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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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…
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…
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…
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…
A cigarette sales tax assessment was converted from my company to me personally as its officer. I signed the paperwork setting up the company, but claim my former employer tricked me into it and ran the fraudulent purchases -- am I still personally liable?
Yes, on these facts -- signing the documents that actually set up the business (a lease, a federal ID number application, a wholesale account) made her the purchaser of record, and a claim that a form…
The Department assessed us for failing to withhold tax on workers we treat as independent contractors, using VEC data -- can we still make our case that they're properly independent contractors?
Yes -- the case was sent back to the Department's audit staff because the auditor relied on Virginia Employment Commission (VEC) worker-classification data without independently applying the legal tes…
I was president and a minority shareholder of a restaurant company that fell behind on sales tax -- can the Department make me personally liable for the company's unpaid tax as a 'responsible officer' even though I didn't handle the company's finances or tax filings?
No -- Virginia's responsible-officer penalty under Va. Code § 58.1-1813 requires the individual to have had the specific corporate duty to pay or report the tax, actual knowledge of the failure, AND t…
I accepted resale exemption certificates from my distributors even though their listed business type didn't exactly match what they bought -- do I still qualify for the resale exemption?
Mostly yes -- if the resale certificate is complete, signed, and dated, a dealer doesn't need the customer's listed business type to exactly match the products sold; it's enough that a dealer could re…
My land-clearing business uses the same equipment for both taxable brush-clearing services and tax-exempt timber harvesting -- how much of an exemption can I claim, and who has to prove the split?
Only a 20% exempt proration -- because the equipment was used for both exempt timber harvesting-for-sale and taxable general land-clearing/mulching work, and the taxpayer failed to prove a higher exem…
The Department used a single representative month to calculate our use tax assessment, and the audit took a long time to close -- can we get the sample thrown out and the interest waived?
No -- a taxpayer who didn't object to the audit's sample period when it was first proposed, and who provides no documentation showing the sample was unrepresentative or the resulting assessment wrong,…
I moved to another state for a new job and lived there all year, but I kept my Virginia driver's license and car registration -- am I still a Virginia resident for income tax purposes?
No -- physically living and working in another state for a full year doesn't by itself establish that you've abandoned your Virginia domicile; you must prove BOTH an intent to abandon Virginia permane…
The Department disallowed our itemized deductions and Schedule E expenses when we didn't respond to a documentation request in time -- can we still get the medical expense deduction back by showing we already sent proof?
Not automatically -- when the Department has no record of receiving documentation a taxpayer claims to have already submitted, the taxpayer must resubmit it (here, by a firm deadline) or the disallowa…
We're a staffing/recruiting firm and our locality denied our BPOL exemption for benefits paid to contract employees at seven different clients -- does the amount of control each client exercises over our placed workers matter?
It depends entirely on the facts of each individual client engagement -- a staffing firm's BPOL exemption for benefits paid to contract employees requires proving the firm's workers were assigned to S…
We're out-of-state headquartered with one Virginia location, and we say we were never contacted about an audit before getting an assessment -- does the Department have to actually redo the audit if we dispute getting notice?
No -- when the Department has extensive documented correspondence (emails and mailed letters over more than a year) with an employee at the taxpayer's own headquarters showing the audit was properly i…
The IRS flagged that I never filed a Virginia return, but I was living and working in another state that year with employer-provided housing -- am I still on the hook as a Virginia resident?
No -- working and living in another state under employer-provided housing doesn't establish that you've abandoned your Virginia domicile if the arrangement's permanence is unclear and you kept strong …
The Department audited us for SIX years and reclassified our 1099 subcontractors as employees just because we couldn't produce invoices and business licenses -- is that enough proof, and can they really go back that far?
Partially in the taxpayer's favor on both fronts -- a worker's status as an independent contractor can't be decided just because the business couldn't produce specific paperwork like invoices or busin…
Did this taxpayer succeed in proving he had changed his domicile from Virginia to Maryland, and could he still get credit for the Maryland tax he paid?
NO, the taxpayer did not establish a change of domicile to Maryland -- he failed to provide the Department with documentation supporting his claimed Maryland domicile, so the Virginia resident assessm…
Can Virginia uphold an estimated sales and use tax assessment against a contractor who refused to give the auditor its purchase records?
YES, the estimated assessment was upheld as properly issued -- the Taxpayer, a real property contractor, refused to provide purchase records during the audit, so the Department was authorized under Va…
Did a contractor succeed in lowering a use tax assessment by arguing the Department overestimated the taxable materials cost in its lump-sum invoices?
No -- the Tax Commissioner upheld the assessment because the Taxpayer billed in undifferentiated lump sums, the auditor's 37.73% materials estimate came from the Taxpayer's own records, and the Taxpay…
State Tax Ruling
The Tax Commissioner upheld the county's BPOL tax assessments because the taxpayer, though it showed some software was developed and licensed, failed to prove how much of its gross receipts were attri…
What does Virginia Ruling of the Tax Commissioner P.D. 20-187 conclude about Residency : Domicile - No Virginia Domicile Established?
