making sales for resale and not for retail purposes, it would not have to register to collect and remit Virginia sales tax. The company can document this exemption by making a written request to the Virginia Department of Taxation for a wholesaler exemption letter. (Ruling of Commissioner, P.D. 18-1, Virginia Department of Taxation, January 3, 2018)

Posted on March 14, 2018