Sales and Use Taxes in Virginia

April 13, 2006

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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.

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. 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

The rate on food purchased for human consumption is taxed at a lower rate of 2 percent. This rate will be reduced to 1.5 percent on July 1, 2007.

Tax-exempt items. 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.

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.

Use tax. 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.

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.

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.

The following discussions address additional sales and use tax issues that many small business owners face: