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 part-year Virginia residents have to prorate S-corporation capital gain that documentation showed arose after they moved away?
No. Virginia generally treated property or business income as earned evenly through the year unless the taxpayer documented a specific timing. On reconsideration, the couple supplied records clearly s…
How did Virginia tax S-corporation income after a couple moved away, merged the Virginia company, and performed no later Virginia work?
The original Virginia S corporation had nexus for all of 2004 because it operated in Virginia before the move and remained in existence until a September merger. Its income had to be divided between t…
Was a brick maker's separately stated minimum-load charge an exempt delivery charge or a taxable service?
It was exempt. A third-party carrier charged for a full truckload even when the shipment used less capacity, and the brick maker used the minimum-load line to recover the difference between actual fre…
Were a contractor's water-treatment materials, Maryland-taxed purchases, administrative supplies, and equipment charges exempt from Virginia use tax?
No. The contractor provided no required pollution-control certification, and municipal water-treatment authorities did not qualify for the claimed industrial manufacturing exemption. Maryland tax paid…
Was a medical-equipment service contract exempt when a resale certificate was obtained after audit and the contract named a third-party vendor as purchaser?
No. A certificate obtained after audit was subject to heightened scrutiny and did not by itself prove that the third party validly bought the contract for resale. The agreement between that vendor and…
Were a permanent structure housing a production crane and magnesium-chloride dust-control equipment exempt manufacturing property?
No. Steel, panels, fasteners, paint, tools, and rentals used to build a crane-housing structure were plant construction permanently affixed to realty, not component parts of exempt machinery. Magnesiu…
Could an unregistered interior designer avoid estimated tax and penalties after collecting sales tax, keeping it, filing no returns, and preserving no records?
No. The dealer collected sales tax but never registered, filed returns, remitted the trust funds, or preserved records. Virginia properly estimated sales from bank deposits because the dealer offered …
How did Virginia's new 10% Digital Media Fee apply to separately charged in-room movies, programs, and games beginning July 1, 2009?
The fee was 10% of separately charged in-room movies, audiovisual programming, or games at lodging rented for fewer than 90 continuous days, in addition to then-applicable sales tax. It excluded inter…
Did claims of age, inefficiency, technological obsolescence, and low resale proceeds prove that a county overvalued manufacturing machinery?
No. A machinery-and-tools assessment was presumed correct, and the manufacturer supplied no appraisal or other clear evidence that the county's statutory percentage-of-original-cost method produced a …
Could a licensed Virginia cigarette stamping agent hire another company to physically affix stamps to the agent's own cigarettes?
Yes, under the stated arrangement. The licensed stamping agent would buy Virginia stamps from the Department for its own cigarettes and retain title while the contractor handled and affixed them solel…
Did other-state taxation let a corporation exclude 100% of related-member factoring fees from Virginia's add-back?
No. The exception applied only to the portion of factoring fees corresponding to affiliate income actually apportioned and taxed in other states, not the entire gross amount reported there. Virginia a…
Could a corporation exclude all related-member royalties and factoring fees because affiliates reported them in other states or because the transactions had a valid business purpose?
Not on these facts. The subject-to-tax exception covered only the portion of royalties and factoring fees corresponding to affiliate income actually apportioned and taxed in other states, not 100% of …
How did Virginia source a nonresident consultant's salary and dividends from his Virginia corporation?
Virginia apportioned the consultant's salary using documented days worked in Virginia compared with days worked elsewhere, rather than attributing all salary to Virginia through a corporate equitable …
When the same lender recorded a replacement mortgage to increase a home-equity line, was recordation tax due again on the existing principal?
No. Where the existing debt had already borne recordation tax and the same lender modified or refinanced it, Va. Code § 58.1-803(D) imposed tax only on the amount above the existing secured debt. Thus…
Could a taxpayer recover a 2001 Virginia overpayment, or use it against a 2003 balance, after filing the return in January 2008?
