My business provides furnished temporary office space, shared workspace, meeting rooms, a business mailing address, and live phone answering on a flexible (hourly to annual) basis -- is any of this subject to Virginia sales tax?

Plain-English summary

Coworking spaces, executive suites, and virtual-office providers occupy a gray zone between renting real estate (generally nontaxable) and selling taxable services bundled with equipment. This ruling gives a clean answer for a Virginia provider offering exactly that kind of flexible workspace and business-support package.

The taxpayer's business provides fully furnished temporary office space, shared workspace, meeting rooms, a business mailing address with mailbox service, and live phone answering, all bookable on an annual, monthly, daily, or even hourly basis. It asked the Department to rule on how Virginia's retail sales and use tax (Va. Code §§ 58.1-603, 58.1-604) applies to these offerings.

On the office space itself, the Department reached back to a 1989 ruling (P.D. 89-249) holding that renting complete office space isn't subject to sales tax because it's a rental of real estate, not tangible personal property. The taxpayer's own "Membership Service Agreement" technically created a revocable LICENSE rather than a lease -- but the Department treated that relationship as essentially equivalent to a lease or rental of real estate for sales tax purposes, so the same nontaxable treatment applied.

For the mailbox, phone-answering, and other add-on services, the Department applied Virginia's specific service exemptions (Va. Code § 58.1-609.5): personal service transactions where any tangible property involved is only an "inconsequential element" with no separate charge, and services (like internet access) that don't really involve an exchange of tangible personal property. Where a transaction mixes a taxable sale of property with an exempt service -- say, a mailbox key or shared office equipment alongside the mail-forwarding service itself -- Virginia applies the "true object" test (23 VAC 10-210-4040): is the customer really paying for the property, or for the service? Here, the Department found that even though some of the offerings (a mailbox, a telephone, a printer) technically involve tangible items, the TRUE OBJECT of every one of these transactions is the provision of an exempt service, not a sale of property. So none of it is taxable to the customer.

There's an important flip side, though: exempt SERVICE providers are still ordinary END-USERS of the furniture, equipment, and supplies they buy to run the business. The taxpayer has to pay Virginia sales tax when it purchases its own furnishings and equipment -- and if a vendor doesn't charge that tax at the time of purchase, the taxpayer owes use tax instead, reportable on a Business Consumer Use Tax Return (ST-7). The ruling is expressly limited to the facts presented; any change in how the business actually operates could change the analysis.

What this means for you

Coworking spaces, executive suites, virtual offices, and similar flexible workspace providers

Your charges to customers for furnished office space, shared workspace, meeting rooms, mailbox, and phone-answering services are generally NOT subject to Virginia sales tax -- these are treated as either a real-estate-like rental or exempt personal/communication services, even if your contract structures the relationship as a revocable license rather than a formal lease.

Any exempt-service business that also buys furniture, equipment, or supplies to operate

Don't assume being a tax-exempt service provider means you're exempt from tax on your own purchases. You're the end-user of everything you buy to run the business, so you owe Virginia sales tax at purchase (or use tax if it wasn't charged then) on furniture, phones, printers, and similar equipment.

Businesses relying on this ruling for a similar but not identical business model

This ruling is based on the specific facts presented (a particular mix of office space, mailbox, and phone services on flexible terms) -- a different mix of offerings, or charges that separately itemize tangible property, could change the analysis. Get your own ruling or advice if your facts differ.

Common questions

Q: Do I have to charge Virginia sales tax on furnished temporary office or coworking space rentals?
A: No -- the Department treats this as functionally equivalent to a rental of real estate, which isn't subject to sales tax, even if your agreement creates a revocable license rather than a formal lease.

Q: What about mailbox rental, business address, or live phone answering services?
A: These are generally exempt as personal services (or, for some, as services providing electronic communication access), even though they may involve some incidental tangible property like a mailbox or phone equipment -- the "true object" of the transaction is the service, not a sale of property.

