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 company paid royalties to an affiliate that were taxed in other states -- can I exclude the FULL amount from Virginia's intangible expense add-back, or only the portion that was actually apportioned and taxed there?
Only the portion actually apportioned to and taxed by another state -- not the full royalty amount, even if all of it was included in the affiliate's taxable income elsewhere. A corporation paid royal…
My auto repair shop charges customers separately for diagnostic testing before we fix their car -- is that diagnostic charge taxable if we also sell replacement parts in the same job?
Yes for this audit period -- a byte-for-byte twin of this corpus's P.D. 24-78, same audit period (July 2019-June 2022), same day, a different auto dealership with a repair shop. Diagnostic testing bil…
My auto repair shop charges customers separately for diagnostic testing before we fix their car -- is that diagnostic charge taxable if we also sell replacement parts in the same job?
Yes, for this audit period -- but a 2023 law change now exempts these charges going forward. An auto dealership's repair shop separately charged customers for diagnostic testing performed before repai…
I have exemption certificates from my customers, but they're either in a slightly different business name or dated after the sale -- can I still get my sales tax refund?
It depends on whether the Department can independently verify the customer actually qualified -- a name mismatch or a certificate dated after the sale doesn't automatically kill the exemption, but it …
My facility uses chemicals along with certified pollution control equipment to treat wastewater -- are the chemicals themselves exempt from sales and use tax?
Yes, but only for the chemicals the taxpayer could show were actually certified as pollution control property -- and only because of that certification, not automatically. A paper mill with an on-site…
My holding company is based in Virginia and performs executive functions for a subsidiary that has no office or employees in Virginia -- does that subsidiary owe Virginia BPOL tax just because its parent is here?
No -- BPOL tax is assessed on a separate-entity basis, so a subsidiary with no office or definite place of business in Virginia owes no BPOL tax there, even though its Virginia-based parent performs e…
My spouse is a deployed servicemember and I filed our Virginia income tax return late -- does the combat zone extension excuse my late-filing penalty, and what about interest and other penalties?
Partially -- the late-filing penalty was abated because of the combat zone extension, but other penalties and interest that accrued BEFORE the deployment began still applied. A taxpayer's husband, a m…
The Department said my company's R&D tax credit application was missing information and needed more time to fix it, but I never got the notice -- can I still get the credit if I submit the missing information after the deadline?
No -- the Nov. 15 completion deadline applies regardless of whether the taxpayer actually received the Department's notice about missing information. A corporation filed Form MRD to claim the Major Re…
The Department's audit used a sample year to estimate my sales/use tax liability across a six-year period -- can I challenge the sample year, and does new documentation I've since found reduce my bill?
The sample methodology itself was upheld, but new documentation the taxpayer found after the audit WAS credited, reducing the liability. A fiber optic cable installation and repair contractor was audi…
I bought equipment to test my manufactured products for quality control before final assembly -- does that equipment qualify for Virginia's manufacturing sales tax exemption?
Yes -- because the testing happened DURING the manufacturing process, before final assembly, not afterward. A manufacturer of electronic telecommunications components requested a refund of sales tax p…
We claimed itemized deductions for property taxes, mortgage interest, and charitable donations, but got audited and lost the deductions -- can we keep our refunds since we didn't know we needed appraisals for donations over $5,000?
No -- not knowing about the documentation requirements doesn't excuse a taxpayer from Virginia's substantiation rules, and each itemized deduction category requires its own specific proof (tax bills a…
I have a general ledger and trial balance showing my company overpaid sales and use tax due to an accounting error -- is that enough documentation to get a refund?
No -- summary-level general ledger and trial balance data isn't enough on its own; Virginia requires transaction-level documentation to support a refund. A manufacturer of medical devices sought a ref…
My subsidiary was already filing separate Virginia returns, and now our parent company has to start filing too -- do we need the Department's permission to file a combined return together?
No -- permission isn't required in the group's first full taxable year of required Virginia filing, even if the subsidiary was already filing separate returns. A corporation asked the Department for p…
My employer's office is in Virginia, but I worked remotely from my home state and my employer withheld Virginia tax anyway -- am I entitled to a full refund even though I also excluded that income on my home state's return?