No. Even with a valid filing extension, the deadline for a 2001 refund claim expired November 1, 2005. The January 2008 return was too late under Va. Code § 58.1-499(D), so Virginia denied both a refu…
Did a four-corporation chain with the stated 80%-plus voting ownership qualify as a BPOL affiliated group, excluding intercompany employee-leasing receipts?
Yes. At least 80% of each subsidiary's voting interests was owned by one or more group members, and the common parent directly held at least 80% of two corporations. With no nonvoting stock, the state…
Were separately stated mileage, zone, road-service, and tire-disposal fees for on-site equipment repairs exempt from Virginia sales tax?
No. Mileage, zone, and road-service charges covered travel before and after the actual on-site repair, so they were not exempt delivery charges or repair labor; they were taxable expenses included in …
What were Virginia's Land Preservation Income Tax Credit cap and taxpayer claim limits for 2009?
The inflation-adjusted statewide issuance cap was $106,647,000 for calendar year 2009. Separate 2009 legislation reduced the amount claimable on returns for taxable years 2009 and 2010 to $50,000 per …
Was a cabinet seller-installer a retailer when it took orders at a business location and appeared to keep bulk cabinet materials?
Yes, based on the available evidence. A showroom was unnecessary because the business took and accepted orders at its Virginia location. The auditor reasonably found inventory where materials appeared…
Which federal modular-building transactions were exempt leases of tangible property rather than taxable real-property construction?
Virginia removed line items where contracts showed temporary or relocatable buildings leased directly to the federal government and intended for removal, making them exempt tangible-personal-property …
How should a multinational service firm apply BPOL payroll apportionment and the deduction for business conducted outside Virginia?
Virginia upheld the county's use of total worldwide receipts multiplied by county payroll over total payroll because the firm had definite places of business inside and outside Virginia. The firm coul…
Must a Virginia pass-through entity withhold for a nonresident owner whose other-state tax credit eliminates the Virginia liability?
No withholding was required for a nonresident owner whose allowable credit for taxes paid to the owner's state of residence was sufficient to offset all Virginia income tax attributable to the pass-th…
Could a company claim Virginia's coal incentive credit when it bought and consumed Virginia coal but did not own the electric generator?
No. Va. Code § 58.1-433.1 required the electricity generator to purchase and consume Virginia-mined coal and actually produce electricity. Virginia interpreted that to require ownership of the electri…
Is a separately stated market-development fee taxable when a vendor passes it through with a sale of materials?
Yes. Virginia treated the market-development fee as part of the taxable sales price because the vendor passed its representative's service cost through in connection with the material sale. Separately…
Which separately stated charges on a Virginia party-tent rental invoice were taxable?
Virginia taxed the tent rental and late fees. Separately stated installation and delivery charges were exempt. A separately stated fuel surcharge was exempt only when directly calculated and attributa…
Did a federal research-and-development subcontractor qualify for Virginia's reduced BPOL rate for principal or prime contractors?
No. Virginia upheld business-service classification at the ordinary rate because the contract designated the taxpayer as a subcontractor, not a principal or prime contractor, and Corporation A rather …
When could a Virginia federal contractor treat purchases as exempt resale property instead of taxable contract-use property?
Virginia applied the true-object test at the TDL, task-order, delivery-order, or work-order level where the contracts did not identify the later mix of goods and services. It removed documented proper…
Was a sign fabricator a retailer or real property contractor during 2003-2004, and was its full audit timely?
For this 2003-2004 audit, Virginia treated attached signs as real property and the fabricator-installer as the consuming contractor, so resale and manufacturing exemptions did not apply. The September…
Could Virginia residents subtract foreign-source income from their 2007 Virginia taxable income?
No. Virginia began with the residents' federal adjusted gross income, which included the foreign income, and no Virginia modification authorized a subtraction in 2007. The General Assembly had repeale…
Did Virginia's other-state-tax exception remove 100% of related-member royalties from the corporate add-back?
No. Virginia limited the exception to the portion of each affiliate's royalty income apportioned to and taxed by another jurisdiction; merely reporting the gross royalties on another state's return di…
Could a securities broker exclude commissions passed to independent representatives from BPOL gross receipts?
