Does a home décor store that sells a small selection of packaged snacks have to collect Virginia's disposable plastic bag tax?

Plain-English summary

A retailer that primarily sells home décor, but also carries a small selection of packaged snack and candy items in its stores, had been charging customers Virginia's five-cent disposable plastic bag tax. Uncertain whether it was actually required to collect the tax, it asked the Department for a ruling, along with guidance on refunding customers if it turned out the tax didn't apply.

Virginia's plastic bag tax law lets a county or city impose the tax on bags provided by "retailers in grocery stores, convenience stores, or drugstores," but the tax statute itself doesn't define those terms. The Department borrows definitions from Virginia's alcoholic beverage control code: a "grocery store" sells food and other items intended for human consumption, including a variety of meal-preparation ingredients, while a "convenience grocery store" has an enclosed retail area and maintains an inventory of edible items similar to what a grocery store carries. Because this retailer's core business is home décor, and its food offerings, a limited selection of candy, snacks, and prepackaged items, are merely incidental to that business, the Department found it didn't meet either definition, and the store isn't itself housed inside a separate grocery or convenience store. As a result, the retailer wasn't required to collect the tax at all.

Since the retailer had been collecting the tax anyway, the Department explained how to unwind that: Virginia law requires a dealer that collects sales or similar tax on an exempt or non-taxable transaction to either refund it to the customer or remit it to the Department -- it can't simply keep the money. Following the Department's standard refund procedures, the retailer needs to actually refund its customers the erroneously collected amounts, then file amended returns claiming a deduction for the erroneous tax collected, which reduces its reported liability for the periods in question. Refund requests are limited to periods within three years of each original return's due date.

What this means for you

Retailers with a small food or snack section who aren't primarily grocery, convenience, or drug stores

Selling some packaged food items doesn't automatically make you a "grocery store" or "convenience store" for plastic bag tax purposes if food sales are merely incidental to a different primary business. Localities imposing the tax can only reach retailers that actually meet those specific definitions.

Businesses that discover they've been collecting a tax they weren't required to charge

You can't simply stop collecting and keep what you've already charged -- you generally must refund customers the erroneously collected amount directly, then file amended returns claiming a deduction for that refunded tax, within the applicable three-year window.

Multi-location retailers operating in localities that impose the plastic bag tax

Check whether your specific business actually falls within the grocery-store, convenience-store, or drugstore definitions borrowed from Virginia's alcoholic beverage control code before assuming the tax applies just because you're a retail store providing bags to customers.

Common questions

Q: What kinds of retailers have to collect Virginia's local disposable plastic bag tax?
A: Only retailers that qualify as a grocery store, convenience store, or drugstore under definitions borrowed from Virginia's alcoholic beverage control statutes -- retailers whose food sales are merely incidental to a different primary business generally don't qualify.

Q: If I've been collecting a tax I wasn't required to charge, what do I do?
A: You generally must refund the erroneously collected amount directly to your customers, then file amended returns with the Department claiming a deduction for the refunded tax, within three years of each original return's due date.

Q: Can a business just keep tax it collected by mistake if it turns out the tax didn't apply?
A: No -- Virginia law requires a dealer that collects tax on an exempt or non-taxable transaction to either refund the customer or remit the amount to the Department.

Citations and references

• Va. Code § 58.1-1745(A) (local disposable plastic bag tax; grocery stores, convenience stores, drugstores)
• Va. Code § 4.1-100 (definitions of "grocery store" and "convenience grocery store")
• Va. Code § 58.1-1748 (Tax Commissioner administers the plastic bag tax like the retail sales and use tax)
• Va. Code § 58.1-625(C) (dealer must refund or remit erroneously collected tax)
• Guidelines for the Virginia Disposable Plastic Bag Tax, P.D. 21-117 (9/1/2021)
• Department's Guidelines for Retail Sales and Use Tax Refund Claim Procedures (6/12/2017)

Subject

Miscellaneous Taxes: Disposable Plastic Bag Tax - Entities Subject to Tax Administration: Refunds - Requirements

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-163

Original ruling text

December 30, 2022

Re: Request for Ruling: Miscellaneous Taxes

Dear *

This is in response to your letter submitted on behalf of * (the “Taxpayer”) requesting a ruling on the application of the disposable plastic bag tax. I apologize for the delay in responding to your correspondence.

