Virginia State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Virginia, with full citations and the original source on every page.
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I think a circuit court improperly assessed fines and costs against me for a traffic conviction -- can I appeal that to the Virginia Department of Taxation?
No -- the Department has no jurisdiction over court fines and costs, even though it sometimes collects them. A taxpayer convicted of a traffic infraction in circuit court tried to appeal the resulting…
Should a ready-mix concrete company's sales tax be sourced to the local jurisdiction where its plant/office takes the customer's order, or to the jobsite where the concrete is actually delivered and poured?
To where the order is taken, not to the jobsite. A ready-mix concrete producer sued the Virginia Department of Taxation, arguing its concrete sales should be sourced (for local sales tax purposes) to …
My corporation's unpaid withholding tax assessment was converted to me personally as a responsible officer years after the company stopped operating -- was that too late under the statute of limitations?
No -- it was timely, because the specific three-year deadline for OMITTED taxes runs from when the return was actually filed (which was late here), not from the general filing due date the taxpayer as…
An erroneous W-2 -- possibly from identity theft -- inflated my Virginia income tax assessment, and correcting it means I actually overpaid; can I get that overpayment refunded even though I never filed a return for that year?
The Department fixed the underlying error and abated the assessment -- but the resulting refund was time-barred because no return was ever filed within the three-year window. Virginia learned from the…
I'm appealing a Virginia tax assessment and claiming I was a resident of another state, but I never actually filled out Virginia's domicile questionnaire -- what happens now?
The taxpayer gets one final chance to actually provide the information -- but simply claiming residency elsewhere, without responding to the Department's request for proof, doesn't work. Virginia lear…
My conference center's all-inclusive room-and-meal package got hit with use tax on food purchases and employee meals, my vendor's custom-table charge got taxed a second time, and the Department extended my audit period past three years -- which of these can I actually fight?
Mixed result across several issues -- the center lost on the substance of most items but won a real procedural fight over how far back (and forward) the audit could reach. A Virginia conference center…
My company sells a bundled smart-home system -- remote video, door locks, lights, controlled through our app and network -- along with our basic monitored alarm service. Is the whole bundled charge taxable as equipment, or exempt as a service?
A nontaxable service -- because customers were really paying for ongoing remote control and monitoring capability, not just to own the hardware. A security company's optional smart-home-style add-on s…
Does software delivered purely electronically need a special invoice or contract certifying that delivery method to be sales-tax exempt, and is Virginia's Internet-service-provider equipment exemption limited to companies that sell service at retail rather than wholesale?
No to both restrictions the Department had imposed. In a lawsuit over sales tax refund claims for software, equipment, and services sold to a wireless carrier, the Circuit Court of the City of Richmon…
My company filed amended corporate returns before an audit was finished, and disputes how the auditor handled loss characterization and overpayment credits across affiliates -- what does Virginia require?
Partly in the taxpayer's favor. A corporation that filed combined Virginia returns with its subsidiaries, then amended those returns before an audit concluded, disputed three things: (1) that the audi…
My company took title to equipment outside Virginia through an affiliate transfer, and calls it a corporate reorganization or a gift -- can Virginia still assess use tax once the equipment gets used here?
Yes. A marine cargo terminal operator owed Virginia use tax on ship-to-shore cranes because it took actual possession and began using them at the Virginia port once the cranes were erected, tested, an…
My company repairs and replaces command/communications/surveillance systems on Navy ships, including cabling and racks -- does that make me a retailer who can buy the parts tax-exempt for resale, or a consuming contractor who owes tax on them?
A retailer, not a consuming contractor -- meaning the contractor can buy the equipment and materials tax-exempt for resale to the government. A company contracts with the U.S. Navy to repair and repla…
The Department's auditor removed offsetting credit memos from my sales tax audit sample without a signed sampling agreement -- does that make the sample inflated and invalid?
No -- removing the offsetting invoice/credit-memo pairs and leaving the remaining unmatched credits out of the sample followed the Department's established, previously-published sampling policy, and t…
How does Virginia decide whether a worker is an employee or an independent contractor, and what happens to a business that gets it wrong?
Virginia presumes anyone paid for services is an employee unless the worker or the business paying them proves independent-contractor status under the IRS's behavioral-control/financial-control/relati…
My S corporation and a related LLC are owned by the same family across different ownership structures -- do we count as an 'affiliated group' so fees between us are exempt from BPOL tax?
Yes -- fees between the two entities are exempt from BPOL tax because they qualify as an affiliated group. An S corporation owned by four siblings (one holding 100% of the voting stock, all four split…
A locality wants to count ALL of my company's Virginia remote employees' payroll in its BPOL apportionment numerator, just because they report to the local office -- is that right?