Generally no. The real-estate-broker exclusion did not extend to a securities broker merely because its business model was similar. The full fee, including the representative's commission, was gross r…
Could a multistate real-estate partnership replace Virginia's statutory apportionment formula with separate accounting for each property?
No. A different result under property-by-property separate accounting did not prove that Virginia's statutory formula was unconstitutional or inequitable. The partnership supplied no clear and cogent …
How did missing invoices and records affect a Virginia bank's consumer-use-tax audit appeal?
Virginia largely upheld the estimated assessment because the bank lacked invoices and transaction-level proof for real-property work, vendor tax, software delivery, accounting entries, services, and i…
Could a Virginia bank use sample invoices instead of transaction records to overturn a consumer-use-tax audit?
No. Sample invoices showing a vendor's usual practice did not prove the tax treatment of each audited purchase. Virginia removed many lines supported by matching invoices, tax payments, services, real…
Did unrelated Virginia installers create sales-tax or corporate-income-tax nexus for an out-of-state seller?
No, on the stated facts. The seller had no Virginia property, employees, sales representatives, contractor ownership, or installation supervision. Unrelated businesses installed the systems under qual…
Was a beauty retailer's paid discount membership taxable when members also received a birthday gift?
Yes. The membership was not merely a coupon program because members were entitled to tangible personal property, including a birthday-month gift valued at $10 or less. The website showed that benefit …
Did post-audit resale certificates prove that an Internet retailer's Virginia sales were exempt?
Only one reviewed transaction was removed. Virginia rejected a Puerto Rico resale certificate that became valid after the sale and a New Jersey certificate that did not match the Virginia purchaser, l…
Was a Virginia use-tax appeal timely when the assessment was dated July 8, 2008 and the appeal was mailed in February 2009?
No. Under the 90-day deadline cited in the ruling, the July 8, 2008 assessment had to be appealed by October 6, 2008. The Department's records showed no appeal correspondence until a February 2009 let…
Were aesthetic injectable implants used to treat facial wrinkles exempt from Virginia sales and use tax?
No exemption applied. Virginia treated the wrinkle-treatment injectables as medical devices rather than drugs, so the prescription-drug exemption did not apply. Because they were used for cosmetic pur…
How did Virginia aircraft tax apply to a replacement aircraft held through an LLC in a reverse exchange?
The LLC purchasing and licensing the replacement aircraft owed Virginia's 2% aircraft sales and use tax on the purchase price before licensing. Its lease to the taxpayer for no more than 180 days was …
Who owed Virginia aircraft sales and use tax when an out-of-state owner leased an aircraft that its lessee would sublease for Virginia use?
The primary lease was not taxable because the aircraft was not used or required to be licensed in Virginia under that lease. Virginia use under the sublease triggered the tax. If the owner obtained th…
Which items and transactions qualified under Virginia's historical hurricane preparedness sales tax holiday guidelines?
These expired guidelines exempted listed hurricane supplies costing $60 or less per item and listed generators, power cords, inverters, and inverter cables costing $1,000 or less during the May 25-31 …
Could beneficiaries subtract federally taxable lump-sum death benefits received from annuity contracts on their Virginia income-tax return?
Yes. Virginia said the subtraction applied because each payment came from an annuity contract between an annuitant and insurer, was paid to the beneficiary in a lump sum, and was subject to federal in…
How did Virginia tax a stone-countertop business that fabricated counters for retail sale and also installed them in buildings?
Virginia treated stone countertops adhered to permanent cabinets as real-property fixtures. For installed jobs, the business was a contractor and taxable user of the materials, not a reseller; because…
Did an advertising company prove that CD presentation, video testimonial, and photography invoices qualified for Virginia's advertising exemption?
No. The company offered general assertions, a website, and an appreciation letter, but did not tie the disputed CD, video, and photography work to a documented public advertising campaign. Because the…
Did a notice of intent preserve a Virginia tax appeal when no complete appeal was filed within the cited 90-day period?
