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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Can Virginia disallow both Schedule C business expenses and Schedule A itemized deductions on an audit, and uphold the resulting assessment, if the taxpayer never sends in records to support them?
Yes. Virginia starts its individual income tax computation from federal adjusted gross income (FAGI), and the Department has authority under Va. Code §§ 58.1-219 and 58.1-310 to examine and adjust bot…
Could Virginia disallow a resident's 2022 and 2024 Schedule C deductions when the taxpayer failed to provide the requested audit records?
Yes. Virginia may examine and adjust federal adjusted gross income when reported amounts appear inconsistent with federal law. Because the taxpayer supplied no support for the Schedule C deductions, b…
Could Virginia disallow resident taxpayers' 2024 Schedule C deductions when they failed to provide the requested audit records?
Yes. Virginia may examine and adjust federal adjusted gross income when reported amounts appear inconsistent with federal law. Because the taxpayers supplied no support for their Schedule C deductions…
Could Virginia disallow a resident's 2022-2024 Schedule C deductions when the taxpayer failed to provide the requested audit records?
Yes. Virginia may examine and adjust federal adjusted gross income when reported amounts appear inconsistent with federal law. Because the taxpayer supplied no support for the Schedule C deductions, t…
Can Virginia disallow federal Schedule C business-expense deductions and uphold an income tax assessment when a taxpayer under audit fails to provide documentation to support those deductions?
Yes. Just like the near-identical companion ruling P.D. 26-49, the Tax Commissioner upheld the Department's authority to disallow undocumented Schedule C deductions and adjust federal adjusted gross i…
Can Virginia disallow federal Schedule C business-expense deductions and uphold an income tax assessment when a taxpayer under audit fails to provide documentation to support those deductions?
Yes. Just like the near-identical companion ruling P.D. 26-49, the Tax Commissioner upheld the Department's authority to disallow undocumented Schedule C deductions and adjust federal adjusted gross i…
Can Virginia disallow federal Schedule C business-expense deductions and uphold an income tax assessment when a taxpayer under audit fails to provide documentation to support those deductions?
Yes. The Tax Commissioner upheld the Department's authority to examine and adjust federal adjusted gross income (FAGI), including Schedule C deductions, when the reported amounts cannot be verified, a…
If I concede that the business I reported on Schedule C did not exist, can Virginia still uphold the assessment disallowing those deductions?
No -- Virginia is not bound by your federal Schedule C, and here there was nothing left to salvage. After the Department disallowed the taxpayer's 2022 through 2024 Schedule C deductions for lack of d…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayers' Sch…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayer's Sch…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayers' Sch…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayer's Sch…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayers' Sch…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. The Department can examine and disallow Schedule C deductions on a Virginia return, and because an assessment is 'prima facie correct,' the taxp…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayers's Sc…
Can Virginia disallow or adjust the Schedule C business deductions on my state return, and what happens if I don't give the auditor documentation?
Yes. Virginia can examine and disallow the federal Schedule C deductions on your state return; the taxpayers' argument that the Department has no authority over Schedule C was rejected. Because Virgin…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayer's Sch…
Can Virginia disallow my Schedule C deductions on audit, and will it credit tax withheld from my wages that it added to my income?
Mostly no, but with a small win. Virginia is not bound by your federal Schedule C: the Department disallowed the taxpayer's 2022 through 2024 Schedule C deductions for lack of documentation, and becau…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayers's Sc…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayer's Sch…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayer's Sch…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayer's Sch…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayers's Sc…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayer's Sch…
Is Virginia bound by my federal Schedule C, and who has the burden when the Department disallows my deductions on audit?
No -- Virginia is not bound by your federal Schedule C. This is one of a series of materially identical Virginia Schedule C desk-audit determinations. Here the Department disallowed the taxpayer's Sch…
What documentation does Virginia require to keep a Schedule C business-expense deduction, and can the Cohan rule or a federal Tax Court win on another year save undocumented expenses?
Mostly denied, with one small win. Virginia disallowed a sole proprietor's Schedule C business-expense deductions for 2021 because the taxpayers couldn't prove they had actually paid the expenses. On …
Does the sales-and-use-tax research-and-development exemption cover a testing lab's purchases -- including common hardware -- or is its 'pass/fail' testing just non-exempt quality control?
The taxpayer won -- a Richmond Circuit Court held the testing lab's purchases were exempt research and development, and ordered the $75,041.41 assessment corrected with a refund plus interest. E-Labs,…
I retired and moved to another state, but I kept my Virginia house and license and never answered Virginia's residency questionnaire. Am I still a Virginia resident?
