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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Did keeping a Virginia driver's license and two registered vehicles make this taxpayer a taxable Virginia domiciliary resident for 2016 and 2017, despite living out of state?
No — the Department abated the assessments. The taxpayer kept some Virginia ties (a driver's license obtained in June 2016 and two vehicles registered in 2014), but he had not physically resided in Vi…
I disagree with the Department's determination denying my corporate income tax refund claim -- can I still get it reconsidered if my request comes in more than 45 days after the determination letter?
No -- Virginia gives a taxpayer only 45 days from the date of a final determination letter to request reconsideration, and that deadline is enforced strictly. Here, the Department's determination lett…
If a taxpayer timely files a Virginia amended return but waits years to send the Department the IRS's acceptance letter, is the refund still barred by the statute of limitations?
No. The Tax Commissioner ruled that because the taxpayer's amended Virginia return was filed in October 2016 -- well within the three-year limitations period for refund claims under § 58.1-1823 -- and…
If Virginia denies a 529 college savings deduction for lack of proof of contributions, what documentation is enough to get the deduction restored on appeal?
The Tax Commissioner ruled the Taxpayers' documentation was sufficient after all: the husband and wife showed contributions to Virginia 529 prepaid tuition/savings trust accounts, so the disallowed de…
Is a retailer that sells and installs custom closets selling taxable tangible personal property or performing exempt real-property construction, and does sales tax apply to its installation and delivery charges?
The custom closets remain tangible personal property even after installation, so the retailer must charge and collect Virginia sales tax on the sale of the materials. However, separately stated instal…
Can a university get a refund for sales tax it mistakenly paid on exempt textbook sales to students, and what must it prove to get that refund?
Yes, but only if the university can show it never actually collected the tax from students in the first place. Certified textbooks sold to students are exempt from Virginia sales tax, but if a seller …
Can a cigarette retailer avoid a sales tax assessment on untaxed cigarette purchases by claiming someone else made the purchases without the business's knowledge?
No. The Tax Commissioner upheld the assessment because the taxpayer offered no documentation to support its claim that the cigarette purchases were fraudulent or made without its knowledge, and Virgin…
Does an airline catering company qualify for Virginia's industrial manufacturing sales-tax exemption, and how are the other contested items in its audit resolved?
The big exemption was denied. An airline catering company argued its kitchens turn raw food into finished in-flight meals and should qualify for Virginia's industrial manufacturing exemption (Va. Code…
If the IRS audits me and increases my federal income, what must I do in Virginia, and what happens if I don't report the change?
You lose. When the IRS audits and increases your federal taxable income, Virginia law (Va. Code § 58.1-311) requires you to report that change by filing an amended Virginia return within one year of t…
Will Virginia remove a communications sales and use tax assessment on Universal Service Fund and PUC fee charges if the taxpayer proves a one-month system error caused the tax to be under-collected?
The Tax Commissioner did not decide the merits; instead the Department sent the case back to the auditor to review the taxpayer's documentation of a claimed one-month system abnormality and make any a…
Does getting a Virginia driver's license and vehicle registration make me a Virginia resident for income tax before I actually move here?
No -- the assessment was abated. Establishing a Virginia domicile requires both physical presence in Virginia and the intent to remain permanently or indefinitely; neither one alone is enough. This ta…
Is a resale exemption certificate valid when it names a related but different entity than the actual buyer, and can I raise a new audit-sample challenge on reconsideration?
The Department said no. On reconsideration of P.D. 19-85, the Commissioner again rejected the dealer's resale exemption certificate because it named a different, related entity (Company A trading as C…
When a taxpayer's refund claim spans several tax years, how far back can a Virginia locality go, and is a fuel-blending business a manufacturer or a processor for machinery and tools tax purposes?
A locality cannot issue a refund for a tax year once more than three years have passed since the last day of that tax year, so the Department had no jurisdiction over the earliest year in this refund …
Can I claim both a Virginia historic rehabilitation credit and a land preservation credit within five years when the conservation easement I donate also protects the rehabilitated building's façade?
No. Virginia Code § 58.1-513 A bars the same building from serving as the basis of both the historic rehabilitation tax credit and the land preservation tax credit within a five-year period. A land pr…
When can a Virginia dealer avoid sales tax on sales it treated as exempt, and how are exemption certificates for meals sold to nonprofits, churches, and governments handled?
