Nestled in the heart of the East Coast, Virginia, also known as the Old Dominion, stands as a unique hub where history, culture, and business intersect. Understanding the particular rules and regulations of sales and use tax in Virginia is key to navigating its intricate business landscape.
This guide breaks down everything you need to know about Old Dominion State’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle Virginia’s sales tax with confidence and ease.
Sales Tax Nexus in Virginia
When a business creates either a physical or economic nexus, it is required to collect sales tax in Virginia.Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require the collection and payment of sales tax. The factors that determine a physical nexus in Virginia include:- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- Affiliate Nexus: You could trigger a physical nexus if you have affiliates, whether they operate online or in-person, who maintains a distribution center, warehouse, fulfillment center, office, or similar location in Virginia that facilitates the delivery of tangible personal property to its customers.
- Advertising in newspapers or other periodicals printed and published in Virginia: This includes billboards, posters, or other materials distributed by any means other than U.S. mail.
- Made more than 12 deliveries of merchandise in a year in Virginia, not by a common carrier.
- Ownership of real or personal property in Virginia, including leased property.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as economic nexus. Beginning July 1, 2019, the threshold for economic nexus in Virginia is $100,000 in gross revenue or 200 transactions in the previous or current calendar year’s sales or prior 12 months. While the nexus criteria mentioned above generally apply to most businesses, additional methods exist for establishing sales tax nexus. To access a comprehensive list of these rules, please refer to the governing laws for economic sales tax nexus requirements in Virginia.
Virginia Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you’re offering are taxable in Virginia.Tangible Products
Almost all goods are taxable in Virginia, including:- Cosmetics
- Electronics
- Clothing
- Furniture
- Jewelry
- Automobiles
- Home Goods
- Groceries – Food for home consumption is taxed at the reduced tax rate of 1% in Virginia, except for items such as alcoholic beverages, tobacco, prepared hot foods packaged for immediate consumption on or off premises, and seeds and plants used to grow food.
- Personal Hygiene Products – Taxed at a reduced sales tax rate of 1%. This includes feminine hygiene products(i.e.sanitary napkins, tampons, menstrual sponges and cups, pantyliners) and nondurable incontinence products (i.e. diapers, disposable undergarments, bed sheets, mattress pads).
- Prescription and Nonprescription Medications
- School Lunches
- Textbooks
- Durable Medical Equipment
- Artificial or propane gas, firewood, cola, or home heating oil used for domestic consumption
- Agricultural supplies: Commercial feeds, seeds, livestock, agricultural chemicals, and farm machinery are exempt.
- Industrial Materials for Production
Services
In Virginia, the majority of service-based transactions, such as professional services, clothing alterations, and repair services, are not subject to sales tax. However, there are specific situations where certain services are taxable. If a business offers services that include creating or manufacturing a tangible personal product, it is seen as a retail sale and, therefore, is subject to sales tax.Software-As-A-Service (SaaS)/Digital Products
SaaS is not taxable in the state of Virginia. Digital products (i.e., ebooks, downloadable video content, mobile apps) are also not taxable.Shipping/Handling
Shipping charges in the state of Virginia are not taxable. However, the handling charge is taxable as it’s not specifically excluded from the definition of “sales price.”Sales Tax Permits and Licenses in Virginia
Now that you’ve got a handle on when sales tax nexus applies and which products are taxable in Virginia, the next important step is getting your Virginia Seller’s Permit, also known as a sales tax permit.Seller’s Permit
You can register for a Virginia sales tax permit online at the Virginia Department of Taxation’s website or mail or fax the Business Registration Application (Form R-1). Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale, or the expected date to start dates)
Resale Certificate
A resale certificate is a document that allows businesses to buy products without paying sales tax on them as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale. In Virginia, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items. You can fill out Form ST-10 – Commonwealth of Virginia Sales and Use Tax Certificate of Exemption after you receive your sales tax permit. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.Streamlined Sales Tax (SST)
The Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. However, Virginia is not a party to this program, meaning it does not follow the uniform rules and definitions established by SST but has its own sales tax regulations. Check with the Virginia Department of Taxation for the most current information on Virginia’s participation in the Streamlined Sales Tax initiative.Calculating and Collecting Sales Tax in Virginia
Sales Tax Computation
In Virginia, sales tax isn’t just one simple rate; it’s a combination of state and local taxes. To figure out the total sales tax for your calculation, you’ll need to add up the rates for the state, county, and city (if applicable) where your transaction occurs. Use TaxHero’s Virginia Sales Tax Calculator to compute for sales tax. Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in Virginia and sells to a customer in Richmond, VA, with a ZIP code of 23237. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
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Origin-based vs. Destination-based
When making in-state sales, it is important to determine if you are located in an origin-based or destination-based state to figure out what rate to charge for sales tax. Virginia is an origin-based state, meaning sales tax is determined based on the seller’s location. That means for a Virginia-based seller, sales tax is generally based on the location of the seller when selling within the state. For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from New York to a customer in Richmond, Virginia, where you have nexus, you’d apply Richmond’s sales tax rate to that sale. To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.Filing and Remitting Sales Tax Returns in Virginia
The next step after collection is filing and remitting your Virginia sales tax returns. Filing and remittance can vary in frequency, typically monthly or quarterly. If you have low sales volume and sales tax liability, you can reach out to the Virginia Department of Taxation to request a quarterly filing. It’s crucial to keep accurate records of your sales and tax collections and adhere to the filing schedule set by the state to remain compliant with Virginia sales tax regulations.Due Dates
In Virginia, the due date falls on the 20th day of the following month. For instance, sales tax collected in January is due by February 20th for monthly filers. However, if this day is a holiday, weekend, or in the rare occurrence of a natural disaster, the deadline is typically extended to the next business day. For instance, if you’re a monthly filer and filing sales tax for the month of January, and the February 20th deadline falls on a holiday or weekend, you’ll have until February 21st, the following business day, to submit.Filing Sales Tax Returns
To file your sales tax return for Virginia, a few options are available:- File online through the Business Online Services Account.
- File through eforms provided by Virgina or web upload service.
- File by mail – Form ST-9 for in-state dealers based on the seller’s location, and Form ST-8 for out-of-state dealers based on the buyer’s location.
- File with TaxHero TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Timely Filing Discount
Some states offer a discount to businesses for collecting, filing, and remitting sales tax on time as an incentive to process sales taxes promptly. Virginia’s timely filing discount is in the form of a deduction, with the amount determined using specific formulas based on the sales tax due. The maximum discounts available range from 0.80% to 1.60%, depending on the total sales tax due.Sales Tax Holiday
Currently, for 2023-2024, the planned sales tax holidays in Virginia are on August 2-4, 2024:- School supplies, clothing, and footwear
- School supplies ($20 or less)
- Clothing and footwear ($100 or less)
- Products on hurricane and emergency preparedness
- Portable generators ($1,000 or less)
- Gas-powered chainsaws ($350 or less)
- Chainsaw accessories ($60 or less)
- Others ($60 or less)
- Energy Star and WaterSense products
- Qualified products ($2,500 or less)
Virginia Sales Tax Penalties
Like in most states, sales tax is a big part of how Virginia generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state. Here are the specific penalties for non-compliance with sales tax regulations in Virginia:- Civil penalties amounting to 6% of the total sales tax due;
- On the criminal side, offenses can be classified as misdemeanors, depending on the severity and specific circumstances.