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 employer paid my moving expenses in 2018 and I thought the Tax Cuts and Jobs Act let me subtract that from my Virginia income -- why was my subtraction denied?
There's no Virginia subtraction available for employer-paid moving expenses for the 2018 tax year -- the taxpayer had it backwards. The federal Tax Cuts and Jobs Act (TCJA) didn't create a new deducti…
My husband is in the military and we were stationed overseas -- I thought the Servicemembers Civil Relief Act meant I couldn't be taxed by Virginia during that time, but the Department disagreed. Why?
The Servicemembers Civil Relief Act (SCRA) and its Military Spouses Residency Relief Act (MSRRA) amendment only protect a spouse who SHARES the servicemember's domicile -- they don't apply if the spou…
I got severance and unused vacation pay from my Virginia employer when I separated, but part of my ten years of service was spent working out of state -- can I subtract that portion on my Virginia return?
No -- Virginia doesn't provide any subtraction for severance pay or unused vacation pay, even for the portion attributable to work you performed in another state, when the payment comes from a Virgini…
My business designs, builds, and installs custom millwork and casework for institutional buildings -- am I a contractor, a wholesale merchant, a service provider, or do I need multiple business licenses?
Mostly a contractor, based on the evidence in the record -- but the case was sent back for more fact-finding on the details. A business that designed, built, and installed architectural millwork, inst…
Can a dealer fix a sales tax assessment by getting an exemption certificate from a customer after an audit has already started, and are service fees like diagnostic or roadside charges taxable when billed with a repair?
NO, the assessment was upheld -- once a customer with no exemption certificate on file goes out of business before an audit-time certificate can be obtained, the dealer cannot meet its burden of provi…
My auto repair shops bill customers a lump sum for parts and labor, and I also thought accepting a government ID or license plate proved a sale to a government customer was tax-exempt -- why did my audit assessment include both?
Two different results for two different issues. A multi-state vehicle repair shop was audited and assessed sales tax on lump-sum-billed invoices (where parts and labor charges weren't separately state…
I'm a full-time college student and my parents claim me as a dependent -- do I still owe the tax due shown on my own Virginia return?
Yes -- being a full-time college student claimed as a dependent on your parents' return doesn't exempt you from Virginia's filing and payment requirements if your own income exceeds the applicable thr…
My S corporation had subpart F/repatriation income under the Tax Cuts and Jobs Act, and it flowed through to my personal return -- can I subtract my share on my Virginia individual income tax return the same way a corporation could?
No -- even though Virginia's own corporate income tax statute allows a subtraction for subpart F income, that particular subtraction doesn't flow through from an S corporation to its individual shareh…
The IRS audited me and found unreported income, and Virginia assessed me for the same change plus interest -- can I get the interest waived since I didn't know about the federal adjustment right away?
No -- interest on a Virginia assessment can't be waived just because you didn't get around to amending your Virginia return promptly after an IRS audit adjustment; interest is mandatory unless the und…
I run a saw-blade sharpening business and add small amounts of metal alloy and plastic to the blades -- do I owe use tax on those materials, or can my customers be charged sales tax on them instead?
The sharpening business itself owed the use tax -- it couldn't shift that cost by taxing its customers instead. A company that sharpened industrial saw blades sometimes added a small amount of metal a…
The Department disallowed my Form 2106 employee business expenses and my Schedule C business expenses for lack of documentation -- can it do that, and do I get another chance to prove them?
Yes, the Department can disallow undocumented expenses, and this taxpayer didn't provide any documentation for either one. He claimed employee business expenses on a 2019 federal Form 2106, but for th…
I filed an amended Virginia return switching from the standard deduction to itemized deductions, which eliminated the tax I owed -- why did the Department reject it and keep the original assessment?
Because she hadn't provided proof the IRS accepted the corresponding federal amendment, and Virginia regulations specifically require that proof before an amended state return based on a federal chang…
The IRS let me exclude up to $10,200 of my 2020 unemployment benefits under the American Rescue Plan Act, but Virginia added it back and assessed me -- is that right?
