Many states have updated their laws since the Supreme Court issued its South Dakota v. Wayfair decision in June 2018 to reflect an economic nexus standard for sales and use tax purposes. Virginia is no exception. In March 2019, Virginia passed SB 1083, which requires remote sellers and marketplace facilitators to register for the collection of the retail sales and use tax, even if their business has no physical presence in the state, if certain in-state sales thresholds are met. The Virginia Department of Taxation (TAX) issued guidelines in May to assist taxpayers with the changes. With the new law set to take effect on July 1, 2019, taxpayers should take action to understand the impact and learn how to navigate the new requirements. .
Under Virginia’s economic nexus law, both remote sellers and marketplace facilitators are required to collect sales tax in the following cases:
- More than $100,000 in gross revenue comes from retail sales in Virginia in the previous or current calendar year
- 200 or more separate retail sales transactions are made in Virginia in the previous or current calendar year.
Remote sellers are retailers that are not physically present in Virginia, but still make sales to Virginia-based consumers. Marketplace facilitators – the primary example being electronic or e-commerce marketplaces like Amazon – are essentially any dealer that engages in the sale of a third-party’s goods and participates either directly or indirectly in the collection of payment. Similar to other states’ remote seller and marketplace facilitator laws, Virginia’s provision targets both the collection of sales tax on in-state sales made by remote sellers, as well as sales that are facilitated by online marketplaces. However, many online retail sales are made on websites like Amazon that directly sell their own products and facilitate sales by third-parties. Further, those third parties often have their own websites through which the seller makes direct sales. In the context of states’ new economic nexus sales tax laws, these varying sales avenues add complexities to the sales and use tax collection obligations of a remote seller and the marketplaces that facilitate the sale of products from third parties.
The guidance issued by TAX helps clarify some of the complexities. The first, and arguably most important issue, is determining if a remote seller or marketplace facilitator has triggered one for the nexus thresholds referenced above. For a remote seller, the guidelines provide that only direct sales to Virginia customers are taken into account in determining if the remote seller is required register to collect Virginia sales tax. For example, a retailer that had gross receipts in 2018 of $130,000 from sales to Virginia customers, with $50,000 of those sales made through a marketplace facilitator’s website, will not be considered a remote seller, and thus, will not be required to register to collect Virginia sales tax. Marketplace facilitators that also sell their own products are required to aggregate both facilitated and direct sales to determine if their business has exceeded either the $100,000 or 200 transactions threshold.
In terms of collecting tax, if a nexus threshold is exceeded, both marketplace facilitators and remote sellers have a duty to register to collect Virginia sales tax on in-state sales. However, a remote seller is only required to collect sales tax on sales made directly to Virginia customers. The guidance issued by TAX provides that a remote seller is prohibited from collecting tax on Virginia sales made by a marketplace facilitator that is registered to collect Virginia sales tax. Although the guidelines do not address the issue, presumably a remote seller registered to collect tax is required to collect the tax on sales made through a marketplace facilitator that is not required to collect Virginia sales tax. Marketplace facilitators that make direct retail sales are also required to collect sales tax on both facilitated and direct sales transactions. Further, for audit purposes, marketplace facilitators are required to maintain separate records for their facilitated and direct sales transactions.
Retailers and marketplace facilitators currently not registered for sales tax collection in Virginia must track their in-state sales and be able to act quickly to register if an economic nexus threshold is exceeded. A business only has 30 days from the day it establishes economic nexus within Virginia to register for sales tax collection.
Finally, in an attempt to simplify sales tax collection, Virginia has adopted a few measures to reduce the compliance burden on sellers. The Virginia online lookup tool will be updated to provide the locality of transactions, thereby aiding in the determination of the applicable sales and use tax rate. Additionally, Virginia will not require more than one sales tax return per month from remote seller. TAX has vowed to provide rate change notices at least 30 days before the effective date of the rate change.
If you have questions about the impact of Virginia’s new sales and use tax laws on your business, please contact Michael L. Colavito, Jr. or one of our tax advisors at 301.231.6200.