Virginia sales tax guide

All you need to know about sales tax in Old Dominion

Learn more about sales tax

Introducing our Sales Tax Technology 101 series. The first installment covers the basics of sales tax technology: what it is and how it can help your business.
 

Read Chapter 1

Sales tax 101

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Virginia first adopted a general state sales tax in 1966, and since that time, the rate has risen to 4.3 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0 percent and 2.7 percent. Currently, combined sales tax rates in Virginia range from 4.3 percent to 7 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the commonwealth of Virginia by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Virginia is administered by the Virginia Department of Taxation (Virginia Tax). 

Any sales tax collected from customers belongs to the commonwealth of Virginia, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

When you need to collect Virginia sales tax

In Virginia, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto collector.

To help you determine whether you need to collect sales tax in Virginia, start by answering these three questions:

  1. Do you have nexus in Virginia?
  2. Are you selling taxable goods or services to Virginia residents?
  3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

Failure to collect Virginia sales tax

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.


Sales tax nexus

The need to collect sales tax in Virginia is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Nexus triggers

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in Virginia, it’s now possible for out-of-state sellers to have sales tax nexus with Virginia.

Out-of-state sellers

Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:

Affiliate nexus: Having ties to businesses or affiliates in Virginia. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer.

Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after July 1, 2019, a remote seller must register with the state then collect and remit Virginia sales tax if the remote seller meets either of the following criteria (the economic thresholds):

  • More than $100,000 in gross revenue from retail sales in Virginia in the current or previous calendar year; or
  • 200 or more separate retail sales in Virginia in the current or previous calendar year

Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Virginia in a warehouse owned or operated by Amazon.

Marketplace sales: Making sales through a marketplace. Effective July 1, 2019, marketplace facilitators are responsible for collecting and remitting sales tax on behalf of marketplace sellers in Virginia. 

If you have sales tax nexus in Virginia, you’re required to register with Virginia Tax and to charge, collect, and remit the appropriate tax to the state.

For additional information, see § 58.1–612; Retail sales and use tax FAQs; Virginia to tax out-of-state and marketplace sales; and SB 1083.

Trailing nexus

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of April 2019, Virginia does not have an explicitly defined trailing nexus policy.

Fulfillment by Amazon (FBA)

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. Avalara TrustFile includes an FBA inventory report to help demystify FBA shipping and storage patterns. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Virginia.

If you sell taxable goods to Virginia residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

Sourcing sales tax in Virginia: which rate to collect

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

Virginia is an origin-based state. This means you’re responsible for applying the sales tax rate determined by the ship-from address on all taxable sales. 

 For additional information, see 23VAC10-210-2070. Situs of Sale.


Getting registered

After determining you have sales tax nexus in Virginia, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Virginia business license and sales tax registration.

How to register for a Virginia seller's permit

You can register for a Virginia seller’s permit, or sales tax certificate, online through Virginia Tax. To apply, you’ll need to provide Virginia Tax with certain information about your business, including but not limited to:

  • Business name, address, and contact information
  • Federal EIN number
  • Date business activities began or will begin
  • Projected monthly sales
  • Projected monthly taxable sales
  • Products to be sold

Cost of registering for a Virginia seller's permit

There is currently no cost to register for a sales tax certificate in Virginia.

Acquiring a registered business

You must register with the Virginia Department of Taxation if you acquire an existing business in Virginia. The state requires all registered businesses to have the current business owner’s name and contact information on file.

Streamlined Sales Tax (SST)

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

As of April 2019, Virginia is not an SST member state.


Collecting sales tax

Once you've successfully registered to collect Virginia sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with Virginia Tax, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect Virginia sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Virginia sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

Virginia sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Tax-exempt goods

Some goods are exempt from sales tax under Virginia law. Examples include prescription drugs and purchases made with some government credit cards.

We recommend businesses review the laws and rules put forth by Virginia Tax to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Tax-exempt customers

Some customers are exempt from paying sales tax under Virginia law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Misplacing a sales tax exemption/resale certificate

Virginia sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, Virginia Tax may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year. 