No -- a locality can't include the payroll of employees who work remotely OUTSIDE that locality in its BPOL payroll-apportionment numerator, even if those remote employees report to a manager at that …
A county's BPOL refund-denial letters were signed by a deputy, not the Commissioner of the Revenue -- do those letters count as a 'final local determination' I can appeal to the Department?
No -- the county's letters didn't qualify as valid final local determinations, so the Department issued this notice of jurisdiction instead of ruling on the merits. A business that had filed amended B…
I amended my corporate return to fix an apportionment mistake and I'm owed a refund -- do I still need to document the numbers, or does the Department just have to accept my corrected calculation?
No -- the Department can and did deny a refund on an amended return where the supporting documentation didn't establish the claimed amount, even though the taxpayer's underlying legal theory (that it …
A locality took over a year to rule on my BPOL appeal, and I might get taxed twice by two localities for the same software royalties -- do I automatically win, and does the software-development exclusion apply?
No to all three of the taxpayer's arguments -- and the underlying BPOL assessments were upheld. A software royalty recipient argued it should win automatically because its county took more than a year…
A vendor charged us sales tax on data center backup batteries because they were first delivered to a storage facility instead of straight to our data center -- does that disqualify the batteries from Virginia's data center exemption?
No -- delivering batteries to a storage facility first, rather than straight to the data center, doesn't disqualify them from Virginia's data center sales and use tax exemption. A battery manufacturer…
I'm a Virginia domiciliary who went to college out of state and earned summer internship wages in a different state -- do I still owe Virginia income tax on those wages?
Yes, unless he can show he actually abandoned his Virginia domicile -- and the facts here pointed the other way. A Virginia resident who enrolled in college out of state (a different state than his su…
I mailed my Qualified Equity and Subordinated Debt Investments Tax Credit application before the deadline, but the Department says it never arrived -- can I still get the credit?
No -- without proof the application was actually filed by the deadline, a hard statutory cutoff can't be waived. A taxpayer claimed he mailed his Qualified Equity and Subordinated Debt Investments Tax…
I'm in the military and had combat-zone pay excluded from my federal income -- can I also claim Virginia's combat-pay subtraction on it?
No -- you can't subtract combat-zone military pay on your Virginia return if that pay was never included in your federal adjusted gross income (FAGI) in the first place. Virginia's income tax starts w…
My business claims its supply purchases were tax-exempt for resale and its vendor invoices were labor-only -- but I don't have great paperwork proving it. Does the assessment still get upheld?
Yes, the assessment was upheld -- without adequate records, a business can't prove its purchases actually qualified for the resale exemption or the labor-only services exemption. A seasonal frozen yog…
How much proof does a company need to show that royalty payments to an affiliate were 'actually taxed' by another state, in order to escape Virginia's intangible-expense addback?
The taxpayer still couldn't meet its burden, and a request to reconsider that failure was denied. This is a Circuit Court order in the long-running Kohl's Department Stores litigation over Virginia's …
Virginia won't give me a credit for the LOCAL county income tax I paid to Maryland (only the state tax) -- doesn't that amount to unconstitutional double taxation under the Commerce Clause?
No -- denying the credit for Maryland's local (county) income tax doesn't violate the Commerce Clause, even though it results in some double taxation. A Virginia domiciliary resident who also lived in…
My vendors told me by letter and email that our software was delivered electronically, not on a disc -- is that enough to get it exempted from a Virginia use tax audit assessment?
No -- a vendor's letter or email saying software was delivered electronically, by itself, isn't enough proof to win the exemption; you need contemporaneous sales documentation that expressly certifies…
My business claims its supply purchases were tax-exempt for resale and its vendor invoices were labor-only -- but I don't have great paperwork proving it. Does the assessment still get upheld?
Yes, the assessment was upheld -- without adequate records, a business can't prove its purchases actually qualified for the resale exemption or the labor-only services exemption. A seasonal frozen yog…
My spouse and I filed a joint Virginia return, then my spouse separately filed a part-year return, and now the Department reclassified my return as married filing separately -- can we fix this back to joint?
Yes -- submitting an actual joint return for the year fixed the problem. A married couple originally filed a joint 2017 Virginia return; the wife then separately filed her own part-year return. Becaus…
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?
Any Virginia county or city may adopt (by ordinance) a 5-cent-per-bag tax on disposable plastic bags provided at grocery stores, convenience stores, and drugstores in that locality, effective no earli…
A county denied my manufacturer-classification refund claim in a letter, and I appealed straight to the Department -- but the Department says it can't hear my case yet. Why not?
Because the taxpayer skipped a required step -- a genuine local administrative appeal -- and even the county's letter that it treated as resolving the matter had a separate, independent defect. A prod…
I couldn't file my Virginia return on time because of serious health problems, and now I'm past the three-year refund deadline -- can the Department waive it?
