Virginia Commissioner Rules That Out-of-State Company with Leased Property in Virginia Has Nexus

Wednesday, October 24th, 2012


The Virginia Tax Commissioner recently issued a ruling in which an out of state company was determined to have nexus with Virginia for purposes of collecting sales and use taxes. Va. Rul. of the Tax Commr. No. 12-158 (Oct. 5, 2012).

The company whose business was at issue sells and leases heavy equipment. It does not own facilities in Virginia and does not employ salespersons that solicit sales in Virginia. The company was audited by the Department of Taxation and assessed use tax on untaxed Virginia sales and rental transactions. At the time of the audit, the company was not registered to collect Virginia sales and use tax on its Virginia sales and rentals. The auditor originally determined that the company had nexus with Virginia because it had erroneously billed North Carolina tax on some Virginia sales and rental transactions. The company disputed the entire assessment arguing that it did not have sufficient nexus with the state of Virginia to require registration for the collection of sales and use taxes.

Virginia requires "dealers" that have sufficient contact with the Commonwealth to collect and remit sales and use tax, and in Virginia the term "dealers" includes businesses that lease "tangible personal property . . . permitting the use or possession of such property without transferring title thereto." Va. Code Ann. sec. 58.1-612 A, B 5. Furthermore, Virginia deems a dealer to have sufficient activity, or nexus, within the Commonwealth if the dealer "[o]wns tangible personal property that is rented or leased to a consumer in this Commonwealth, or offers tangible personal property, on approval, to consumers in this Commonwealth." Va. Code Ann. sec. 58.1-612 C 9.

The Tax Commissioner ruled that erroneously billing North Carolina tax on Virginia transactions was not sufficient to establish nexus. Yet, the Commissioner determined that presence of the company's equipment in Virginia (which came to Virginia in a lease transaction) was enough to establish nexus. To arrive at this conclusion, the Commissioner reasoned that the company activities--owning tangible personal property that it leases to customers in Virginia--established that it is a "dealer" with sufficient contact in Virginia. The Commissioner also relied on the Department's sales tax regulations, which state that any out of state company that leases or rents tangible personal property to Virginia customers is required to register as a dealer and to collect and pay sales and use tax on its gross proceeds. 32 Va. Admin. Code 10-210-840 A.

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