Yes, the assessment was correct -- Virginia's fixed-date conformity to the Internal Revenue Code hadn't caught up to the ARPA yet when this taxpayer filed her 2020 return. The American Rescue Plan Act…
The IRS told Virginia I might owe tax and I'd never filed a return -- I argued I actually live in another state, but I kept renewing my Virginia driver's license and car registration the whole time. Do I still owe Virginia tax?
Yes, she remained taxable as a Virginia domiciliary resident. The Department learned from the IRS that this taxpayer likely owed Virginia tax for 2017 but had never filed a return; when asked for info…
I moved out of Virginia partway through the year but filed a full-year resident return -- was I supposed to file something different, and is my income after I left still taxed by Virginia?
Neither the full-year resident return they originally filed nor the nonresident return they later submitted with their appeal was the right form -- they needed to file as PART-YEAR residents. A marrie…
I'm a cigarette retailer who got assessed after an audit -- I say manufacturer incentive payments should reduce what I owe, but I can't produce complete records of them. Do I still owe the full assessment?
Yes -- without the complete records, the assessment stands. A cigarette retailer never filed sales and use tax returns for a nearly three-year period; under Virginia's cigarette compliance program (wh…
I install wireless signal-boosting systems in buildings -- how does Virginia sales/use tax apply to my sales when a customer gives me an exemption certificate, to my own purchases, to the amplifier equipment I install, and to my shipping charges?
A company that designs and installs in-building wireless signal-boosting systems asked the Department to clarify four separate tax questions, and got four separate answers. First, if a customer provid…
A county investigated and partially denied my amended-return refund claim for local business property tax -- can I appeal that response straight to the Department, or do I have to go through a local appeal first?
You have to go through a local appeal first -- a locality's response to a refund claim, even one based on its own audit-style review, is not a "final local determination" you can appeal straight to th…
My dental practice buys prosthetic devices and implants in bulk without a specific patient's name on each purchase (to protect patient privacy) -- do these still qualify for Virginia's durable medical equipment sales tax exemption?
No -- bulk purchases not tied to a specific patient at the time of purchase don't qualify, even if a patient's name isn't required to make that connection. A dental implant practice was assessed consu…
My tax preparation software subtracted my FULL unemployment benefits on my Virginia return, even though part of that amount was already excluded from my federal income under the American Rescue Plan Act -- can I blame the software and get the extra tax abated?
No -- the subtraction is limited by statute to only the portion of unemployment benefits that was actually included in federal adjusted gross income (FAGI), and using tax preparation software doesn't …
I'm a cigarette retailer who got assessed after an audit -- I argued manufacturer incentive payments should reduce it, but my vendors told me they can't produce the underlying records at all. Do I still owe the full assessment?
Yes -- when the documentation genuinely can't be produced, the assessment stands. A cigarette retailer never filed sales and use tax returns for a nearly three-year period; under Virginia's cigarette …
I argued my wages aren't legally 'income' and that the federal income tax is really just an excise tax that doesn't reach my earnings -- does that get my Virginia assessment thrown out?
No -- and pressing this kind of argument can make things worse, not better. The IRS told Virginia it had adjusted a couple's 2017 and 2018 federal adjusted gross income (FAGI) because they'd underrepo…
The Department asked me to document my itemized deductions, employee business expenses, Schedule C expenses, and student loan interest deduction across two tax years, and I never responded -- can it disallow everything and assess me?
Yes -- when a taxpayer simply doesn't respond to a documentation request, the Department can disallow the underlying deductions and the resulting assessment is upheld. Across the 2018 and 2019 tax yea…
My company bought a private jet and immediately transferred it, tax-free, into a revocable trust for a diplomat's exclusive use, based at a Virginia-area airport -- does Virginia's aircraft use tax still apply?
Yes, the tax still applied -- none of the three exemption theories worked. A foreign company bought an aircraft in June 2014, transferred it (with no money changing hands) into a revocable trust one m…
I mailed my Research and Development tax credit application before the September 1 deadline, but it arrived after the deadline with no postmark on the envelope -- does my mailing date count, or does the Department only look at when it actually received the application?