No -- Virginia's three-year refund deadline is strict and leaves the Department no discretion to waive it, even for serious health conditions. A taxpayer filed her 2016 Virginia individual income tax …
The Tobacco Unit rejected updated exemption certificates I submitted with my appeal, and I never got to discuss the audit findings directly with the auditor -- what happens now?
The case wasn't resolved on the merits yet -- it was sent back to the Tobacco Unit audit staff to actually review the new documentation using the Department's standard verification procedure, and then…
The Department denied our FDC subtraction because we didn't take a matching FDC addition in an earlier year -- but we only bought into these S corporations in 2015. Do we still qualify?
Yes -- the subtraction was allowed, and the assessment abated. A couple properly claimed fixed date conformity (FDC) subtractions passed through to them from two S corporations the husband owned an in…
My company's cost-tracking system can't reliably show where subcontracted work was actually performed or controlled -- can I use payroll apportionment instead, and how do I calculate the out-of-state deduction if so?
Yes -- when a business's own accounting system can't reliably determine where services were actually performed or controlled, especially for subcontracted and multi-location fixed-price work, payroll …
My company sells and installs security equipment from a local office, but the actual monitoring happens at out-of-state centers -- can the county tax the monitoring revenue as if it happened locally?
No -- a locality can't situs a security company's monitoring-service revenue to its local sales/installation office when the company itself performs the monitoring at out-of-state centers. A security …
The county charged recordation tax based on the property's assessed value, which was higher than what I actually paid -- shouldn't the purchase price control instead?
Not automatically -- Virginia's recordation tax is based on the GREATER of the actual consideration paid or the property's actual (fair market) value, and the county's tax assessment carries a strong …
If the IRS adjusts my income or audits a partnership I'm invested in, how and when do I have to report that change to Virginia?
Generally, you (or, for a partnership-level federal audit, the partnership itself) must report a federal tax adjustment to Virginia within one year of its 'final determination date.' These Department …
The Department assessed me based on IRS 1099 information because I never filed a Virginia return, and the tax due looks way too high -- what can I do?
File the missing Virginia return (with any corrected 1099s) within the Department's deadline -- an assessment based on IRS-supplied information isn't automatically wrong just because it looks high, bu…
I bought used restaurant equipment for less than what the city says it's worth for tax purposes -- shouldn't the price I actually paid control the value used to tax it?
No -- for most business tangible personal property, Virginia law requires localities to determine fair market value using a percentage of the property's ORIGINAL cost (what the FIRST purchaser paid a …
My pass-through entity applied for the R&D tax credit and told me my share, but the Department cut my claimed credit down -- can I still claim the full amount I was told to expect?
No -- you can only claim the prorated amount the Department actually grants, not the larger amount your pass-through entity originally requested. Virginia's Research and Development Expenses Tax Credi…
The Department disallowed my itemized medical and charitable deductions because I couldn't produce enough documentation -- and one of my charitable receipts was for a donation to a church I personally run. Does that matter?
Yes -- without proper documentation, itemized medical and charitable deductions can be disallowed, and a donation receipt you write to yourself (as when you run the recipient charity) needs ADDITIONAL…
My restaurant's sales tax audit doesn't match our internal records, and I couldn't get the auditor all the documentation they wanted -- can the assessment still stand?
Yes -- when a taxpayer doesn't provide the records needed to verify its reported sales, the Department may finalize the audit using the best information reasonably available, and that assessment carri…
A defense contractor split its business between offices in different Virginia localities. When apportioning BPOL gross receipts by payroll, must ALL employees' payroll count, and can research-and-development receipts get special treatment?
Yes -- when a business's BPOL gross receipts are sitused using payroll apportionment, its ENTIRE payroll (including administrative staff) must be counted, not just the employees who directly generated…
If I book a hotel through an online travel site like Expedia or Airbnb, is Virginia sales tax now charged on the full price I pay, including the site's service fee?
Yes -- beginning September 1, 2021, Virginia's Retail Sales and Use Tax on accommodations (hotels, short-term rentals, etc.) is computed on the FULL price the customer actually pays, including any ser…
My company operated a contracting business in Virginia and a farm in another state. When the farm passed to an heir under the owner's will, can I allocate that gain entirely to the other state instead of apportioning it under Virginia's standard formula?
No -- the Tax Commissioner denied the request both because the taxpayer skipped the mandatory procedure for requesting an alternative apportionment method, and because the gain didn't qualify as separ…
I live in another state and pay tax there on all my income, but I own a share of an S corporation that does business in Virginia -- do I still owe Virginia tax, and can I be penalized for not making Virginia estimated payments?