As of April 2019, Virginia has an annual tax holiday scheduled for August 2–4, 2019. State and local taxes will not be assessed on:

  • Clothing and footwear priced $100 or less per item
  • Energy Star and WaterSense products priced $2,500 or less
  • Portable generators priced $1,000 or less
  • Gas-powered chain saws priced $350 or less
  • Chainsaw accessories priced $60 or less per item
  • Specified hurricane and emergency preparedness supplies priced $60 or less per item
  • School supplies priced $20 or less per item

Filing and remittance

You're registered with the Virginia Department of Taxation and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the commonwealth of Virginia, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

How to file

Once you’ve collected sales tax, you’re required to remit it to Virginia Tax by a certain date. Virginia Tax will then distribute it appropriately.

Filing a Virginia sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to Virginia Tax. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

Online filing is required in Virginia. If electronic filing causes your business an undue hardship, you can submit an Electronic Filing Waiver Request. All waivers must be renewed annually.

Filing frequency

Virginia Tax will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

Virginia sales tax returns and payments must be remitted at the same time; both have the same due date.

Online filing

You may file directly with Virginia Tax by visiting their site and entering your transaction data manually. This is a free service, but preparing Virginia sales tax returns can be time-consuming — especially for larger sellers.

Using a third party to file returns

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Virginia sales tax code.

Avalara TrustFile provides a quick and easy way to prepare and efile sales tax returns. Users can sign up and use the service to prepare returns for free for a limited time.

Filing when there are no sales

Once you have a Virginia seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

Closing a business

Virginia Tax requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Timely filing discount

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount. 

As of April 2019, Virginia Tax offers a discount for businesses with a sales tax liability of less than $20,000. The discount applies only to state taxes, not on local or regional taxes.

  • 1.116 percent (1.6 percent for food) if monthly taxable sales are less than $62,500
  • 0.837 percent (1.2 percent for food) if monthly taxable sales are $62,501 to $208,000
  • 0.558 percent (0.8 percent for food) if monthly taxable sales equal or exceed $208,001

For more information, see section eight of worksheet ST-9 of the Virginia retail sales and use tax return.


Filing due dates

It's important to know the due dates associated with the filing frequency assigned to your business by the Virginia Department of Taxation. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

Virginia Tax requires all sales tax filing to be completed by the 20th day of the following month for both monthly and quarterly filing. Below, we've grouped Virginia sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

Virginia 2019 monthly filing due dates

Reporting period Filing deadline
January February 20, 2019
February March 20, 2019
March April 22, 2019
April May 20, 2019
May June 20, 2019
June July 22, 2019
July  August 20, 2019
August September 20, 2019
September October 21, 2019
October November 20, 2019
November December 20, 2019
December January 21, 2020

Virginia 2019 quarterly filing due dates

Reporting period Filing deadline
Q1 (January 1–March 31) April 22, 2019
Q2 (April 1–June 30) July 22, 2019
Q3 (July 1–September 30) October 21, 2019
Q4 (October 1–December 31) January 21, 2020

Late filing

Filing a Virginia sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event a Virginia sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), Virginia Tax may grant you an extension. However, you may be asked to provide evidence supporting your claim.


Penalties and interest

Hopefully you don't need to worry about this section because you're filing and remitting Virginia sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact Virginia Tax and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Virginia sales and use tax liability.


Shipping and handling

If you’re collecting sales tax from Virginia residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Taxable and exempt shipping charges

Virginia sales and use tax generally applies to shipping charges that are combined with handling or other fees as a single charge. However, separately stated shipping charges, including postage, generally are exempt from sales and use tax.

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Virginia and sales tax should be taken directly to a tax professional familiar with Virginia tax laws.

For additional information, see Retail Sales and Use Tax FAQs and Title 23 of the Virginia Administrative Code 10-210-6000.