The Department only counts the date it actually received your application when there's no postmark -- your own claim about when you mailed it doesn't count as proof. A taxpayer's Research and Developm…
The IRS flagged me to Virginia as a possible non-filer, and I proved I actually live in another state -- am I completely off the hook, or could I still owe Virginia something?
You can win the residency fight and still owe Virginia a return. The IRS told Virginia this taxpayer might have needed to file a 2017 return; when he didn't respond to the Department's initial informa…
Can a couple who moved from Missouri to Virginia mid-year claim a Virginia credit for income taxes they paid to Missouri and other states?
Partly yes. The couple can claim a Virginia credit for income tax paid to Missouri and other states, but only for tax on income they earned while they were dual residents of both Missouri and Virginia…
The county denied my BPOL reclassification request, so I appealed to the Department -- but what I actually want is for the Department to let me use a payroll-apportionment method I never raised with the county. Can the Department rule on that?
No -- the Department has no jurisdiction to decide an issue that was never actually presented to the locality. A business had classified itself as a business service provider for BPOL tax purposes, th…
The county denied my BPOL reclassification request, so I appealed to the Department -- but what I actually want is for the Department to let me use a payroll-apportionment method I never raised with the county. Can the Department rule on that?
No -- the Department has no jurisdiction to decide an issue that was never actually raised with the locality first. A business classified itself as a business service provider for BPOL tax purposes, t…
I separated from my spouse, moved to another state for work, and leased an apartment there -- but I still jointly owned our Virginia home and kept my Virginia license and car registrations. Did I successfully change my tax domicile away from Virginia?
No -- his ongoing Virginia ties, combined with a shaky commitment to the new state, meant he never actually abandoned his Virginia domicile. After separating from his spouse in 2017, the taxpayer took…
My commercial lease bundles rent for the building together with rent for furniture, fixtures, and equipment -- can the Department override the allocation stated in my lease agreement and tax a bigger share of my rent?
No -- if your lease agreement documents a specific allocation between nontaxable real property rent and taxable tangible personal property rent, the Department will apply THAT allocation, not an audit…
I submitted an intent to appeal along with an offer in compromise, but the Department said my appeal was incomplete and closed my case -- can I still file a complete appeal after my offer in compromise is later rejected?
No -- Virginia's 90-day appeal deadline runs from the date of assessment, and pursuing an offer in compromise instead of, or alongside, a complete appeal does not extend or restart that clock. A taxpa…
My surgery center buys durable medical equipment and prosthetic devices in bulk from a vendor and only pays for items once they're withdrawn for a specific patient's procedure -- does that consignment arrangement qualify for Virginia's medical equipment sales tax exemption?
Not unless you can prove it was a genuine consignment where no money changed hands until a doctor's prescription or work order pulled a specific item for a specific patient. An ambulatory surgery cent…
An auditor disallowed my resale exemption certificates because they weren't on file at the time of the sale, or were undated or backdated -- can I still use them to remove sales from my assessment, and can I get the penalty waived?
No -- once an auditor is already looking at your sales, resale exemption certificates get much stricter scrutiny, and certificates that are undated, dated after the sale, or tied to a customer who was…
My nonprofit club sold golf tournament tickets that bundled the greens fee together with food, and separately paid out cash prizes to winners -- how does Virginia sales tax apply to each?
If you sell one ticket price that bundles a nontaxable admission fee together with a taxable meal or refreshments, and you don't separately state the two charges, Virginia taxes the ENTIRE ticket pric…
My business provides furnished temporary office space, shared workspace, meeting rooms, a business mailing address, and live phone answering on a flexible (hourly to annual) basis -- is any of this subject to Virginia sales tax?
No -- none of these services (furnished temporary office space, shared workspace, meeting rooms, business mailbox, and live phone answering) are subject to Virginia sales tax on what you charge custom…
My company provides IT and professional services across many locations and can't practically track which office's work generated which customer's revenue -- can I use payroll apportionment to situs my BPOL gross receipts to this county, and how do I compute the out-of-state deduction if so?
