Understanding Virginia Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Virginia.
In Virginia a license or privilege tax is imposed on persons engaged in selling at retail or distributing tangible personal property in the state. A tax is also imposed on persons engaged in renting or furnishing any taxable property or service.
The sales and use tax does not apply to the following services:
- professional services involving sales as inconsequential elements, services of repairmen for which a separate charge is made, and Internet-related services that do not involve an exchange of tangible personal property
- charges for labor or services rendered in installing or repairing property sold
- transportation charges
- charges for alterations to apparel, clothing, and garments
- charges for gift wrapping services performed by a nonprofit corporation
- labor or services rendered in connection with the modification of prewritten programs
- custom computer programs
- charges for lodgings or accommodations for more than 90 continuous days by any hotel, etc.
- one-half of the charge for a maintenance contract providing for both parts and labor
Leases. Leases are subject to sales and use tax at the same rate as if the item is sold. The sales tax is imposed on the gross proceeds from the lease or rental of tangible personal property.
Sales and use tax rate. The general Virginia sales and use tax rate is 4 percent. Currently, every city and county in Virginia imposes an additional 1 percent local sales and use tax, so the general combined sales and use tax rate is 5 percent.
The rate on food purchased for human consumption is taxed at a lower rate of 1.5 percent. The 1.0 percent local option applies to groceries, for a combined state and local rate of 2.5 percent.
Responsibility for paying sales tax
The responsibility for paying the sales tax is on the purchaser. Although the seller is legally obligated to collect the tax from the purchaser, the tax is a legal debt of the purchaser.
Absorbing sales tax is illegal. In Virginia it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Obtaining tax permits in Virginia
Every person who wants to engage in or conduct business as a dealer in Virginia must apply to the Tax Commissioner for a certificate of registration for each place of business in Virginia.
Many Items Are Tax Exempt
Virginia has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Virginia sales tax. You'll want to check and see if you are exempt from the sales tax.
An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Items Purchased for Resale Are Tax Exempt
Generally, a sale for resale is not considered a "retail sale" or a "sale at retail" and therefore is not subject to tax. The seller must obtain an exemption certificate from you, the purchaser, to be relieved of the duty to collect tax on a sale for resale.
Resale exemption certificate. Virginia Forms ST-10 through ST-20 are exemption certificates issued by the Virginia Tax Commissioner. The resale exemption certificates should include the following information:
- your signature
- your name and address
- the number of the certificate of registration, if any, issued to you, the purchaser
- a description of the tangible personal property
Blanket Resale Certificates Are Permitted
Certificate holders regularly engaged in making tax-exempt purchases may furnish a certificate to the seller specifying that all tangible personal property subsequently purchased will be for the purpose shown on the certificate. This blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase as long as there is no significant change in the operations. A blanket certificate describes the general nature of the property purchased for resale and remains in force until revoked in writing.
Physical Presence Triggers Sales Tax Liability
Out-of-state mail order catalog purchases totaling $100 or less during any calendar year are specifically exempt from use tax. Otherwise, Virginia has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within Virginia. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in Virginia? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Virginia for purposes of taking and transmitting orders from Virginia? If your employee or independent contractor goes into Virginia to take or transmit orders, your business may have physical presence in Virginia. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Virginia for purposes of delivering property? Frequent deliveries in Virginia by your trucks will give you physical presence in Virginia.
Virginia Permits Sales Tax "Bracket System"
The following bracket system may be followed by sellers in computing the gross receipts tax due upon a particular sale. This bracket system is the combined state and local sales tax table that is currently in effect. We have provided the combined table, because currently all local governments charge the additional 1 percent sales tax.
|0.00 to 0.11 ||no tax |
|0.12 to 0.33 ||0.01 |
|0.34 to 0.55 ||0.02 |
|0.56 to 0.77 ||0.03 |
|0.78 to 0.99 ||0.04 |
|1.00 to 1.22 ||0.05 |
Use Tax Is Imposed on Out of State Purchases
The use tax is imposed on the use, consumption, or storage of tangible personal property in the state or the storage of such property elsewhere for use in Virginia. A transaction taxed under the sales tax is not subject to the use tax. Also, out-of-state mail order catalog purchases totaling $100 or less during any calendar year are specifically exempt from use tax.
In Virginia a credit is allowed for sales or use tax paid in another state for tangible personal property used in Virginia. The amount of the credit may not exceed the amount of the Virginia tax.
Claiming Refund for Excess Tax Payments
As a seller you may request a refund for sales and use taxes erroneously or illegally collected by the Department of Taxation. It must be shown that you paid the tax and did not pass it on to the consumer or that you collected the tax and later refunded it to the consumer or purchaser. Requests for a refund must be made within three years from the due date of the return.