Yes -- if your S corporation's income is apportioned to Virginia, your share of that income is Virginia-source income taxable to you as a nonresident, even if you paid tax on the same income to your h…
The Department built my sales tax audit from third-party alcohol board records because I wouldn't turn over my own -- can I still challenge the estimate, and are the fraud and amnesty penalties fair?
Not easily -- once you refuse to provide your own sales records, the Department can lawfully reconstruct your liability from third-party data (like state alcohol board records), and merely asserting t…
My partnership owns rental properties in Virginia and three other states, and I can calculate each property's actual income separately -- can I use that separate accounting instead of Virginia's standard apportionment formula?
No -- knowing each rental property's actual separate income isn't enough by itself; the taxpayer must also follow the required procedure and prove the statutory apportionment method is inequitable, an…
The Department disallowed my itemized deductions and applied the standard deduction instead because I never sent in documentation -- can I still get them reinstated?
Only by actually providing the substantiating documentation -- the Department gave the taxpayer one final 30-day window to do so, but simply disagreeing with the assessment isn't enough. A taxpayer cl…
I asked the Department to reconsider its ruling on my sales tax audit and submitted more documents -- do I automatically get a second look just because I disagree with the result?
No -- a request for reconsideration must actually meet one of four specific legal grounds (misstated facts, a change in law, misapplied policy, or genuinely new evidence unavailable during the origina…
I'm a subcontractor who fabricates and installs steel stairs and railings into buildings. I bought my raw materials tax-exempt on a resale certificate and figured the general contractor would remit sales tax on the finished work -- can the state still assess ME use tax on the materials?
Yes -- a contractor that fabricates tangible personal property (like steel stairs, gates, and railings) and then installs it into real property is a "consuming contractor" under Virginia law, personal…
The IRS told Virginia I underreported income, and Virginia assessed me for two years based on that. Can I fight the assessment by arguing the IRS was wrong, and does it matter that I appealed one of the years late?
No on both counts -- an appeal filed after the 90-day deadline fails regardless of its merits, and even for the year that WAS appealed on time, Virginia generally won't look behind the IRS's own final…
My shop's internal accounting system calculates sales tax on materials and labor separately, but our printed customer invoices just show one lump-sum charge -- does that lump-sum invoice still make the ENTIRE charge, including labor, taxable?
Yes -- Virginia's labor exemption from sales tax applies only when labor and materials are separately stated on the actual invoice given to the customer; calculating them separately in your internal a…
My cigarette shop's assessment is overstated because records and inventory were stolen -- does claiming a burglary excuse me from having to document that the assessment is wrong?
No -- an unverified claim of theft, even with extra time to gather supporting documentation, doesn't shift or reduce the taxpayer's burden of proving an assessment is wrong. A cigarette retailer was a…
A distributor's records show my business bought cigarettes tax-exempt for resale, but I claim a former business partner used my information to open a fraudulent account -- am I still on the hook for the sales tax assessment?
Yes -- absent documentation proving otherwise, the Department holds the purchaser of record (as shown on the distributor's own sales documentation) responsible for the sales tax, and a claim of busine…
A scammer posing as a potential employer used my personal information to set up a fraudulent cigarette business under my name -- can I get the resulting sales tax assessment abated?
No, without supporting documentation -- being named as the purchaser of record on a distributor's own sales records is generally controlling absent contrary proof, and a fraud allegation alone (even o…
The IRS adjusted our itemized deductions years ago, and Virginia only just assessed us for it -- shouldn't there be a time limit on how long Virginia can wait before catching a mismatch like this?
No -- there's no statute of limitations at all for the Department to assess additional tax when a taxpayer's federal income was adjusted and no amended Virginia return was ever filed to report it, reg…
Our timeshare condominium's owner's association owns and furnishes every unit -- can the association claim the household goods exemption from business tangible personal property tax since individual owners actually use the furniture as their vacation home?
No -- Virginia's household goods exemption from business tangible personal property (BTPP) tax requires the property to be OWNED (not just used) by an individual or family incident to maintaining an a…
I co-founded a tech startup, invested cash over several years (some before Virginia's subtraction window opened, some during it, with a distribution along the way), and sold my stake for a big gain -- how much of that gain actually qualifies for Virginia's long-term capital gain subtraction?
Only the portion of your gain attributable to NET investments actually made during the statutory window (April 1, 2010 through June 30, 2020) qualifies -- and if you also took distributions exceeding …
A distributor's records show untaxed cigarette purchases under my business's name, but I deny ever making them or opening any account, and I've filed a complaint with the FTC -- is that enough to stop the assessment?
No -- filing a complaint with a federal agency like the FTC doesn't itself constitute evidence that overcomes a distributor's sales records naming the taxpayer as the purchaser, and the Department has…
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These are official tax letter rulings and advisory opinions issued by Virginia's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.