Yes, if it's genuinely impractical or impossible to attribute your gross receipts to a specific office under the general rule, payroll apportionment is the correct BPOL situsing method -- and once you…
I claimed employee business expenses on federal Form 2106 for 2018 and 2019, and the Department disallowed the deduction on my Virginia return -- can the Department override what I reported on my federal form?
Yes -- for 2018 through 2025, federal law suspended the Form 2106 employee business expense deduction for almost everyone, and Virginia's income tax starts from your federal adjusted gross income, so …
I claimed a Virginia subtraction for the long-term capital gain from selling stock in a big, well-known company -- why did the Department deny it?
Because the subtraction only applies to gains from investing in a small, Virginia-based company with less than $3 million in annual revenue at the time you invested -- not stock in any large or well-k…
I graduated from a Virginia university, moved to a state with no income tax for my new job, but kept my Virginia driver's license and voter registration -- do I still owe Virginia tax as a full-year resident?
Yes -- if you keep voting in Virginia elections and renew your Virginia driver's license after supposedly moving away, that's very strong evidence you never actually abandoned your Virginia domicile, …
A restaurant audit estimated my unreported cash sales using my credit card sales data because I didn't keep adequate records, and it also taxed sales I say were exempt -- can I fight both parts of the assessment without producing my own records?
No -- without your own adequate sales records, an estimate built from your available credit card sales data is a valid, previously-approved audit method, and exemption certificates you never had on fi…
My spouse claimed employee business expenses on Form 2106 and I claimed business expenses on Schedule C for my home health care business, but the Department disallowed both for lack of documentation -- do I get another chance to prove them?
Both deductions were properly disallowed for lack of proof, but you get one final chance to submit documentation before the assessments become final. A couple claimed the wife's Form 2106 employee bus…
The Department assessed me for a year I didn't file, saying I owe tax -- but I think overpayments from earlier years should have been credited to that year instead of refunded to me. Do I still owe the assessment?
No, you generally can't -- if the Department already issued you a refund check for an overpayment (and you cashed it), that same money can't also be applied as a credit against a later year's tax liab…
My business couldn't produce complete records for some sales and purchases during an audit, so the auditor assessed tax based on estimates and other transactions with the same vendor -- can I still get the assessment reduced by pointing to invoices showing tax was paid on similar purchases?
No -- Virginia's sales and use tax is a transactional tax, so you need documentation for EACH specific transaction, not just a general pattern of paying tax to the same vendor on other purchases. A co…
The IRS flagged me as never having filed a Virginia return -- I thought I was a California resident that year, but I still owned a Virginia home and renewed my Virginia driver's license. Do I owe Virginia tax, and can I still get credit for the tax I paid to California?
You likely still owe Virginia tax as a domiciliary resident if you kept meaningful Virginia ties (an owned home, a renewed driver's license) -- but if you were ALSO taxed as an actual resident of the …
My practice bought several software programs, and the vendor's invoices didn't say how most of them were delivered -- I say it was all electronic download, but the auditor taxed everything without a stated delivery method. Can I still win this on appeal with vendor documentation I gather afterward?
Yes -- if you can get the vendor to confirm, in writing and tied to your specific invoice, that a program was delivered purely by electronic download with no physical medium, that documentation can wi…
As a contractor installing canopies in Virginia, I separately listed an 'estimated use tax' on some customer invoices at their request, but I also remitted the actual use tax I owed to the Department -- do I owe the Department both amounts, or can I get credit for what I already remitted?
You owe the Department the full amount you charged customers as "tax" (since any tax you collect is held in trust for the state and must be remitted regardless of whether the charge was proper), but y…
My online store uses banner ads that Virginia residents might see, and my parent company may have Virginia nexus through its own wholesale business -- does either of those things give MY company Virginia sales tax nexus?
Banner advertising alone does NOT create Virginia sales tax nexus, but whether a parent company's own Virginia presence could create nexus for a subsidiary depends on facts the Department needs and di…
The Department denied my 2017 deduction for carryover contributions to my kids' Virginia 529 prepaid tuition accounts, saying I'd already used up all my carryovers in earlier years -- but I think my math is right. Can the Department go back and recheck years that are now outside the statute of limitations?