The Tax Commissioner abated the assessment: the taxpayer proved he did not become a Virginia domiciliary or actual resident until 2018, so he owed no Virginia individual income tax for 2017.
What does Virginia Ruling of the Tax Commissioner P.D. 20-181 conclude about Residency : Domicile - Change, Part-year?
The Tax Commissioner found that the taxpayer had abandoned Virginia domicile in 2015 but re-established it in October 2017 by leasing a Virginia residence and registering a vehicle there, making him a…
What does Virginia Ruling of the Tax Commissioner P.D. 20-172 conclude about Audit: Identity Theft, Fraud, Records?
The Tax Commissioner upheld the full sales tax assessment against a cigarette retailer, ruling that the taxpayer's bare claim that its distributor accounts were used fraudulently, without supporting d…
What does Virginia Ruling of the Tax Commissioner P.D. 20-170 conclude about Administration : Audits - Employee/Subcontractor, VEC Information?
Partial win for the taxpayer: the Tax Commissioner did not cancel the withholding tax assessment but sent it back to audit staff, ruling that VEC information alone cannot establish that workers are em…
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 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 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 …
Can a Virginia cigarette wholesaler defeat a sales-tax assessment with resale certificates and invoices obtained only after the audit began?
No. The wholesaler obtained two resale certificates only after the audit started, so they were not treated as accepted in good faith and required independent validation. Both customers' registrations …
Could Virginia rely on federal W-2 data to add omitted wages to nonresident, part-year, and resident returns when the taxpayer offered no contrary evidence?
Yes. Wages are generally income under IRC § 61 and flow into Virginia taxable income. For 2015, Virginia could rely on the W-2 showing Virginia wages absent proof they were not Virginia-source compens…
Could a restaurant member remove converted sales-tax assessments by saying her late husband alone managed finances when Department records listed her as a member?
Not on the unsupported statement alone. Individual liability under Va. Code § 58.1-1813 requires willfulness, a covered officer/member/employee role with a duty concerning the tax, knowledge of the fa…
Could a Virginia retailer invalidate a two-month purchase sample projected over a 36-month audit when it agreed the months were representative but lacked invoices?
No. At the audit's start, the specialty retailer confirmed that the two chosen months represented the full January 2015-December 2017 period. When it could not produce all requested invoices, the audi…
Should a one-time end-of-lease equipment purchase be removed from a Virginia audit sample when the taxpayer cannot identify the property on the lease or invoice?
Not on this record. Virginia agreed that a one-time end-of-lease purchase could be nonrepresentative and clarified that property need not be booked as a fixed asset before it may be removed from a sam…
Were coordination and computer-time charges tied to graphics taxable, and was a copier maintenance agreement that could supply parts taxed in part?
Yes. The custom exhibit company sold services together with graphics, and Virginia found the true object was production of tangible graphics. Coordination labor, artist time, and computer time connect…
Did new school, property, license, and vehicle evidence overturn Virginia's finding that a couple kept Virginia domicile during foreign assignments?
No. Virginia reconsidered the prior ruling because the couple offered new domicile evidence, but the material did not show permanent or indefinite intent to remain in either foreign country or abandon…
Did buying all assets of one division qualify as an exempt occasional sale when the seller continued operating and separate-division proof was missing?
Not on the evidence provided. A sale of all or substantially all assets of a separate and distinct division can qualify even when the larger company continues operating. But Virginia evaluates whether…
Could taxpayers keep Virginia itemized deductions for 2014-2016 after repeatedly failing to provide records substantiating the claimed expenses?
No, not without supporting records. Virginia generally begins with federal return information, but it may look behind deductions when evidence suggests they do not conform to federal law. Taxpayers mu…
After an assessment was upheld because a business never produced its records, can it get one more chance to provide them?
Yes -- the Department granted one final opportunity to provide the records. A gas station and convenience store operator had a retail sales and use tax assessment (January 2013 through April 2017) uph…
Did a taxpayer prove she was a District of Columbia resident rather than a Virginia resident for 2015?
No. The taxpayer supplied no evidence establishing a District of Columbia domicile, while her Virginia resident returns before and after 2015 supported continued Virginia domicile. The assessment rema…
Could a corporation's president avoid converted tax assessments by saying she was only an investor?
No. The president provided no evidence that she lacked knowledge of the unpaid taxes or authority to prevent the failure. Because the assessments were presumed correct and she did not meet her burden …
Was a business manager personally liable for the corporation's unpaid Virginia sales tax as a responsible officer?
Yes. Virginia found that the manager's authority over the company's financial affairs created a duty to ensure sales-tax filing and payment absent proof of delegation. He also failed to disprove knowl…
Could a gas station overturn estimated Virginia sales and use tax assessments without producing its records?