No. The November 3, 2008 assessment required a complete appeal by February 2, 2009 under the 90-day rule quoted in the ruling. A notice of intent did not supply the required grounds and relevant facts…
Could a restaurant use Virginia's reduced food sales-tax rate and avoid tax and interest because it had not collected the full rate?
No. The restaurant was excluded from the reduced food rate because more than 80% of its food receipts came from food for immediate consumption. It owed the uncollected tax itself, and Virginia said th…
Could a Virginia business breeding canines for pharmaceutical companies buy feed, medicines, and vaccines under the agricultural exemption?
No. The canine breeder was not raising crops, statutory livestock, or another farming activity listed in Virginia's agricultural exemption. The medicines and vaccines also were sold directly to the br…
Did a corporate group's actual consolidated-return election control when Virginia had mistakenly granted permission to file a combined return?
Yes. The group was entitled to make an initial filing-status election, so no permission to change was needed. Its actual consolidated-return election and consistent filing method controlled, and Virgi…
Which worker-benefit payments could a staffing firm exclude from BPOL gross receipts when workers received Forms W-2 or 1099?
Qualifying benefits paid to workers treated as employees could be excluded, including W-2 employees and workers the firm treated as employees despite issuing Form 1099. Benefits paid to true independe…
What Virginia tax interest rates applied during the second quarter of 2009?
Virginia's April 1-June 30, 2009 rates were 6% for tax underpayments and 6% for tax overpayments. The 6% underpayment rate also applied through July 15, 2009 for specified estimated-tax computations b…
What did Virginia's 2009 retroactive legislation do to minimum taxes for noncorporate telecommunications companies and electric suppliers?
The legislation restored Virginia's minimum taxes for noncorporate telecommunications companies and electric suppliers for taxable years beginning on or after January 1, 2004. Pass-through entities re…
Could Virginia residents defeat assessments based on IRS changes when they filed no timely state amendments and supplied no proof the federal data was wrong?
No. The 2003 appeal was filed after the cited 90-day deadline. For 2004 and 2005, the residents had not timely reported the IRS changes and offered no evidence that the federal information or Virginia…
Could a nonprofit allocate only Virginia-source partnership income to Virginia and place all other unrelated business income outside the state?
No. The nonprofit did not provide clear and cogent evidence that Virginia's statutory formula was unconstitutional or caused Virginia-attributable double taxation. It also filed original returns using…
What does Virginia Ruling of the Tax Commissioner P.D. 09-23 conclude about Restaurant mandatory gratuity?
A mandatory gratuity or service charge up to 20% of the meal price was excluded from taxable sales price. Only the portion above 20% was taxable. Virginia said its website reflected the 2006 law chang…
How did Virginia's move to December 31, 2008 federal conformity affect 2008 income-tax returns?
Virginia conformed to the Internal Revenue Code as of December 31, 2008 for tax years beginning in 2008, except it continued to disallow most listed bonus depreciation and five-year carrybacks for 200…
What does Virginia Ruling of the Tax Commissioner P.D. 09-22 conclude about Aircraft is tangible personal property; extraction of natural gas (mining)?
No. Virginia treated natural-gas extraction as mining and said the aircraft was not mining machinery and tools because it carried employees, not extracted materials. More importantly, the separate aff…
What does Virginia Ruling of the Tax Commissioner P.D. 09-9 conclude about Military wages resulting from combat duty or extended active duty?
No. Combat pay already excluded from federal adjusted gross income could not receive Virginia's combat-pay subtraction. The extended-active-duty subtraction was also reduced dollar for dollar when bas…
How much refund could a taxpayer receive after filing a part-year return beyond the normal three-year deadline?
Only one payment qualified. The late part-year return was outside the normal three-year refund period, and no IRS change supported the separate 60-day federal-adjustment rule. Virginia could refund as…
What does Virginia Ruling of the Tax Commissioner P.D. 09-7 conclude about A registered dealer that failed to collect the sales tax on taxable transactions?
No. The supplier had an independent duty to collect, report, and remit sales tax on taxable sales to the consuming contractor. The contractor's separate use-tax obligation did not erase the dealer's l…
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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.