It depends on your documentation. A Virginia dealer is liable for sales tax on any sale it treats as exempt unless it took a valid exemption certificate from the buyer in good faith, using reasonable …
When can a Virginia dealer treat sales to volunteer fire companies, nonprofits, and government agencies as exempt from sales tax -- and what exemption certificate does it need?
A Virginia dealer must charge sales tax unless it has a valid exemption certificate on file when the sale happens; a certificate obtained afterward is accepted only under greater scrutiny and only if …
Why did Virginia uphold sales tax on a caterer's meals sold to a federal agency and a nonprofit even though each customer claimed exemption?
The federal banquet lacked the required purchase order and proof of direct federal payment. The nonprofit's certificate had expired and the caterer produced neither an updated certificate nor the Depa…
After Virginia let governments and nonprofits buy meals exempt in 2016, what documentation does a caterer still need to treat those sales as tax-exempt?
The taxpayer lost on all three sales. This caterer treated meal sales to a federal (DOD) employee and two nonprofits as exempt, but the exemption certificates were invalid or incomplete, so the tax wa…
For Virginia's corporate sales factor, is electronically delivered canned software a sale of tangible personal property, and how are software updates and technical support sourced?
Canned software is tangible property. For the Virginia corporate sales factor, sales of pre-written 'canned' software -- and updates to it -- are treated as sales of tangible personal property and att…
What happens if a Virginia audit is completed without giving the taxpayer the audit report or a chance to discuss the findings?
The audit goes back for review. The taxpayer wasn't able to give the auditor documentation during the audit and, importantly, was not given the audit report or an opportunity to discuss the findings a…
How does Virginia's Major Research and Development Expenses Tax Credit work -- who can claim it, how is it calculated, and how do you apply?
Virginia's Major Research and Development Expenses Tax Credit is an individual and corporate income tax credit for a taxpayer that incurs more than $5 million of Virginia qualified research and develo…
Can I re-appeal a Virginia sales tax audit if I already had a chance to submit documentation and missed the deadline?
No. This wedding-photography business had appealed the same audit back in 2016, and a 2017 Department letter gave it 30 days to submit documentation supporting its claim that gross sales were overstat…
Which of a Virginia hospital's purchases of nonprescription drugs, medical devices, and durable medical equipment are exempt from sales and use tax?
It depends item by item. A nonprescription drug or proprietary medicine is exempt (with no exemption certificate needed) only if it actually contains a medicine and is for internal or topical use to c…
When a third-party financer buys property from a dealer and leases it to the dealer's customer, who owes Virginia sales tax -- and does the dealer's tax on the purchase satisfy it?
The financer must collect the tax on the lease. Because the lease-to-own contract is a conditional lease under which the financer takes ownership of the property, the financer is the lessor and must c…
What happens if a Virginia sales tax audit is closed before the taxpayer has a chance to review the findings and provide documentation?
The taxpayer gets a second chance. Because the audits closed before the taxpayer could review the findings with the audit staff, the Commissioner directed the auditor to schedule a review meeting and …
How does Virginia's refundable Research and Development Expenses Tax Credit work -- who qualifies, how is it calculated, and how do you apply?
Virginia's Research and Development Expenses Tax Credit is a refundable individual and corporate income tax credit for conducting qualified R&D in Virginia. It has a base credit plus a possible supple…
If a cigarette retailer can't document what happened to cigarettes it bought tax-free for resale, can Virginia tax it on all of them?
Largely yes. A cigarette retailer bought cigarettes tax-free for resale, and a Department compliance program matched wholesale-distributor records to assess sales tax on cigarettes it couldn't show it…
Do I owe Virginia use tax on off-road (dyed) diesel fuel if the sales tax was already built into the price at the pump?
Off-road (dyed) diesel fuel is exempt from Virginia's separate fuels tax but is still subject to the retail sales and use tax. A dealer may fold that sales tax into the per-gallon pump price, as long …
Are software project-management fees taxable, and does giving away product samples from a tax-free inventory trigger use tax?
Mostly taxable. A high-tech cleaning company was assessed use tax on software contracts and on product samples it pulled from its resale inventory and gave to customers free for 'cleaning trials.' The…
Can I appeal a Virginia locality's meals (food and beverage) tax assessment to the Department of Taxation?
No. The Virginia Department of Taxation has no authority to decide appeals of a locality's food and beverage (meals) tax. The Department's power to hear local-tax appeals is limited by statute to the …
Can I appeal a Virginia locality's BPOL (business license) tax straight to the Department of Taxation, or do I have to go through the locality first?
