My county just adopted the Virginia Disposable Plastic Bag Tax -- what do I have to charge, on which bags, and how do I remit it?

Plain-English summary

These are the Department of Taxation's guidelines on Virginia's Disposable Plastic Bag Tax, a LOCAL-OPTION tax authorized by 2020 legislation (House Bill 534 and Senate Bill 11). Any Virginia county or city can choose to adopt this tax by ordinance; if it does, the Department of Taxation administers, audits, and collects it -- similarly to how the state administers local-option sales tax.

What's taxed. A locality that adopts the tax charges 5 cents per disposable plastic bag provided to a customer at a grocery store, convenience store, or drugstore located in that locality -- whether the store sells the bag or gives it away free. The tax is triggered by IN-STORE, to-go, delivery, AND curbside pickup purchases, and it's based on where the STORE is physically located, not where the customer lives (so a customer picking up curbside in a taxing locality owes the tax even if they live somewhere that hasn't adopted it, and a delivery FROM a non-taxing locality owes no tax even if the customer lives in a taxing one).

What's exempt. Several bag types are carved out even in a taxing locality: durable, reusable bags with handles that are at least 4 mils thick; bags used solely to wrap raw meat, fish, poultry, produce, or bulk/perishable food to prevent contamination; bags for dry cleaning or prescription drugs; and pre-packaged multi-bag rolls sold for garbage, pet waste, or leaf removal.

Rates and dealer discount. The tax itself stays a flat 5 cents per taxable bag, but the portion a dealer gets to KEEP as compensation for compliance costs steps down over time: 2 cents per bag from the tax's 2021 start through the end of 2022, then 1 cent per bag from 2023 onward (so the amount actually remitted to the Department correspondingly rises from 3 cents to 4 cents per bag).

Filing. Covered dealers must file a monthly return reporting the number of taxable bags and tax due, by the 20th of the month following the reporting period.

Where the money goes. Locality revenue from the tax must be spent on environmental cleanup, waste-reduction education programs, litter/pollution mitigation, or providing reusable bags to SNAP or WIC recipients.

Interaction with BPOL. Bag tax amounts a dealer collects from customers and remits to the state are excluded from the dealer's gross receipts for local Business, Professional, and Occupational License (BPOL) tax purposes -- the same treatment given to sales tax collected and remitted.

What this means for you

Grocery stores, convenience stores, and drugstores

Check whether your specific store location is in a locality that has adopted the tax (the Department maintains a running list on its website) -- if so, you must charge 5 cents per taxable bag across every sales channel (in-store, to-go, delivery, curbside), keep the step-down dealer discount in mind when computing what you actually remit, and file monthly returns by the 20th of the following month.

Larger retailers with a grocery, convenience, or drug component

If your store contains any of the three covered business types, you're subject to the tax on ALL taxable bags you provide, regardless of what specific item was purchased -- merely selling a limited selection of snacks and beverages, however, doesn't by itself make you a "convenience store."

Businesses tracking bookkeeping/BPOL implications

Remember that bag tax you collect and remit is excluded from your BPOL gross receipts, the same way sales tax collected and remitted is excluded -- don't inadvertently inflate your BPOL receipts base by including pass-through bag tax collections.

Customers and multi-locality delivery/pickup situations

The tax follows the STORE's location, not the customer's home address -- a delivery from a store in a non-taxing locality is tax-free even to a customer who lives in a taxing locality, while curbside pickup from a store in a TAXING locality is taxed even for a customer who lives somewhere that hasn't adopted the tax.

Common questions

Q: Is the Disposable Plastic Bag Tax automatic everywhere in Virginia?
A: No. It's a local-option tax -- only counties and cities that adopt it by ordinance (effective no earlier than January 1, 2021) impose it, though the Department of Taxation administers it once a locality adopts it.

Q: Which plastic bags are exempt from the tax even in a locality that has adopted it?
A: Durable reusable bags at least 4 mils thick with handles; bags solely used to wrap raw meat, fish, poultry, produce, or bulk/perishable food; dry-cleaning or prescription-drug bags; and pre-packaged garbage, pet-waste, or leaf-removal bag rolls.

Q: How much of the 5-cent tax does a dealer get to keep as a discount?
A: 2 cents per bag from the tax's 2021 start through the end of 2022, then 1 cent per bag beginning in 2023 -- meaning the amount actually remitted rises from 3 cents to 4 cents per bag over that same period.

Q: Does bag tax I collect and remit count toward my BPOL gross receipts?
A: No. Like sales tax collected and remitted, disposable plastic bag tax collected from customers and remitted to the Commonwealth is excluded from a dealer's gross receipts for BPOL tax purposes.