Q: If my services are exempt, do I still owe sales tax on anything?
A: Yes -- you owe Virginia sales tax on your own purchases of furniture, equipment, and other tangible personal property used to run your business, since you're the end consumer of those items. If a vendor doesn't collect that tax at purchase, you owe use tax instead, reported on Form ST-7.

Q: Does this ruling cover any workspace or business-service company, regardless of exact offerings?
A: No -- it's based on the specific mix of services described (furnished space, shared workspace, meeting rooms, mailbox, phone answering) on flexible booking terms. A different combination of services or billing structure could lead to a different result.

Citations and references

• Va. Code § 58.1-603 (imposes Virginia retail sales tax on tangible personal property sales/rentals, transient accommodations, and specifically-taxable services)
• Va. Code § 58.1-604 (use tax on tangible personal property used/consumed/stored in Virginia without sales tax paid)
• P.D. 89-249 (9/19/1989) (rental of complete office space is a nontaxable rental of real estate)
• Va. Code § 58.1-609.5 (exempts personal service transactions with inconsequential tangible-property elements, and services providing internet/electronic communication access)
• 23 VAC 10-210-4040 (true object test for transactions mixing taxable property and exempt services)

Subject

Sales: Transient Accommodations - Temporary Office & Work Space

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-67

Original ruling text

April 5, 2022

Re: Request for Ruling: Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the “Taxpayer”), requesting a ruling on the application of Virginia’s retail sales and use tax. I apologize for the delay in responding to your request.

FACTS

The Taxpayer, a Virginia business entity, provides temporary office space, shared workspace, meeting rooms, business address and mailbox services, and live phone answering services. The Taxpayer’s facilities are fully furnished, and its associated services can be reserved on an annual, monthly, daily, or hourly basis. The Taxpayer requests a ruling on the applicability of Virginia’s retail sales and use to tax to its services.

RULING

Virginia Code § 58.1-603 imposes the retail sales tax on the proceeds from the sale, rental, or lease of tangible personal property in Virginia, accommodations furnished to transients, and on any services expressly stated as taxable by Chapter 6 of Title 58.1 of the Code of Virginia . Similarly, Virginia Code § 58.1-604 imposes a use tax on items of tangible personal property used, consumed, distributed, or stored in Virginia for which no retail sales tax has been paid.

The Taxpayer offers its customers a licensee interest in and use of office facilities. In P.D. 89-249 (9/19/1989), the Department determined that “the rental of complete office space is not subject to the tax as this is a rental of real estate .” Although the Taxpayer’s “Membership Service Agreement” indicates that it creates a revocable license rather than a lease or rental, the relationship is essentially similar to a lease or rental of real estate for Virginia sales and use tax purposes.

Virginia Code § 58.1-609.5 specifically exempts the application of Virginia’s retail sales and use to tax to certain services transactions including,

Professional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate chares are made;… and services not involving an exchange of tangible personal property which provide access to the Internet and any other related electronic communication service, including software, data, content and other information services delivered electronically via the Internet.

Transactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt of the full amount charged based upon the “true object” test, as described in Title 23 of the Virginia Administrative Code (VAC) 10-210-4040. While some of the Taxpayer’s services may involve the provision of tangible personal property, such as a mailbox, telephone, printer, etc., in the Department’s opinion, the true object of all these transactions described would be the provision of exempt services.

As a provider of services, the Taxpayer would be required to pay the Virginia retail sales tax on the purchase of all furnishings, equipment and other tangible personal property used to conduct its trade or business in Virginia. If the proper Virginia sales tax is not charged at the time of purchase, then such items would be subject to the use tax and should be reported on a Business Consumer Use Tax Return (ST-7).

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

The Code of Virginia sections, regulation, and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's website. If you have any questions regarding this ruling, you may contact * in the Office of Tax Policy, Appeals and Rulings, at , or via email at **.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1739.C

Related Documents

85-198

89-249

06-145

06-139

15-196