You have to go through the locality first. The Department of Taxation can hear a BPOL (business license) tax appeal only after the locality's assessing official has issued a final determination on a p…
Is a bundled 'unlimited bowling' package taxable just because it includes the option of bowling shoes?
No. A bowling alley's 'Cosmic Bowling' package -- unlimited bowling for a set time, with bowling shoes offered as an option -- is a nontaxable service, not a taxable sale of shoes. Virginia uses the '…
Is a Virginia Indian tribe exempt from Virginia sales and use tax on purchases it makes off the reservation for use on the reservation?
No. The Virginia Department of Taxation ruled that a federally recognized Indian tribe has no exemption from the retail sales and use tax on purchases it makes off its reservation, even when the items…
As the spouse of a service member stationed in Virginia, do I owe Virginia income tax if I've started putting down roots here but haven't fully cut ties with my home state?
No -- the assessment was abated. A military spouse stationed in Virginia with his service-member wife was assessed Virginia income tax as a resident, but the Commissioner found he remained domiciled i…
Can a Virginia sales tax auditor keep an unusually large month in the audit sample if it skews the error rate applied to the whole audit period?
No -- not if that month isn't representative. Virginia auditors project a tax 'error factor' from a sample of months and extrapolate it across the entire audit period, so the sample must fairly repres…
Did a retiree living in another country abandon his Virginia domicile when he kept a Virginia home, driver's license, and voter registration and spent months a year in Virginia?
No -- he remained a Virginia domiciliary resident and stayed taxable for 2015 and 2016. A retiree moved to Country A for his spouse's health but kept a Virginia home, a Virginia driver's license, a Vi…
Are gas boilers that generate steam used as a heat and energy source throughout a chemical plant subject to the local machinery and tools tax?
Likely yes -- if the boilers power the manufacturing, they are taxable machinery and tools, though the local assessor makes the final factual call. A resin and chemical maker asked whether gas boilers…
Can an agricultural dealer get audit exceptions removed for exemption certificates verified after the audit, and must the second-audit compliance penalty stand?
Partly. An agricultural supply dealer was audited for sales lacking valid exemption certificates and for its own untaxed purchases. The Tax Commissioner allowed relief where it could be verified: for …
Must a cable provider's gross receipts be sitused entirely to the county where its only offices are, and is the BPOL tax a capped 'franchise fee' under the Cable Act?
Yes to full situs, no to the Cable Act cap. On reconsideration of P.D. 20-3, the Tax Commissioner reaffirmed that all of a cable provider's gross receipts are sitused to the county where it had its **…
Is a special-purpose LLC that holds land and hires others to build condominiums for sale a 'contractor' with a definite place of business subject to BPOL tax?
Yes. A single-purpose LLC bought land in a county to develop and sell condominium units, holding title while hiring a general contractor and a marketing firm to do the actual work. It had no employees…
Can a cigarette retailer escape a resale-tax assessment by claiming the exempt purchases shown in a distributor's records were made without its knowledge?
No, on this record. Virginia's cigarette compliance program matched distributor records showing this retailer bought cigarettes tax-free for resale, then assessed sales tax because those cigarettes sh…
Could a nonresident recover Virginia income tax withheld from 2014 wages when the first refund claim was filed after the three-year deadline?
No. The 2014 return was due May 1, 2015, so a Form 763-S or other refund claim had to be filed by May 1, 2018. The taxpayer did not claim the withholding until 2019, after the limitation period expire…
Is a heat-not-burn tobacco vapor system -- a battery, liquid cartridge, and sealed tobacco capsule -- subject to Virginia's tobacco products tax?
No -- as of this 2020 ruling, the tobacco vapor system was not subject to Virginia's tobacco products tax. The device has a battery, a liquid cartridge, and a sealed capsule of granulated tobacco; the…
Does the occasional-sale exemption cover a tractor bought from a farmer, and is a trailer bought from a Virginia dealer but picked up out of state subject to Virginia tax?
Split result. A truck-driver training school was assessed use tax on fixed-asset purchases. On the **tractor** it bought from a livestock-and-hay farmer, the Tax Commissioner agreed the occasional-sal…
When an entertainment company bundles a taxable photo-booth rental with exempt disc-jockey services in one contract, is the photo-booth charge taxable?
Yes -- the photo-booth rental is taxable. A wedding and party entertainment company bundled disc-jockey services (exempt) with photo-booth rentals in a single contract and argued the whole package was…
Which items at a meat-processing plant qualify for Virginia's manufacturing exemption, and can the audit penalty be waived as a new area?
