Sorting out sales tax in Bristol TN /VA – Wacky Tax Wednesday

If you were to walk down the middle of State Street in Bristol, you could have one foot in Tennessee and another in Virginia. The state line goes right through the twin towns of Bristol TN/VA. Although they share a hospital, library, and name, the two Bristols are independent cities with separate city councils, zoning ordinances, and school systems. There’s a NASCAR speedway in Bristol TN, while the Birthplace of Country Music Museum is situated in Bristol VA.

Is one better than the other? Some might think so, but the executive director of the (shared) Chamber of Commerce says, “To most people, the state line does not exist.” There’s a mostly friendly rivalry between the two high schools (Virginia High School and Tennessee High School, since you couldn’t name either one Bristol High). An annual music festival held on State Street is shared by both Bristols, with stages set up on both sides of the state line. Football fans are everywhere, and if some support Virginia Tech and some Tennessee, they can watch games together at the State Line Bar and Grill (located on the Tennessee side of the street).

One thing the two Bristols do not have in common is taxes. Virginia has a state income tax; Tennessee doesn’t (although it does tax interest and dividends). Real estate taxes are higher on the Tennessee side (approximately $2.71 per $100 of assessed value compared to $1.01 per the same in VA Bristol). There are no utilities taxes in Bristol TN but a 5 percent tax is levied on each monthly telephone and water bill in Bristol VA. And then there’s sales tax.

Bristol, Tennessee sales tax

Bristol TN has the higher sales and use tax rate. It’s comprised of the state rate of 7 percent and the Sullivan County rate of 2.25 percent, for a total rate of 9.25 percent.

Bristol, Virginia sales tax

The sales and use tax rate in Bristol VA is significantly lower. With a state sales tax rate of 4.3 percent and a city sales and use tax of 1 percent, the total rate of tax for Bristol VA is 5.3 percent.

A difference of 3.95 percent may not seem like much on a $10 purchase (a total of $10.93 versus $10.50), but it becomes noticeable on big-ticket items — and it can add up over time.

Other sales tax differences

But there are deeper differences than rate between Bristol TN sales and use tax and Bristol VA sales and use tax. For example:

Digital goods. Certain digital products, such as electronic books and music, are taxable in Tennessee. Digital products that are delivered electronically, such as electronic books and music, are exempt from Virginia sales tax.

Food. Sales of food and food ingredients are subject to a 5 percent sales tax in Tennessee (Gov. Bill Haslam would like to cut the sales tax on groceries to 4.5 percent). Food purchased for home consumption is taxed at a reduced rate of 2.5 percent in Virginia. Warning: the states may not define “food” in the same way.

Online sales tax. Tennessee has both affiliate nexus and economic nexus provisions. As of July 1, 2015, out-of-state dealers that derive more than $10,000 from in-state referrals in a 12-month period have affiliate nexus. And new this year, out-of-state dealers “who engage in the regular or systematic solicitation” of Tennessee consumers and make more than $500,000 in sales in a 12-month period “also have substantial nexus with this state.” Affected sellers must start collecting tax on items delivered to consumers in Tennessee on July 1, 2017.

Virginia also has an affiliate nexus provision that requires certain out-of-state dealers to register and collect Virginia retail sales and use tax for sales made into Virginia, but it’s different from Tennessee’s. For example, there is no minimum earning requirement from in-state referrals.

Sales tax holidays. Both Virginia and Tennessee offer sales tax holidays, which benefit residents of both Bristols. During the Tennessee sales tax holiday, held the last weekend of July, qualifying clothing, school supplies and computers are exempt. The Virginia tax-free weekend is held about a week later, during the first weekend in August. It’s three holidays rolled into one, so qualifying school supplies, clothing and footwear, hurricane and emergency preparedness supplies, and certain energy efficient appliances are all exempt from sales and use tax.

Services. Services linked to the transfer of tangible personal property (TPP) are subject to tax in Virginia; however, tax doesn’t apply to separately stated labor charges for applying, installing, repairing, or renovating TPP. In Tennessee, tax applies to amusement and recreation services (i.e., memberships fees to sports clubs and admissions to theatrical performances) and personal services (e.g., bathing and grooming animals), as well as services linked to the transfer of tangible personal property (e.g., warranty or service contracts).

Vending machine sales tax. All vending machine sales are part of the sales tax base in Tennessee. “Sales of both food and non-food items are taxed at a flat rate of 2.25% local tax on all sales regardless of the local tax rate levied by the local jurisdiction.” State sales tax also applies. Virginia also imposes a vending machine sales tax on “dealers who place vending machines for the sale of tangible personal property,” but not on “non-vending machine dealers such as service station operators who use vending machines at their businesses to sell merchandise.” The latter are subject to retail sales tax provisions. The vending machine sales tax is “computed on the cost price (or manufactured cost) of tangible personal property sold through the vending machines,” and is subject to the normal Bristol rate of 5.3 percent.

Crossing State Street in Bristol TN/VA has real sales and use tax implications. It matters which side of the street you set up shop. And that’s pretty wacky.

See the Tennessee Sales and Use Tax Guide and the Virginia Department of Taxation for additional details about Bristol TN/VA sales and use tax.

Learn more about Avalara’s tax automation software, which simplifies sales and use tax compliance in all locations — even the twin towns of Bristol.

photo credit: SeeMidTN.com (aka Brent) Things for sale: Post Card: Bristol's Historic Sign via photopin (license)