Dissecting the Virginia Retail Sales and Use Tax Nexus Ruling
- Sales Tax
- November 17, 2015 | Ryan O'Donnell
The Virginia Tax Commissioner recently published a clarification of the Virginia nexus requirement and the requirements to register for the collection and remittance of retail sales and use tax. Since that ruling, there has been lots of chatter around whether online sellers (in particular, Amazon FBA sellers) no longer are required to collect sales tax in Virginia. However, it's important for the health of small business owners to not spread misinformation. Amazon FBA sellers, in fact, are not mentioned anywhere in the ruling from the Virginia Tax Commissioner.
While we understand the angst and frustration that can come with managing sales tax in any state, it's risky to leap to the conclusion that one does not have to collect sales tax within the state of Virginia. Remember, for online sellers, there is really only one opportunity to collect sales tax - at the point of sale. If an Amazon seller decides to turn off tax collection in Virginia only to discover later that they were still responsible for collection, the sales tax may end up coming out of their own pocket. Not a discovery any small business owner wants to make.
Analyzing the Ruling
Andrew Johnson of sales and use tax experts, Peisner Johnson & Company, offered his opinion on the subject. In short, he advises sellers to tread lightly in this arena. Johnson points out three key observations:
- Contrary to what others have said, Amazon FBA is not mentioned anywhere in the ruling even though FBA was called out specifically in the letter to the Virginia Tax Commissioner.
- The language around inventory control (increasing or decreasing inventory) may not match the level of control an FBA seller has over their stored inventory.
- There is a question as to what extent Amazon acts as an agent for the FBA seller.
In conclusion, Johnson states,
"The big question is whether Amazon FBA sellers meet ALL the conditions set out in the ruling. My guess is, if those facts were in the ruling, that VA would have probably said that the FBA seller has nexus in VA. I could be wrong of course, but I don't think I could say at this moment in time, that this new ruling overrides or supersedes VA's earlier ruling which does specifically mention Amazon sellers in it and concludes that Amazon sellers have nexus in VA."
In other words, stay the course until more information is published that includes these detailed facts. The worst thing that can happen is to stop collecting and then have the state say that your fact pattern is different from the facts in the letter ruling and you now owe years of back taxes plus penalty and interest. We believe the best way to protect you and our other clients is by being conservative.