For the latest news and updates on Virginia state and local tax
October 24, 2023
Virginia Tax Commissioner Determines Taxpayer’s Qualified Data Center Purchases Were Exempt From Sales Tax
On August 3, 2023, the Virginia Department of Revenue issued a Revenue Ruling of the Commissioner, PD 23-92, holding purchases for a data center were exempt from sales and use tax. The taxpayer’s original refund claim was originally denied as the Department found the taxpayer failed to substantiate to the Department’s satisfaction its purchases were intended to be used in a data center because the purchases were not delivered directly to the data center. The taxpayer appealed the Department’s refund denial, noting that the data center exemption did not require that tangible personal property be delivered directly to a data center to qualify for the exemption. Ultimately, the Commissioner agreed with the taxpayer, and the refund was approved as the taxpayer’s purchases qualified for the Commonwealth’s data center exception.
September 22, 2023
Virginia Enacts Tax Cuts in Biennial Budget Bill
On September 14, 2023, Governor Glenn Youngkin signed the Commonwealth’s budget for the 2022-2024 biennium.
Pursuant to the budget bill, effective January 1, 2024, taxpayers can claim a Virginia deduction for 50% of the interest disallowed under IRC § 163(j). Previously, taxpayers could deduct 30% of the federally disallowed interest expense.
For tax years beginning on or after January 1, 2024, but before January 1, 2026, the standard deduction increases from $8,000 to $8,500 for single individuals and from $16,000 to $17,000 for married couples filing a joint return.
Finally, the budget bill reinstates the Commonwealth’s sales tax holiday applicable to Energy Star and WaterSense products, school supplies, clothing, and hurricane preparedness equipment. The 2023 sales tax holiday applicable to such purchases will take place From Friday, October 20 to Sunday, October 22. The budget also authorizes this sales tax holiday in 2024 and 2025. The dates for the 2024 and 2025 sales tax holidays will be announced by the Department of Taxation in the future.
January 6, 2023
Virginia Exempts Prescription Pet Food from Sales Tax
On December 20, 2022, the Virginia Tax Commissioner determined that sales of prescription pet food are exempt from sales tax pursuant to Virginia’s regulations on prescription medications.The Commissioner’s determination was in response to a taxpayer’s request for guidance on the application of VA. Code§ 58.1-609.10. In making this determination, the Commissioner held:
- Veterinarians are exempt from tax on their purchases of prescription drugs administered or dispensed within a veterinarian-patient/client relationship.
- Veterinarians selling or dispensing prescription drugs or medicines are not the consumers or users of the prescription drugs.
November 28, 2022
Virginia Grocery Tax Rate Reduction
On October 31, the Virginia Department of Taxation released tax bulletin 22-12 related to the Commonwealth’s grocery tax rate reduction. Effective January 1, 2023, the sales tax applicable to food sold for home consumption and essential personal hygiene products is limited to the 1% local option tax.
April 29, 2022
Virginia Enacts Pass-Through Entity Tax Election
On April 11, 2022, Governor Youngkin signed H.B. 1121 / S.B. 692, effective July 1, 2022, enacting a pass-through entity (“PTE”) tax, often referred to as a SALT Workaround. The Virginia pass-through entity tax is effective for taxable years beginning on or after January 1, 2021 through December 31, 2025, for qualifying pass-through entities.
On April 15, 2022, the Virginia Department of Taxation issued Tax Bulletin 22-6 which provides preliminary guidance regarding the new pass-through entity election. The Tax Bulletin issued the following guidance:
- Qualifying pass-through entities should file their 2021 tax returns by their original or extended due date but do not try to pay the elective PTE tax with their 2021 returns. The Department will not accept or process the elective PTE tax at this time.
- The Department will delay the implementation of the elective PTE tax until at least October 15, 2023. Therefore, qualifying PTEs will not be able to make an election nor will they be able to pay the entity-level tax on their 2021 returns. PTEs will not be allowed to claim the refundable income tax credit allowed by this legislation on their 2021 tax returns.
- Before October 15, 2023, the Department will publish guidelines regarding how to make the election retroactively for the 2021 tax year. These guidelines will also address the implementation of the PTE tax election for tax years 2022 through 2025.