Yes -- what matters is WHERE the work was actually performed, not where the employer's office is located, and the Department can't rely solely on another state's tax return to deny a Virginia refund. …
I'm active-duty military stationed outside Virginia claiming a different home state -- is claiming a tax credit on my other state's return enough by itself to prove I'm not a Virginia resident?
No -- claiming a credit on another state's return for taxes paid to Virginia doesn't, by itself, prove you're not a Virginia domiciliary resident; you need actual evidence like a State of Legal Reside…
The Department's audit says my subcontractors should have been classified as employees, but the audit report just says I told them what job to do -- is that enough to support the assessment?
No -- and the Department overturned this misclassification assessment because the audit's reasoning was too thin. A drywall and painting LLC was audited and told three of its subcontractors should hav…
I lived and worked in Maryland for over two years and filed a Maryland resident return -- can Virginia still tax me as a resident because I kept my house and driver's license here?
Yes -- Virginia can still tax you as a domiciliary resident if you never actually abandoned your Virginia connections, even after living and working elsewhere for years. A taxpayer and his family move…
I came to Virginia on a student visa, worked here for a few years, then moved back to my home country before returning later on a work visa -- was I still a Virginia resident, and did a 1099 issued to my old Virginia address make me taxable here, for the year I was living abroad?
No to both -- the assessment was abated. The Department flagged that a taxpayer may have owed 2019 Virginia income tax, based on IRS information; no Virginia return was on file, and when he didn't ful…
My landscaping business had several workers found misclassified in the same audit -- doesn't Virginia's '72-hour single offense' rule mean I only owe one penalty total, not one per worker?
No -- Virginia's misclassification civil penalty applies separately to EACH misclassified worker, even when every misclassification is discovered in the same audit and treated as a single 'offense.' A…
I sold an out-of-state rental property and had to report depreciation recapture as income -- can I subtract the part attributable to years before I moved to Virginia, since I never got a Virginia tax benefit from those deductions?
No -- Virginia doesn't allow a subtraction for IRC § 1250 depreciation recapture just because some of the underlying depreciation deductions were taken before you were a Virginia resident. A married c…
I mailed my Virginia return years ago, but the Department has no record of ever receiving it and now says my refund claim is too late -- does it matter that I can't prove when I mailed it?
No -- without proof the Department actually received (or that the taxpayers can otherwise establish timely mailed) an earlier return, the later-filed return controls, and the refund claim was time-bar…
The IRS adjusted my federal return and I think the IRS got it wrong -- can Virginia hold off on assessing me while I keep fighting the IRS?
No -- the assessment was upheld. The IRS notified the Department that it had adjusted a taxpayer's 2019 federal return (reducing her itemized deductions after a 2022 examination), and because no amend…
I moved for a new job in another state, but I still own a Virginia vacation home and briefly got a Virginia driver's license during the move -- does that make me a Virginia resident for tax purposes?
Not necessarily -- a Virginia driver's license and a Virginia vacation home are only two factors among many, and here they didn't outweigh the rest of the evidence pointing to a genuine move. The Depa…
The Department's audit says my painting subcontractors should have been classified as employees, but the audit report just concludes they were 'employees' without walking through the actual control/investment/relationship factors -- can that stand?
No -- and the Department overturned this misclassification assessment for the same reason it has in similar cases: the audit's conclusion wasn't backed by a real factor-by-factor analysis. A single-ow…
My tax preparer e-filed my return and I mailed an amendment years ago, but Virginia has no record of either -- shouldn't the Department have told me my return was missing, instead of letting the refund deadline quietly expire?
No -- Virginia's tax system puts the burden on the taxpayer to make sure a return is actually filed and received, and the Department has no duty to proactively notify anyone that a return is missing. …
I thought Virginia's filing extension was automatic, and I had other personal hardships that delayed my filing -- can I still get my refund even though I filed my return more than three years after the original due date?