Mixed, with the penalty upheld. At a meat-processing plant, Virginia's manufacturing exemption covers property 'used directly' in an integral step of production, not ancillary maintenance (Va. Code Se…
Does Virginia's military basic-pay subtraction require more than 90 consecutive days of active duty, or do nonconsecutive days count?
No -- the subtraction was denied. A married couple claimed Virginia's military basic-pay subtraction for 2016-2018, arguing the husband served more than 90 days of active duty each year even though th…
Must a restaurant show free employee meals on payroll or W-2s to claim the wages exemption, or can policy and accounting records prove it?
Yes, exempt -- the restaurant won. The Department had assessed use tax on free meals a restaurant gives employees during shifts, because the value wasn't shown in the payroll account or on W-2 forms. …
Can a partnership match its Virginia bonus-depreciation subtraction to owners using shifting distributive-share percentages, relying on the tax benefit rule or on Virginia's alternative apportionment method?
No. Virginia does not conform to federal bonus depreciation, so a business must add back the bonus deduction and later subtract the difference as regular depreciation is claimed. A partnership asked t…
How are a restaurant's fiscal-year reporting, free meals to employees' families, and complimentary meal cards treated in a sales tax audit?
Mixed. A five-restaurant operator's audit raised three issues. On its 52-53 week fiscal year, the Department found catch-up payments made its remitted sales tax consistent with its income return, so t…
Are separately stated programming charges and technician 'trip' charges tied to selling audiovisual equipment taxable?
Yes, both are taxable. An audiovisual integrator was assessed sales tax on separately stated 'programming' charges (customizing the AV equipment it sold) and 'trip' charges (sending a technician). It …
Can a restaurant on a 52-53 week fiscal year show that a monthly-based audit sample overstated its unremitted sales tax?
A chance to prove it. A fast food restaurant's audit found it underreported sales tax versus its daily sales reports, treated as tax collected but not remitted. The restaurant said the mismatch came f…
Is a general contractor liable for use tax on payments to subcontractors who furnish and install materials on a real property project?
Mostly for the contractor. A real property construction contractor was assessed consumer use tax on untaxed purchases. The Tax Commissioner removed several items: a computer bought in 2007 (before the…
Is a corporation's NOL carryback refund time-barred by a late-submitted federal Form 870 when the Department never finally denied the original, timely refund claim?
Yes, the refund is allowed -- the corporation won. It timely filed a 2008 return with a net operating loss and, in October 2012, timely applied to carry the loss back to 2006 and 2007. The Department …
Can a corporation support its Virginia foreign-source-income subtraction with Virginia-only amended Form 1118s without amending its federal returns?
Yes -- the corporation prevailed. Virginia lets corporations subtract foreign source income, but the subtraction is net of related expenses computed under the federal sourcing rules of IRC Sec. 861 et…
Can a one-time end-of-lease equipment purchase be pulled out of an audit sample when the taxpayer can't prove the purchased item is the same equipment assessed?
No, on this record. A medical practice that never filed sales or use tax returns was audited using a sample factor extrapolated over the whole period. One sampled item was the exercise of an end-of-le…
Is a distillery exempt from local BPOL tax on its retail tastings as an agent of the ABC Authority or as a manufacturer, and can it appeal the local meals tax to the Department?
BPOL upheld on the tastings. A distillery argued it owed no local BPOL tax because it sold tastings as an agent of the Virginia ABC Authority and because it was a manufacturer. The Commissioner reject…
Can individuals get a 2005 Virginia refund from a 2008 casualty-loss carryback when the amended return was filed years after the federal change and the three-year limit?
Denied -- the refund is time-barred. The taxpayers suffered a 2008 casualty loss from a Ponzi scheme and, working with the Department, learned the loss had to be carried back three years (to 2005) und…
Can a Virginia contractor that paid Virginia sales tax on materials used in a North Carolina project get a Virginia credit or refund through a reciprocity agreement?
No relief. A Virginia real property contractor paid Virginia sales tax on materials it used on a North Carolina construction project and asked whether a reciprocity agreement could give it a credit to…
Did a retiree who registered to vote in another state, inherited a home there, and later moved his license and vehicle successfully change his domicile out of Virginia for 2014?
Won -- the assessment was abated. On reconsideration of P.D. 19-103, the Commissioner found this retiree had successfully changed his domicile to another state by the 2014 tax year. He moved there in …
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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.