Edited to add: While this was post true at the time of publication, Virginia has since passed a law stating that storing inventory for sale in a warehouse, including as a 3rd party seller, to create sales tax nexus. You can read the Virginia sales tax nexus update here.
At TaxJar we’re all about making your life as a small business owner simpler by helping you with your sales tax compliance. Today, we get to do that simply by bringing you some excellent breaking news!
Virginia has posted a letter ruling that storing goods in a fulfillment center does not create sales tax nexus.
Ostensibly what this means is that, as of now, the Virginia Department of Taxation’s public stance is that sellers who store inventory in a fulfillment center in Virginia, but don’t have any other type of “nexus” in Virginia, do not need to register for a Virginia sales tax permit or charge sales tax to Virginia customers.
As a company devoted to making the sales tax lives of online sellers easier, we wanted to be the first to bring you the news and help you figure out what to do if you no longer have sales tax nexus in Virginia.
In this post we’ll look carefully at what this new letter ruling seems to signify for FBA sellers or other sellers who store inventory in Virginia.
New Virginia Sales Tax Nexus Ruling
In a letter ruling dated 10/16/2015 Virginia’s Tax Commissioner Craig M. Burns stated that, based on the facts presented to him about the FBA seller, that no, that seller is not required to register for a sales tax permit and charge sales tax to Virginia buyers.
In fact, several months ago, one of our vetted accounting partners, George Sleeman of Tax Man to You, requested this letter ruling from the Virginia Tax Commission on whether or not Virginia law requires out-of-state tax payers whose only nexus in Virginia is storing goods in a fulfillment center, to charge use tax (i.e. the same concept as sales tax but as an out of state seller).
You can read the full 3 page letter below and the exact letter ruling on the Virginia Department of Taxation website:
The most relevant part here is:
“Based on the information provided, the Sellers clearly qualify as dealers for purposes of the Virginia retail sales and use tax. However, the Sellers maintain no offices, employees, business locations, or warehouses located in Virginia. The only presence the Sellers have in Virginia is the storage of resale inventory in Fulfillment Centers located in Virginia. What needs to be determined is whether the Sellers have sufficient activity within the Commonwealth to require registration as a dealer for the collection and remittance of the Virginia retail sales and use tax.
Virginia Code § 58.1-612 C sets forth activities within the Commonwealth that would require a dealer to register for the collection of the retail sales and use tax. Subsection 2 of Va. Code § 58.1-612 C provides that a dealer shall have sufficient activity in Virginia to require registration if such dealer “solicits business in this Commonwealth by employees, independent contractors, agents or other representative.” Based on the information provided, the Sellers solicit sales in Virginia through on-line transactions between the Sellers and the Virginia customers. The Fulfillment Centers do not act as independent contractors of the Sellers and have not established an agency relationship with the Sellers. In addition, there is no statutory requirement under Va. Code § 58.1-612 C that provides that maintaining a resale inventory in Virginia would establish nexus.
Based on all of the above, I find that the Sellers do not have sufficient activity within the Commonwealth that would require them to register for the collection and remittance of the Virginia retail sales and use tax regarding on-line sales made to Virginia customers.“
Just to underscore how complex sales tax is, the above official letter directly contradicts another 2014 communication from the Virginia Department of Taxation (which was not an official letter ruling) from just last year that declared that seller’s who use fulfillment centers in Virginia do need to charge sales/use tax:
Long story short: This letter ruling seems to be saying that people who use fulfillment centers but have no other nexus in Virginia are off the hook for collecting sales tax from Virginia buyers! While this letter ruling does not specifically mention fulfillment by Amazon, the “facts” as outlined in the ruling match with the FBA experience.
What This Ruling Means for FBA Sellers
According to the above letter, Virginia does not consider storing items in a fulfillment center to create sales tax nexus. If you sold on FBA and were registered to collect sales tax from buyers in Virginia, but storing goods in the Amazon fulfillment centers there was the only reason you had nexus in the state, then you may not have sales tax nexus in Virginia. If that’s the case, you may want to contact the Virginia Department of Revenue and cancel your account. More about that in our “How to Stop Collecting Sales Tax in Virginia” blog post.
Virginia and Your TaxJar Account
Virginia is still a state with an Amazon fulfillment center, even though the state has ruled that fulfillment center no longer creates nexus. Our next step is to make sure our customers are informed about this big change and to help you navigate your sales tax without any confusion.
First, note that you should not stop collecting sales tax in Virginia until you have successfully determined you do not have sales tax in Virginia and successfully canceled your Virginia sales or use tax permit. You may be required to file one last sales tax return, too.
Then read this post for more about “How to Stop Collecting Sales Tax in Virginia.”
The Future of Fulfillment Centers and Nexus?
Currently one other state, New York, has ruled that using a fulfillment service does not create nexus for sellers. Will other states follow suit? That’s anyone’s guess.
In our experience, states have generally been more aggressive about collecting revenue from out-of-state sellers, not less. So Virginia’s move to make sales tax less complicated was very welcome. That said, who knows if other authorities in Virginia may go back and re-interpret the law as most other states do and state that FBA sellers do have nexus. Be cautious and contact your CPA or a sales tax expert if you have any questions at all about your sales tax nexus in Virginia.
We will continue to stay on top of sales tax news and keep you updated about nexus issues that affect online sellers. Until then, please let us know if you have any questions or comments about this new development in Virginia.