The Department can't reach back into years that are now outside the three-year statute of limitations to permanently fix your prior over-claimed deductions -- so it has to calculate what your CURRENT …
I claimed credit for German tax I paid on my foreign pension, but the Department denied it for two of the three years because it said my proof wasn't good enough -- what documentation actually satisfies this credit?
Copies of the foreign country's own information returns showing tax paid, plus a written explanation from a foreign tax professional showing how the tax was computed, are sufficient proof to claim Vir…
I paid UK tax on income I earned in the United Kingdom -- doesn't the US-UK tax treaty stop Virginia from also taxing that same income? And can penalties and interest be waived because I wasn't sure about the tax rules and COVID delayed things?
No -- the United States-United Kingdom Income Tax Convention only applies to certain FEDERAL taxes, not to state taxes like Virginia's, so there's no treaty-based exemption for UK-source income earned…
My business warehouses and repackages inventory owned by retailers to fulfill their customers' orders -- can I buy boxes, tape, and labels tax-free since the retailers ultimately pay for and resell the packaged goods?
No -- the packaging materials exemption only applies to the actual seller of the goods being packaged, and a third-party fulfillment business that merely stores and repackages OTHER companies' invento…
My utility bought a transformer, and the invoice has separate charges for installation/reassembly, shipping, and offloading at the job site -- which of these charges are subject to Virginia sales tax?
Installation and reassembly charges are taxable, separately stated delivery/transportation charges are exempt, but offloading (unloading) charges are taxable as "handling," not exempt transportation. …
My landscaping business was audited for six years instead of the usual three because I'd never registered for use tax, and the auditor won't remove items I say I already paid tax on, or leased equipment, or downloaded software -- can I fight any of this without documentation?
No -- without documentation, none of these claims (tax already paid, exempt equipment leases, exempt electronically-delivered software) can remove items from your audit, and if you were never register…
I invested in a qualified business and my Form EDC tax credit application was filed after the April 1 deadline because the company said it would handle the paperwork -- can Virginia make an exception?
No. Virginia enforces the April 1 filing deadline for the Qualified Equity and Subordinated Debt Investments Tax Credit as a hard cutoff with no exceptions, even when a taxpayer misses it because some…
My company got assessed sales tax because we couldn't produce a valid exemption certificate at the time of an audit -- can we still fix it with certificates or invoices we gather afterward?
Partially -- a certificate gathered after the sale can still work if the Department can independently verify the customer was actually entitled to the exemption, but it only covers invoices dated on o…
I claimed vehicle and other business expenses on Schedule C for three years, plus a Form 2106 deduction for one of those years, but the auditor said my repair receipts and bank statements weren't enough proof -- what documentation would have actually worked?
Repair invoices without proof of payment, and bank statements without notes explaining the business purpose, don't satisfy the IRS's heightened substantiation rules for vehicle expenses -- you specifi…
My spouse and I signed a contract to buy a home in another state and took an IRA distribution to fund it before we actually moved out of Virginia -- is that distribution taxed as Virginia income or as income from our new state?
Virginia income -- an intent to move isn't enough by itself; you have to actually be physically present in the new state before your old domicile is legally abandoned. A couple signed a contract to bu…
My business cuts and finishes stone slabs into custom countertops -- does that count as 'manufacturing' for local business license and equipment tax purposes, even though the finished product is still recognizably stone?
Yes. A countertop fabricator that cuts, edges, and polishes raw granite and marble slabs into finished countertops is a "manufacturer" for both BPOL and business tangible personal property tax purpose…
I moved out of state for work, leased housing there, and spent more nights there than in Virginia -- but my family, home, driver's license, and voter registration all stayed in Virginia. Am I still a Virginia resident for tax purposes, and does it matter that the Department cleared me in an earlier audit?
Yes, still a Virginia domiciliary resident -- physically spending more nights in another state doesn't abandon Virginia domicile when strong personal ties remain here. A taxpayer took a full-time job …
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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.