No -- personal hardship and a misunderstanding about Virginia's extension don't extend the refund deadline. A taxpayer filed her 2019 Virginia individual income tax return in June 2023 seeking a refun…
I'm taxed by Virginia as a domiciliary resident and by Maryland as an actual resident -- Virginia gives me credit for Maryland's STATE income tax, but why won't it credit the Maryland COUNTY (local) tax I also had to pay?
It doesn't -- Virginia's out-of-state tax credit does not extend to Maryland's local county income tax, only the state-level tax, and the Department has already settled this question against this same…
My corporation emerged from Chapter 11 bankruptcy before Virginia could have assessed any 2020 corporate income tax, and the Department never filed a proof of claim -- doesn't that mean this later tax assessment is barred?
No -- a tax liability that didn't even exist until AFTER the company emerged from bankruptcy couldn't have been discharged in that bankruptcy, so the Department's failure to file a proof of claim does…
The IRS adjusted my income and I'm actively challenging that adjustment in federal Tax Court, with no decision yet -- does Virginia have to wait for the Tax Court before it can assess tax based on the IRS's number?
No -- Virginia assesses tax based on the IRS's adjustment as it currently stands, even while a taxpayer's Tax Court challenge to that adjustment remains undecided. A taxpayer filed an amended 2019 Vir…
A construction audit reclassified 11 of my subcontractors as employees, but I think several genuinely were independent contractors (and one wasn't even really a worker) -- does the Department analyze each worker individually, or as one group?
Individually -- the Department evaluates each worker's own facts, and here that approach cleared four more of eleven reclassified construction workers. A Virginia construction LLC was audited and told…
A drywall business audit reclassified our subcontractors as employees based only on a general statement that we controlled the work -- is that conclusion enough to support the assessment?
No -- and the Department overturned this drywall business's misclassification assessment for the same reason it has in closely related cases: the audit's conclusion wasn't backed by a genuine factor-b…
My manufacturing company had zero Virginia employees until it acquired a facility mid-year and immediately elected the single sales factor apportionment method -- what counts as its 'base year employment,' since it had no prior Virginia presence at all?
Zero -- and that answer works in the taxpayer's favor. A manufacturing corporation with production facilities across the country acquired another company's assets, including a Virginia production faci…
A nonprofit I used to help run years ago still lists me as a contact on its Department tax account, and the Department is trying to hold me personally liable for taxes it never paid -- can they do that just because I never got removed from the paperwork, especially since a nonstock nonprofit doesn't even have 'owners' to transfer things to?
No -- simply being listed as a tax account contact isn't enough evidence to hold someone personally liable, and the Department abated this assessment for lack of proof. A nonprofit organization failed…
I bought prototypes of a medical device along with the software and intellectual property needed to run it, structured as an 'Intellectual Property Purchase Agreement' -- can I argue the tangible prototypes were just an inconsequential part of an intangible IP purchase, so the deal isn't fully taxable?
No -- when the tangible property, software, and intellectual property are all inextricably tied together in a single deal for a physical device, the whole purchase price is taxable. A Virginia IT comp…
My sales tax audit closed before I could submit all my documentation -- can I still get more time to provide records on appeal, and what happens to unrelated bills I discovered separately while reviewing my online account?
A limited second chance, but with firm deadlines and boundaries. A purchasing-agent company that supplied hardware, software, and services to an owner's mobile communications operating companies was a…
My electronics recycling company uses a forklift for both exempt manufacturing work and other non-exempt tasks -- can I still get the sales tax exemption on it if I can show it's used mostly in the exempt process, even if I didn't have that proof during the audit itself?
Yes -- and here, evidence submitted AFTER the audit closed was enough to win the exemption. An electronics dismantling and recycling business was audited for 2013-2019 and assessed sales and use tax o…
Does Virginia's motor vehicle rental tax apply to a long-term, indefinite equipment lease between related companies?
No. Because the lease between the taxpayer and its Parent for mobile and construction equipment was open-ended and had already run more than 10 years at the time of audit -- nowhere close to "a period…
I'm a home builder and bought sand and dirt for my projects -- since dirt and sand come from the ground and are basically real property, shouldn't my purchases of them be exempt from Virginia sales and use tax?