FACTS

The Taxpayer, a retailer of home décor with several locations in Virginia, sells a limited selection of packaged food in its stores. The Taxpayer states that it has been collecting tax from its customers for the provision of plastic bags, but questions whether it is required to collect the tax and requests a ruling on the collection of the disposable plastic bag tax. The Taxpayer also requests guidance regarding refunds to its customers if the Taxpayer is not required to collect the tax.

RULING

Tax Application

Virginia Code § 58.1-1745 A provides:

Any county or city may, by duly adopted ordinance, impose a tax in the amount of five cents ($0.05) for each disposable plastic bag provided, whether or not provided free of charge, to a consumer of tangible personal property by retailers in grocery stores, convenience stores, or drugstores.

Because the entities required to collect the tax are not defined in Article 12 of Chapter 17 of Title 58.1 of the Code of Virginia , the Department adopted the definitions of these establishments found in Virginia Code § 4.1-100 for the Guidelines for The Virginia Disposable Plastic Bag Tax, issued as Public Document (P.D.) 21-117 (9/1/2021). Pursuant to Virginia Code § 4.1-100, the term “Grocery store,” means “an establishment that sells food and other items intended for human consumption, including a variety of ingredients commonly used in the preparation of meals.” The statute also defines “convenience grocery store” to mean “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.”

The Taxpayer is primarily a retailer of home décor and the small selection of snack and other food items it sells is incidental. While the Taxpayer offers a small selection of candy, snack, and other prepackaged food items, the Taxpayer does not meet the definition of “grocery store” or “convenience store” for purposes of the application of the disposable plastic bag tax. In addition, the Taxpayer does not contain a grocery store or convenience store. Accordingly, in the Department’s opinion, the Taxpayer is not required to collect the tax on its provision of disposable plastic bags to customers.

Refunds

Virginia Code § 58.1-1748 provides, “The Tax Commissioner shall collect, administer, and enforce this tax in the same manner that he collects, administers, and enforces the retail sales and use tax under Chapter 6.” Under this chapter, Virginia Code § 58.1-625 C provides the following:

Any dealer collecting the sales or use tax on transactions exempt or not taxable under this chapter shall transmit to the Tax Commissioner such erroneously… collected tax unless or until it can affirmatively show that the tax has since been refunded to the purchaser or credited to its account.

Under the Department’s Guidelines for Retail Sales and Use Tax Refund Claim Procedures (6/12/2017), “Dealers must refund sales or use tax erroneously collected on transactions exempt or not subject to the tax directly to the customer when requested to do so by the customer, except in certain very limited situations.” The refund claim guidelines detail these exceptions and also provide:

Dealers are entitled to recover the amount of sales tax refunded or credited to a customer that was previously reported and remitted to Virginia Tax on their Retail Sales and Use Tax Return or their Out-of-State Dealer's Use Tax Return for the month in which the refund or credit is made. The dealer should report the item’s sales price on the exempt sales line on the applicable return. The dealer’s sales tax liability for the month is thus reduced by the sales tax amount refunded. Dealers are required to maintain supporting documentation regarding refunds and credits to customers along with the return worksheet in their records… In the event that a dealer cannot recover the amount of tax paid to Virginia Tax on their return for the month in which the error is recognized or in the next succeeding period, they may file an amended return with the agency seeking a refund.

For transactions on which the Taxpayer collected the disposable plastic bag tax, it could be eligible for a refund of erroneously collected tax, provided it can show that it has refunded its customers the erroneous amount of tax. The Taxpayer will need to file amended returns with the Department, and will take a deduction on the amended returns representing the erroneous amount of tax collected. Refunds can only be authorized for requests made within three years from the due date of the return.

This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections cited, along with other reference documents, are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions about this response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4122.G

Related Documents

21-117