The assessment was upheld -- the taxpayer stayed a Virginia domiciliary resident because he failed to prove he abandoned Virginia. This is the losing counterpart to Virginia's domicile wins: to change…
I gave Virginia my donation lists to back up my charitable deductions, but they were disallowed. Why?
The assessment was upheld. This taxpayer claimed charitable-contribution itemized deductions for the 2020 tax year and, asked for proof, submitted donation lists. The Department found that at least 8 …
I sent Virginia my donation lists to support my charitable deductions, but they were disallowed. Why?
The assessments were upheld. This taxpayer claimed charitable-contribution itemized deductions for 2020, 2021, and 2022 and, asked for proof, submitted donation lists. The Department found that at lea…
We filed jointly and sent Virginia our donation lists, but our charitable deductions were still denied. Why?
The assessments were upheld. This married couple claimed charitable-contribution itemized deductions for 2020, 2021, and 2022, but when the Department asked for proof, it found that at least 14 of the…
The Department disallowed my charitable deductions even though I sent in donation lists. Why isn't my documentation good enough?
The assessments were upheld -- the documentation was not credible. This taxpayer claimed charitable-contribution itemized deductions for 2020, 2021, and 2022, and when the Department asked for proof, …
I backed up my charitable deductions with donation lists, but Virginia disallowed them. Why?
The assessments were upheld. This taxpayer claimed charitable-contribution itemized deductions for 2020, 2021, and 2022 and, asked for proof, submitted donation lists. The Department found that at lea…
When can a Virginia hotel stop charging sales tax on a long-term guest's room, and what proof does it need if the exemption is questioned on audit?
The assessment was upheld. A Virginia hotel may treat room charges as exempt only AFTER a guest has stayed 90 continuous days -- not before. Virginia exempts rooms furnished to a transient for more th…
My customers bought for resale, but I collected their exemption certificates late -- some after the audit started. Will Virginia still honor them?
Partly upheld, partly reduced -- and how each certificate fared turned entirely on WHEN it was received and whether the buyer could be verified. A tobacco distributor tried to knock out an audit asses…
Virginia says IRS data shows I should have filed a return, but I think I lived in another state. What happens if I don't respond to the Department's questions?
The assessment was upheld -- but with a final 30-day chance to fix it. The Department got IRS data suggesting this taxpayer should have filed a 2020 Virginia return; he hadn't, and when asked for info…
My resale certificate is undated, and for another customer I never collected tax but they say they paid it. Will Virginia honor either?
Mixed result -- one customer's exceptions removed, the other's upheld. A specialty coffee roaster was audited and assessed on sales where it hadn't collected tax or obtained an exemption certificate. …
I didn't give the auditor my records, so Virginia estimated my sales tax from my federal returns — can the estimate itself be challenged as overstated?
Partly — the estimate itself was justified, but the Department found the auditor's own methodology flawed in two of three areas even though the taxpayer proved nothing. A Virginia dealer failed to pro…
Virginia assessed me income tax based on IRS data, but I didn't live or work in Virginia that year — isn't saying so enough to cancel the assessment?
No — the assessment was upheld because the taxpayers never backed up their claim. IRS information suggested a married couple should have filed a 2019 Virginia return; they hadn't, and when the Departm…
We're a home builder assessed use tax on purchases of sand — isn't sand part of the land (real property), not tangible personal property, so no sales or use tax applies?
The builder lost again — sand stops being real property the moment it's dug up, so its purchases were taxable. A custom home builder was audited for February 2016 through February 2022 and assessed us…
We donated furniture, clothing, and household items to charities all year — no single dropoff was worth $5,000, so why is Virginia denying our itemized deductions for lack of an appraisal?
The deductions were denied — because the substantiation thresholds apply to the YEAR'S TOTAL of similar items, not to each dropoff, and a Form 8283 without underlying proof of value substantiates noth…
Our data center equipment qualifies for Virginia's exemption, but we buy in bulk and can't produce invoices matching each item shipped from our out-of-state warehouse to the Virginia facility — can other records support our refund?
The refund denial was upheld — the exemption doctrine was on the taxpayer's side, but the paperwork wasn't. A communications company providing high-speed satellite broadband and secure networking held…
I appealed my Virginia sales tax audit assessment by disputing the audit method, but the Department closed my case without addressing it — why?
Because the appeal never identified any specific error or cited any legal authority, so it wasn't a 'complete appeal' and the Department closed the case with the assessment intact. An auto-glass, repl…
The IRS says it adjusted my federal return and increased my income, but I think the IRS made a mistake — can Virginia's assessment based on that IRS change be corrected?
Generally no — the Department does not look behind a final IRS determination of your federal income, though it gave this specific taxpayer one more chance to prove he's actively contesting the IRS's n…
My county keeps taxing my limestone quarry equipment as 'processing' instead of exempt mining equipment, even after Virginia already ruled on this for my earlier tax years — what happens now?