No -- once sand, dirt, or similar material is excavated from the ground, it becomes tangible personal property and is fully subject to Virginia sales and use tax, regardless of its origin as part of t…
I paid royalties to an affiliate and added them back to my Virginia taxable income, but claimed a partial exception because some of the affiliate's income was taxed elsewhere -- can I get a refund for the FULL add-back instead of just that partial exception?
No -- the Virginia Supreme Court's decision in Kohl's Department Stores forecloses a full exception, allowing only the portion of the intangible expense that was actually subject to another state's PO…
The Department disallowed our manufacturing parent's single sales factor election by looking only at its Virginia operations, adjusted our sales factor using our own public financial data without explanation, and disallowed our research-expense and jobs-credit subtractions with no stated reason -- can all of that really be upheld?
No to nearly all of it -- three separate audit adjustments were reversed for the same taxpayer. A corporate group filed combined Virginia returns for 2015 and 2016, with the parent using Virginia's mo…
The IRS has determined my federal tax debt is currently uncollectible -- doesn't Virginia's conformity to federal law mean the Department has to stop collecting on my old Virginia assessments too?
No -- an IRS determination that your federal tax debt is uncollectible has no effect on Virginia's own, separate collection authority. An individual with unpaid Virginia income tax assessments spannin…
I factored my accounts receivable to a related entity, which then sold interests in them to unrelated investors to fund my operations -- can I exclude the factoring costs from Virginia's intercompany intangible expense add-back?
No -- none of the three available exceptions applied, and a fourth procedural route was never properly used. A corporation factored its accounts receivable to a related entity (IHC), which then securi…
I'm an active-duty servicemember with a Virginia 'home of record,' but I bought a home, got a driver's license, registered to vote, and registered my vehicles in the state where I was actually stationed -- am I still a Virginia domiciliary resident just because Virginia is listed as my home of record?
No -- 'home of record' and legal domicile are different things, and this servicemember's real, affirmative connections to his duty-station state controlled. A military servicemember had listed Virgini…
My nonprofit's investment partnership interests and other unrelated business activities are mostly in Virginia -- can I use an alternative apportionment method for my unrelated business taxable income (UBTI), and does owning a partnership interest in another state give me nexus there?
Mostly no on the specific method requested, but the taxpayer still gets to apportion (rather than pay tax on 100% of its Virginia-based income). A nonprofit institution asked the Department to reconsi…
I moved out of Virginia for a job years ago and have lived and worked in two other states since, but my spouse, kids, some vehicles, and my driver's license and voter registration stayed in Virginia -- am I still a Virginia resident for income tax purposes?
Still a Virginia domiciliary resident -- because he never fully cut his Virginia ties even after living and working in two other states for years. The Department received IRS information suggesting th…
My county says I'm barred from appealing new tax assessments because I never separately appealed its earlier refund denial on the same issue -- is that right, and does quarrying limestone count as taxable 'processing' or exempt 'mining' equipment?
No to the procedural bar, and yes, quarrying counts as mining. A limestone-quarrying business (which also manufactured chemical quicklime at the same site) filed amended Machinery and Tools (M&T) tax …
My company deducted royalty payments to an affiliated intangible holding company, and I want the full 'subject-to-tax' exception from Virginia's intangible-expense add-back because all the royalty income was taxed somewhere else -- but does a state's 'throw-out' rule (like New Jersey's) affect how much of that exception I actually get?
Yes -- the exception has to be adjusted to reflect the extra income New Jersey's throw-out rule actually taxed. A multistate corporation and its affiliates deducted intercompany royalty payments made …
My county responded to my refund claim by issuing what it called a 'final local determination' -- can I appeal straight to the Department of Taxation, or do I have to go through a local appeal first?
Not yet -- the Department doesn't have jurisdiction to decide the merits until the taxpayer completes a proper local appeal. A limestone-quarrying business filed amended Machinery and Tools (M&T) tax …
My spouse died, then COVID hit, and I had serious health problems -- can those circumstances excuse filing our tax return late enough to still get our refund/credit?