Subject

Guidelines for the Virginia Disposable Plastic Bag Tax

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-117

Original ruling text

GUIDELINES FOR THE VIRGINIA DISPOSABLE PLASTIC BAG TAX

September 1, 2021

Legislation enacted during the Regular Session of the 2020 General Assembly (House Bill 534 (2020 Acts of Assembly , Chapter 1022) and Senate Bill 11 (2020 Acts of Assembly , Chapter 1023)) authorizes any county or city to adopt by ordinance the Virginia Disposable Plastic Bag Tax on disposable plastic bags provided to customers in grocery stores, convenience stores, and drugstores in the locality. The tax will be administered by the Virginia Department of Taxation (“the Department”). A locality must provide a certified copy of the ordinance to the Tax Commissioner at least three months prior to the date the tax is to become effective.

These guidelines are not rules or regulations subject to the provisions of the Administrative Process Act ( Va. Code § 2.2-4000, et seq .) and are being published in accordance with the requirement that the Tax Commissioner publish these guidelines pursuant to Va. Code § 58.1-1748, as well as the Tax Commissioner’s general authority to supervise the administration of the tax laws of the Commonwealth pursuant to Va. Code § 58.1-202. As necessary, additional information will be published and posted on the Department’s website, www.tax.virginia.gov .

These guidelines represent the Department’s interpretation of the relevant laws. They do not constitute formal rulemaking and hence do not have the force and effect of law or regulation. In the event that the final determination of any court holds that any provision of these guidelines is contrary to law, taxpayers who follow these guidelines will be treated as relying on erroneous written advice for purposes of waiving penalty and interest under Va. Code §§ 58.1-105, 58.1-1835, and 58.1-1845. To the extent there is a question regarding the application of these guidelines, taxpayers are encouraged to write to the Department and seek a written response to their question.

Virginia Disposable Plastic Bag Tax

Any county or city may impose the Virginia Disposable Plastic Bag Tax in the amount of five cents ($0.05) on each disposable plastic bag provided to purchasers by any grocery store, convenience store, or drugstore in the locality. The tax is due regardless of whether the retailer sells the bag to the customer or it is provided free of charge.

Taxable Items

A disposable plastic bag subject to the tax includes any plastic bag provided by a grocery store, convenience store, or drugstore to a customer at the point of purchase to transport items purchased and not intended for reuse. Dealers should not collect the tax on the following items:

Durable plastic bags, with handles, that are specifically designed and manufactured for multiple reuse and that are at least four mils thick;

Plastic bags that are solely used to wrap, contain, or package ice cream, meat, fish, poultry, produce, unwrapped bulk food items, or perishable food items in order to avoid damage or contamination;

Plastic bags used to carry dry cleaning or prescription drugs; or

Multiple plastic bags sold in packages and intended for use as garbage, pet waste, or leaf removal bags.

As the tax is imposed on each disposable plastic bag provided to a customer rather than the items purchased by the customer, refunds of the Disposable Plastic Bag Tax should not be allowed in situations where the customer returns the items purchased or the bag to the dealer.

Collection of the Tax

Any grocery store, convenience store, or drugstore located in a county or city that has adopted the Disposable Plastic Bag Tax is required to collect the tax from customers who make in-store purchases, to-go purchases, delivery purchases, and curbside pick-up purchases from its establishments in such locality. Grocery stores, convenience stores, and drugstores that are not located in a county or city that imposes the tax are not subject to the tax. The store collecting the tax may provide signage advising customers of the Disposable Plastic Bag Tax.

For purposes of the tax:

“Grocery store” means an establishment that has an enclosed room in a permanent structure and that sells food and other items intended for human consumption, including a variety of ingredients commonly used in the preparation of meals. This definition does not include food banks, farmers markets, or mobile food units.

“Drugstore” means an establishment that sells medicines prepared by a licensed pharmacist pursuant to a prescription and other medicines and items for home and general use.

“Convenience store” means an establishment that (i) has an enclosed room in a permanent structure where stock is displayed and offered for sale and (ii) maintains an inventory of edible items intended for human consumption consisting of a variety of such items of the types normally sold in grocery stores.

(See Va. Code § 4.1-100)

Larger retailers that contain a grocery store, a convenience store, or a drug store are subject to the tax. Such retailers shall collect the tax on all taxable plastic bags provided, regardless of the items sold. However, no store will be considered a convenience store solely because it offers a limited selection of snacks and beverages for sale at the point of sale.

In order to be subject to the tax in a locality, a grocery store, convenience store, or drug store must maintain regular business hours at a fixed place of business in the locality.

Dealer Discount

To compensate dealers for the cost of collecting, accounting for, and remitting the tax, dealers are permitted to keep a portion of the tax collected. Dealers must account for the discount in the form of a deduction when submitting their tax return and paying the amount due in a timely manner. The amount of the discount will decrease over time as follows:

Beginning January 1, 2021, and ending January 1, 2023, dealers are allowed to retain two cents ($0.02) from the tax collected on each disposable plastic bag

Beginning January 1, 2023, dealers are allowed to retain one cent ($0.01) from the tax collected on each disposable plastic bag

Administration of the Tax

The Department will administer the tax similarly to the Retail Sales and Use Tax. As with the local option Retail Sales and Use Tax, the Department of Taxation will be solely responsible for administering the tax, including auditing and collecting of the tax.