The case goes back to the county for a fresh determination — because the county's 2022 decision was issued just before the Department had already ruled, in the same taxpayer's earlier-years case, that…
The auditor estimated my sales and use tax liability instead of using my actual sales figures — can I get that assessment overturned just by arguing it was based on an estimate?
No — arguing that an assessment is 'based on an estimate' isn't enough to overturn it when the dealer itself failed to provide the complete records the law requires. A Virginia retail dealer was audit…
The auditor's sample included some materials I bought knowing a customer would immediately buy them from me — can I get those specific purchases removed from an estimated assessment?
Yes, partially — two of the three disputed purchases were removed from the audit sample because the Taxpayer proved it knew, at the moment of purchase, that a specific customer would immediately buy t…
My audit includes a building permit charge and two big-box retailer purchases I say were already taxed — plus a broader dispute over use tax on materials I already collected sales tax on. What can be fixed?
Mixed result — the case is being sent back for review of the new one-time erroneous-sales-tax credit, one disputed audit exception (a building permit) was removed outright, but two other disputed reta…
I install traffic-management and tolling equipment on highway gantries for VDOT — is that equipment 'real property' I owe use tax on, or does it stay tangible personal property I can buy and resell tax-exempt to the government?
The equipment stayed tangible personal property, not real property -- because it was designed for easy removal and a short 5-to-7-year service life rather than to last for the life of the highway gant…
My audit was closed using estimates from my tax returns because I couldn't produce records in time — now that I actually have the records, can I get a fresh look?
Yes — because the Taxpayer now says the previously missing records are available, the Department is sending the case back to field audit staff for a fresh review, rather than treating the earlier best…
I moved out of state for work years ago and pay taxes there now, but I still have a Virginia driver's license and a house I visit regularly — does Virginia still consider me a resident?
Yes, likely -- because the taxpayer kept renewing his Virginia driver's license and returned regularly to a Virginia residence he retained, the Department found he hadn't proven he abandoned his Virgi…
The Department ruled against me on my residency dispute, and I found six other cases where taxpayers won similar arguments — can I get my case reconsidered on that basis?
No -- simply disagreeing with the result, even by pointing to six other cases where taxpayers WON similar domicile arguments, doesn't meet any of the four narrow criteria Virginia requires for reconsi…
My solar company's sales tax assessment includes sales I say were shipped to out-of-state customers, but I couldn't produce the invoices during the audit -- can I still get the assessment corrected if I find the paperwork now?
The assessment stands for now, but the taxpayer gets one final 30-day opportunity to prove its case. A solar power systems company was audited and assessed sales and use tax on sales, purchases, and a…
My company pays royalties to an affiliate that in turn pays a related company for research services -- can I reduce my Virginia royalty add-back for the R&D portion, and how much of a 'subject to tax' exception do I get if the affiliate paid tax on that income elsewhere?
A mixed result on three separate issues. A corporation paid royalties to an affiliate (Affiliate A) under a contract based purely on a percentage of revenue, with no research-and-development provision…
I paid use tax on my company plane when we moved to Virginia, then years later got charged a separate aircraft tax to license it -- can I get the earlier payment refunded as a double payment?
No — even though the Department, on reconsideration, agreed its earlier ruling had wrongly found the refund request untimely, the taxpayer still couldn't prove it was entitled to a refund on the merit…
My business is on its third consecutive audit and I didn't provide records this time either -- do I still get a final chance to submit them, and does the exceptions list matter?
This ruling is a near-identical companion to the same-day P.D. 24-117 -- same period (May 2018-April 2021), same '3rd generation' repeat-audit fact pattern, same statutes, and the same outcome. A busi…
My business is being audited for the third time in a row, and this time I couldn't produce records during the audit -- can I still fix the estimated assessment by providing the paperwork now?
The estimated assessment stands for now, but the taxpayer gets one more chance. A business undergoing its third consecutive ('3rd generation') sales and use tax audit failed to provide adequate record…
I sold IT equipment to a government contractor who said it was buying as an agent of the federal government under a cost-reimbursement contract -- is that sale exempt from Virginia sales tax?
No -- and the audit sample challenge also failed. A government IT contractor made untaxed sales of hardware, software, and consulting to another contractor ('Customer 1'), treating the sales as exempt…
I filed an appeal of old Virginia income tax assessments years late, claiming the 1099s the Department relied on were the result of fraud by the company that issued them -- can the Department still fix my assessments?
No relief on any front -- the appeal was years too late, no valid protective claim existed, and even on the merits the taxpayer had no proof. A Virginia resident was assessed individual income tax for…
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…
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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.