No -- none of those three circumstances extend Virginia's strict 3-year refund deadline. A husband and wife filed their 2017 Virginia return in May 2021 -- about four years late -- reporting an overpa…
The Department assessed me for Virginia income tax based on IRS information, and I told them my husband didn't work in Virginia that year -- isn't that enough to get the assessment corrected?
No -- a domiciliary resident of Virginia owes Virginia tax on all their income regardless of where they actually worked, so simply asserting 'he didn't work in Virginia' doesn't address whether Virgin…
I claimed gambling losses and mortgage interest as itemized deductions, and the Department disallowed them for lack of proof -- what kind of documentation actually counts as proof of gambling losses?
Casino ATM withdrawals and direct payments to casinos count as proof of gambling losses; unrelated ATM withdrawals don't, and a Form 1098 is enough to prove mortgage interest. A taxpayer claimed medic…
I moved from Virginia to California partway through the year and paid tax to both states on my wages -- can I claim a credit on my Virginia part-year return for the California tax I paid?
No -- California is one of a handful of states with a special reciprocal-credit arrangement that flips which state grants the credit, so the Virginia credit was correctly denied. A taxpayer was a Virg…
My company pays a related entity both a merchandise-buying/procurement service fee and a software licensing fee -- are both of those 'intangible expenses' subject to Virginia's add-back requirement, or just one of them?
Merchandise buyer/procurement service fees are NOT intangible expenses subject to Virginia's add-back, but computer systems licensing fees ARE -- even though neither is specifically named on the statu…
I moved into my fiancee's home in another state years ago, but I still own a Virginia home I use as a vacation property and visit regularly, kept renewing my Virginia driver's license, and stayed registered to vote in Virginia until recently -- am I still a Virginia domiciliary resident for tax purposes?
Still a Virginia domiciliary resident -- largely because he renewed his Virginia driver's license in November 2020, five years after he says he moved out. The taxpayer had lived and worked in Virginia…
I have old Virginia income tax assessments from 2010 and 2011 that I never appealed because I didn't live in Virginia at the time -- can I appeal them now, over a decade later?
No -- far too late. A taxpayer had outstanding Virginia income tax assessments for failing to file returns for the 2007, 2008, and 2017 taxable years; after Department liens collected part of the mone…
If my employer relocates me out of state and I later separate from my spouse who stays in Virginia, have I abandoned my Virginia domicile?
Yes, in this case the taxpayer successfully proved he'd abandoned his Virginia domicile -- even though he kept his Virginia driver's license for years and retained some Virginia property connections t…
The Department is still trying to collect Virginia income tax assessments from 2009-2013 -- doesn't the current 7-year collection statute of limitations mean these are too old to collect anymore?
No -- the current 7-year collection deadline only applies to assessments made on or after July 1, 2016, and these were older. A taxpayer's Virginia income tax assessments for 2009 through 2013 (issued…
I moved out of Virginia years ago for work, but my spouse and kids stayed in our Virginia home, I kept renewing my Virginia driver's license and voter registration, and I even teleworked from Virginia during the pandemic while still filing returns in my new state -- am I still a Virginia domiciliary resident?
Still a Virginia domiciliary resident -- his own conduct, especially teleworking from the family's Virginia home during the pandemic while still filing returns in his new state, undercut his domicile-…
I asked the Department to reconsider its ruling upholding my withholding tax assessments, saying the facts were wrong -- but I never actually sent the documentation to prove it. Can I still get reconsideration?
No -- claiming the facts were wrong isn't enough; you have to actually submit evidence proving it. A taxpayer sought reconsideration of a prior Department ruling (P.D. 23-50) that had upheld withholdi…
My irrevocable trust owns interests in pass-through entities that elect to pay Virginia's Pass-Through Entity Tax (PTET) at the entity level -- can I pass the resulting tax credit through to my trust's beneficiaries?
No -- the PTET credit belongs to the trust itself and can't be passed further down to the trust's beneficiaries. An irrevocable business trust that owns interests in several pass-through entities (PTE…
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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.