Returns

Any dealer with a grocery store, convenience store, or drugstore located in a county or city that imposes the Disposable Plastic Bag Tax shall report the number of disposable plastic bags and amount of tax for each locality to the Virginia Department of Taxation.

The return must be filed and the tax paid by the dealer to the Virginia Department of Taxation on or before the 20th day of each month for the period ending the previous month.

Examples

Example 1

A customer purchases food and other grocery items in a grocery store located in a county that imposes the Disposable Plastic Bag Tax. At checkout, the customer is provided five plastic bags to carry the items. None of the plastic bags provided are in the non-taxable categories. The dealer is required to charge the customer $0.25 (5 x $.05) in tax. The dealer is required to report this amount and remit $0.25 to the Department of Taxation, less the applicable dealer discount.

Example 2

The facts are the same as Example 1, except the customer purchases a pre-packaged box of plastic garbage bags and several produce items that the customer has placed in bags provided by the retailer in its produce section. The customer is provided 5 bags when checking out to carry the groceries. The tax would remain $0.25 (5 x $.05), as the prepackaged box of garbage bags and the bags used for the produce items are exempt from the tax. The dealer is required to report and remit the tax in the same way as in Example 1. The dealer is not required to report the exempt plastic bags.

Example 3

A convenience store that also sells gasoline and is located in a city that imposes the Disposable Plastic Bag Tax provides disposable plastic bags at check-out, free of charge, to its customers to carry groceries out of the store. These bags are subject to the tax.

Example 4

A customer who resides in a county that imposes the Disposable Plastic Bag Tax orders groceries to be delivered from a grocery store to the customer’s home address. The groceries are delivered in disposable plastic bags. The grocery store from which the groceries are ordered is located in a city that does not impose the Disposable Plastic Bag Tax. No plastic bag tax is due on this transaction.

Example 5

A customer who resides in a city that does not impose the Disposable Plastic Bag Tax orders groceries for curbside pick-up from a grocery store in a locality that does impose a plastic bag tax. This transaction would be subject to the plastic bag tax for the locality where the store is physically located.

Example 6

A convenience store retailer located in a county that imposes the Disposable Plastic Bag Tax files a return with the Department on June 20, 2022. The retailer reports 200 taxable disposable plastic bags provided to customers in the month of May. The total tax collected should be $10.00 (200 x $.05 = $10.00) for the month. The retailer should report this amount on the return and remit $6.00 (200 x $.03 = $6.00) with the return and keep $4.00 (200 x $.02 = $4.00) as a dealer discount.

Example 7

The same retailer reports 200 taxable plastic bags provided to customers on its return due June 20, 2023. The tax on the 200 bags would be $10.00 (200 x $.05 = $10.00), the same as above. The tax remitted would be $8.00 (200 x $.04). The discount would be $2.00 (200 x $.01 = $2.00).

Adoption of the Tax

In order for the Disposable Plastic Bag Tax to be imposed in any county or city, the tax must be adopted by an ordinance enacted by its governing body. Each local ordinance imposing the tax must provide for the tax to become effective on the first day of a calendar quarter and the effective date must not be before January 1, 2021.

The county or city must provide a certified copy of the ordinance to the Tax Commissioner at least three months prior to the date the tax is to become effective. The ordinance must be certified by the clerk of the city council or board of supervisors and sent to the Tax Commissioner at the address below:

Virginia Department of Taxation

Attention: Disposable Plastic Bag Tax

P.O. Box 27185

Richmond, VA 23261-7185

Revenues

All revenues accruing to a county or city from the Disposable Plastic Bag Tax must be appropriated by the locality for the purposes of environmental cleanup, providing education programs designed to reduce environmental waste, mitigating pollution and litter, or providing reusable bags to recipients of Supplemental Nutrition Assistance Program (SNAP) or Women, Infants, and Children Program (WIC) benefits.

Business License Tax

For purposes of the local Business, Professional, and Occupational License (“BPOL”) Tax, any Disposable Plastic Bag Tax collected from customers and remitted to the Commonwealth shall be excluded from the dealer’s gross receipts in the same manner as with the Retail Sales and Use Tax.

Additional Information

These guidelines are available online under the Guidance Documents section of the Department’s website at http://tax.virginia.gov/guidance-documents . The Department will issue additional guidance regarding this law change if necessary. Information regarding which localities have imposed a plastic bag tax will be available on the Department’s website at https://www.tax.virginia.gov/disposable-plastic-bag-tax . This information will be updated as additional localities enact ordinances imposing the tax. For additional information, please visit the Department’s website at www.tax.virginia.gov or contact the Department at (804) 367-8037.

Approved:

Craig M. Burns

Tax Commissioner