June 9, 2021
Virginia Releases Information on Worker Misclassification
The Virginia Department of Taxation released information on worker misclassification, which involves incorrectly identifying individuals as independent contractors instead of employees. Beginning January 1, 2021, Virginia adopted the IRS definition of worker misclassification, which assumes that an individual is an employee unless the business can prove an individual is an independent contractor pursuant to IRS guidelines. The Department of Taxation will be initiating audits to look into worker misclassification issues and businesses who are misclassifying employees are subject to civil penalties. The IRS guidelines consider three categories when assessing a worker classification issue, which includes: behavioral control; financial control; and type of relationship. Virginia will begin audits with businesses and industries issuing 1099-NECs and 1099-MISCs to determine if the classification was appropriate. All instances of misclassification by the same employer within 72 hours will be considered a single offense. Employers in violation of classification guidelines will be subject to the following penalties: first offense will result in $1,000 per misclassified individual; second offense will result in $2,500 per misclassified individual; and third offense will be up to $5,000 per misclassified individual. Employers with more than one misclassification violation will be banned from certain government contracts for up to a year, and up to two years for subsequent violations. Businesses will also be liable for withholding taxes for improperly classified individuals, including penalties and interest. For more information, please visit the Virginia Department of Taxation website.
May 13, 2021
REMINDER: Virginia Unitary Reports Due July 1, 2021
Corporations subject to Virginia income tax may need to file a one-time report with Virginia Tax by July 1, 2021. This report will show the difference between the amount of tax the corporation would pay if it filed as part of a unitary combined group as compared to the amount of tax based on how it currently files. Taxpayers are required to use their 2019 Corporation Income Tax calculations to complete this report. The purpose of this report is to give the Virginia General Assembly information to determine if unitary filing is preferable to Virginia’s current regime, whereby taxpayers are allowed to elect separate, combined, or consolidated filing. There is no tax due with this report – it is strictly and informational filing. However, taxpayers who are subject to this requirement and fail to timely file (or taxpayers who make a material misstatement or omission) may be subject to a $10,000 penalty. For specific information, please visit the Virginia Department of Taxation website, or reach out to Withum’s State and Local Tax Group.
May 5, 2021
Changes to Virginia Litter Tax Take Effect This Month
Beginning May 1, 2021, every Virginia manufacturer, wholesaler, distributor and retailer of products in the following categories is subject to the Virginia litter tax:
- food for human or pet consumption;
- cigarettes and tobacco products;
- soft drinks and carbonated waters;
- beer and other malt beverages;
- newspapers and magazines;
- motor vehicle parts;
- paper products and household paper;
- glass containers;
- metal containers;
- plastic or fiber containers made of synthetic material;
- cleaning agents and toiletries;
- non-drug drugstore sundry products;
- distilled spirits.
Businesses become liable for the tax the first January 1 that the location is in business. If you start after January 1, you are not responsible for the litter tax until the following year.For business establishments open on or before January 1, 2020, payments made after the due date of Monday, May 3, 2021 will be subject to a late penalty of 100% of the tax due, plus accrued interest, and an additional late penalty of $100.
Businesses must pay $20 per business location, and an additional $30 for each location that manufactures, sells, or distributes groceries, soft drinks, or beer. For example, if you own a grocery store chain and have 10 locations in Virginia, you will owe $50for each grocery store (or $500 total).
April 28, 2021
Virginia Implements New Additional Local Tax in Specified Counties
Effective July 1, 2021, a new one percent (1%) additional retail sales and use tax will be levied in the Counties of Charlotte, Gloucester, Northampton, and Patrick (the “additional local tax”). The sales and use tax levied in these counties will total 6.3 percent, such rate being comprised of the 4.3 percent state tax, the 1.0 percent local option tax, and the 1.0 new percent additional local tax.
April 23, 2021
Virginia Enacts State Marijuana Tax
On April 7, 2021, Virginia voted to legalize adult recreational use of cannabis. Home cultivation and personal possession of cannabis will become legal July 1, 2021, but retail sales will not begin until January 1, 2024. Correspondingly, effective July 1, 2023, Virginia will charge a tax of 21% on any retail sale of marijuana, retail marijuana products, marijuana paraphernalia sold by a retail marijuana store, non-retail marijuana, and non-retail marijuana products. The tax will be in addition to any Virginia sales and use tax imposed, or any other provision of federal, state, or local law.The tax will not apply to any sale: (1) from a marijuana establishment to another marijuana establishment; (2) of cannabis oil for treatment under the provisions ofVa. Code Ann. § 54.1-3408.3; (3) of industrial hemp by a grower, processor, or dealer; and (4) of industrial hemp extract or food containing an industrial hemp extract. Virginia localities will also be permitted to charge a 3% tax on any sale taxable under the state provision. The local tax will be in addition to any local sales tax, any food and beverage tax, and any excise tax imposed on meals. For both state and local marijuana taxes, the seller will be liable for collecting any taxes due, and will be required file a return and pay taxes due on or before the tenth day of each month.