No. Virginia was allowed to estimate taxable sales, purchases, and fixed assets from the best information available after the business supplied no records. Because it still produced no evidence on app…
Could Virginia residents subtract overseas wages or defeat their assessments by asserting that one spouse changed domicile?
No. Virginia's foreign-source-income subtraction had been repealed for tax years beginning in 2003, so the overseas wages could not be subtracted if the couple were residents. The couple also failed t…
Did payroll records and a reversing ledger entry prove that a fixed-asset entry was actually nontaxable labor?
No. A reversing ledger entry and payroll records did not prove the capitalized-materials entry had been corrected for tax purposes. Virginia required amended federal and state returns removing it from…
Could a restaurant exclude complimentary meals and loyalty rewards without records showing why they were given?
No. Free meals avoid additional tax only when issued because of poor food quality; meals for service, public relations, or other reasons trigger use tax. The restaurant did not document which categori…
Did living and working abroad establish that the taxpayer had abandoned Virginia domicile for 2015?
No. The taxpayer supplied no documentation showing a permanent departure, had filed the 2015 return as a Virginia resident, and retained a Virginia driver's license. The Department concluded he failed…
Could a taxpayer overturn a Virginia residency assessment without supplying the domicile information the Department requested?
Not on the record provided. The taxpayer retained a Virginia driver's license and vehicle registration, filed Virginia resident returns before and after 2013, and did not answer the domicile questionn…
Did a taxpayer win reconsideration because the city had not proved that its BPOL tax on internet access was grandfathered under federal law?
No. Virginia agreed that a locality claiming the Internet Tax Freedom Act's grandfather exception bears the burden of proving it. But the Department concluded that the state administrative appeal proc…
Did a fencing contractor prove that cash withdrawals recorded as tools and materials were personal and not taxable purchases?
No. The contractor's ledger recorded the cash checks in small-tools and materials expense accounts, and the contractor supplied no invoices or other proof that the money was withdrawn for personal use…
Could a taxpayer challenge old Virginia income tax assessments and overturn later estimates without filing returns or records?
No for 2007-2010: the appeal was years late, so Virginia lacked jurisdiction. For 2011-2014, the timely appeal failed because the taxpayer supplied no returns or evidence, though he received 30 days t…
Did foreign tax withholding statements prove that a payment was pension income eligible for Virginia's foreign retirement-income tax credit?
No. Virginia's credit required pension or retirement income from past foreign employment that was included in federal adjusted gross income and taxed by both jurisdictions. The couple's spreadsheet an…
Did a taxpayer prove he was only a part-year Virginia resident when his return and records showed substantial Virginia ties?
No. His part-year return listed Virginia residence for the entire year while assigning all income outside Virginia, and he failed to document the claimed State A domicile. A Virginia address, driver's…
Could a repair business receive an audit credit for sales tax paid to vendors without invoices from the audit period proving the payments?
No. Vendor lists, general claims that vendors charged tax, and sample invoices from outside the audit period did not prove sales tax was paid on the specific resale purchases under audit. Virginia uph…
Could a retiree obtain Virginia's previously taxed contribution subtraction without records supporting the retirement-income claim?
Not without documentation. Virginia taxes retirement income included in federal adjusted gross income unless a specific subtraction applies, and federal tax paid on that income does not itself create …
Does a later acquisition disqualify Virginia's long-term capital-gain subtraction when the original company qualified at the time of investment, and what proof must the investor provide?
A later merger or acquisition does not by itself defeat Virginia's long-term capital-gain subtraction if the original company was a qualified business when the investment was made. But this taxpayer h…
Could a taxpayer obtain abatement of a 2013 Virginia income-tax assessment with incomplete and conflicting evidence that she had moved to another state?
Not yet. The taxpayer's rental, address-change, and information-return records did not establish when she moved or whether she intended to remain in the other state, and some evidence conflicted. Beca…
Could a fencing contractor remove assessed use-tax purchases by showing cancelled checks and asserting that the checks were personal cash withdrawals?
No. Cancelled checks showing cash did not establish that the withdrawals were personal when the contractor's own general ledger recorded them in small-tools and materials expense accounts. Because Vir…
Did living abroad and filing a prior part-year return prove that this taxpayer was no longer domiciled in Virginia in 2013?
Not on the evidence provided. Living abroad and filing a prior part-year return did not by themselves prove abandonment of Virginia domicile, especially with a Virginia address and driver's license st…
Can an employee claim Virginia withholding credit when the employer's reported payment cannot be verified?
Yes, if the employee proves the employer actually deducted Virginia tax from wages. Va. Code § 58.1-468 protects an employee when withheld tax was not remitted, but the taxpayer had not supplied verif…
Which labor and customer transactions were exempt in Virginia's sales-tax audit of an audiovisual system seller?
Only separately stated labor performed by installation technicians qualified for the installation exemption; engineering and other services remained in the taxable system price. Virginia allowed credi…
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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.