Should you collect sales tax in Virginia?
Sales tax is levied on retail selling tangible personal property to your customers, including leasing or renting tangible property. However, you will collect the sales tax if you determine the nexus in Virginia. Nexus is the presence that may come physically or economically.
A physical nexus is typically created when your business has a store, warehouse, or office location in Virginia. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds can be on a revenue or some other transactional basis.
Let’s explore if your business has a Physical nexus in Virginia.
A physical nexus is integrated when your business is engaged in the following in Virginia:
- Servicing tangible personal property in Virginia.
- Maintaining, occupying, or using a place of business or an office in Virginia.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- Leasing or owning any tangible personal property in a state.
- Having a stock of goods in Virginia.
Constituting an Economic Nexus in Virgina?
You are required to comply and register under sales tax rules if you are a remote seller (i.e., don’t have a physical presence in the state) and business sales in Virginia exceed $100,000 during the current or previous calendar year or make 200 or more separate retail transactions or delivery into the state.
You may also refer to the Virginia Taxation Department Advisory to learn more about activities that may create a business nexus within the state.
How can you Register for Sales tax in Virginia?
To get the sales tax permit, you must apply online by visiting the Virginia online portal. Alternatively, you can submit the licensing application using the R-1 form and send it to their mailing address.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- EIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Virginia.
- Contact information.
- Estimated total monthly sales.
- NAICS Code.
- Nature of business.
Here are the other details you should know while registering for sales tax in Virginia.
Is your product or services liable for sales tax in Virginia?
Tangible Property: Sales tax in Virginia is imposed primarily on the retail sale of tangible personal property, such as furniture, giftware, toys, etc.
Services: Services are generally not subject to sales tax in Virginia. However, some exclusions, such as service or labor costs, create tangible personal property, hotel stays, vehicle rentals, etc. For more information, click here.
Digital Product: Virginia doesn’t charge sales tax on digital products such as software, streaming services, e-books, etc. Here is what Virginia says about digital transactions.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. This is non-taxable in Virginia. Review the Virginia Revenue Department advisory.
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, utilities, manufacturing equipment, etc. Please click here to see what exemptions are covered.
You can read further by visiting the department website to know exactly what’s included in your list of items bound to pay sales tax.
How should you collect and calculate state taxes in Virginia?
Collecting and computing accurate sales tax to be remitted to the state may not involve those boisterous efforts as the sales tax is origin-based in Virginia, which means you must collect taxes at the rate where your business is located. However, if you are not based in Virginia and create a business relationship through economic nexus in the state, you’ll have to collect and remit the sales tax.
Complexities involved where you have a business nexus even if not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden and you can focus on other important business aspects.
Virginia has a base sales tax rate of 5.3%, followed by the local tax rates, which vary based on the cities and municipalities and can go up to 1.7%. Visit the sales tax rates page to know the sales tax rates of each city or county.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (5.3% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
Shipping charges can be delineated separately in the sale invoice raised to the customer or dissipated within the selling price of items sold. If shipping charges are separately stated on the invoice, there will be no tax applicability. However, if they are not stated separately, you need to collect the tax on the total sales price, including shipping charges. This link will take you to the official guidance issued by the state on shipping charges.
How should you file sales tax in Virginia?
E-forms: You can e-file and pay taxes using paper e-forms without a login ID or password. Just complete the form to pay using direct debit and submit it electronically.
Business Online Service account: File electronically by entering your tax account’s login ID and password and file and pay the taxes therein.
Web Upload: Save all your return and payment information on the web upload portal to send the details to the tax department.
Payments are to be remitted along with filing, and they can be made through multiple modes, including ACH credit, direct debit, credit cards, etc. To learn more about filings and payments, please click here.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the Virginia Department of Taxation assigns you a filing frequency, which can be Monthly or Quarterly. According to your filing frequency, the due date for filing sales tax would be the 20th day of the month following the relevant reporting period.
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. This link will take you to the official Virginia government advisory, where you can see what the state says about sales tax filing due dates.
Are there any fines or penalties for default when filing or paying sales tax?
The state levies a penalty of 6% of sales tax due per month and interest accruing daily at the federal underpayment rate plus 2%. The maximum penalty is 30% of the tax due, subject to a minimum of $10.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Please review the guidelines the Virginia Revenue Department issued for penalties and interest.
Sales tax holiday in Virginia
The Virginia sales tax holiday applies to clothing, footwear, school supplies, Energy Star, and other items. The sales tax holiday would start from 2nd August (12:01 a.m.) to 4th August (11:59 p.m.) for 2024. For detailed information, refer to the Virginia Revenue Department advisory here.