April 14, 2021
Virginia Information Reports Are Due July 1 for Corporations
Recently enacted legislation requires corporations that are members of a “unitary business” to file an informational report with the Virginia Department of Taxation for the combined group, which must be submitted on or before July 1, 2021, with no extensions. This informational report is based on the 2019 taxable year, and includes the difference in corporate income tax owed as a result of filing a combined report compared to the tax owed under the state’s current filing requirements. Any corporation required to submit such an informational report that fails to do so on or before July 1, 2021, or that makes a material omission or misstatement in connection with such report, may be subject to a penalty of $10,000 under the legislation.
April 7, 2021
Virginia Creates Housing Opportunity Tax Credit
For taxable years beginning on and after January 1, 2021 (but before January 1, 2026), Virginia will permit a housing opportunity tax credit that is equal to the amount of the federal low-income housing tax credit. Qualified taxpayers may claim a housing opportunity tax credit against Virginia tax liability prior to reduction by any other credits allowed for the taxpayer. The housing opportunity tax credit may be allocated by pass-through entities to some or all of its partners, members, or shareholders, regardless of whether or not the person is allocated or allowed any portion of any federal low-income housing tax credit. The credit is nonrefundable and can be carried forward up to five years.
April 1, 2021
Virginia Makes Reduction to Eligibility Requirements for Sales Tax Data Center Exemption
Virginia has amendedthe sales and use tax exemption for data centers in a distressed locality (L. 2021, S1423 (c. 368), effective 07/01/2021). More specifically, the job creation requirement to qualify for the exemption is reduced from 25 to 10 jobs, and the required capital investment is reduced from $150 million to $70 million for data centersthat qualify for the reduced jobs requirement.Please consult state regulations for the definition of “distressed locality.” The amendment bill requires all data centers claiming the exemption to report certain information to the Virginia Economic Development Partnership Authority and the Department of Taxation.
March 25, 2021
Virginia Advances Date of Conformity to the Internal Revenue Code, but Decouples from Certain provisions of the CARES Act and CAA
Legislation was enacted to advance Virginia’s date of Internal Revenue Code conformity from December 31, 2019 to December 31, 2020, which allows the State to generally conform to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (H.R.748) and the Consolidated Appropriations Act, 2021 (H.R.133) (“the CAA”). However, Virginia specifically decouples from three provisions of the CARES Act that: (1) suspend certain net operating loss (“NOL”) limitations for tax years 2018, 2019, and 2020; (2) suspend the excess business loss limitation for tax years 2018, 2019, and 2020; and (3) increase the business interest limitation for tax years 2019 and 2020. Further, Virginia decouples from the provision of the CAA that permanently reduces the medical expense deduction threshold.
March 23, 2021
Virginia Update on Extension of Filing Deadline
The Virginia Department of Taxation announced that the state’s individual income tax filing deadline has been extended to May 17, 2021. Individuals should file and pay by Monday, May 17. This extension does not apply to estimated payments. ( The Virginia individual income tax filing deadline has been extended to May 17, Va. Dept. Taxn., 03/19/2021 .)
March 17, 2021
Required Unitary Group Filing May Be Owed to Virginia by June 1, 2021
Virginia is considering a budget bill (HB 1800, not yet signed) whereby corporations that are members of a unitary business would be required to file a report containing the unitary combined net income of the group with the Virginia Department of Taxation. The report would be based on the 2019 tax year and would include, at a minimum, the difference in tax owed as a result of filing a unitary combined report compared to the tax owed under the current state filing requirements. The potential filing deadline for the report would be June 1, 2021; and the proposed bill sets forth a penalty of $10,000 for any corporation required to submit such report but fails to do so (or if there is a material omission or misstatement in connection with the filing).
April 15, 2020
Income Tax Filings
All income tax filings remain due May 1st; payments have been extended to June 1, 2020.
Updated Sales Tax Requirements
Beginning July 1, 2019, marketplace facilitators are now required to collect and remit sales tax if sales total $100,000 or more or have more than 200 sales in the state.