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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When a cigarette retailer cannot document its resale purchases, can Virginia assess tax from distributor records, and is a new owner liable for the prior owner's cigarette sales tax?
Mostly upheld, with one credit. A cigarette retailer could not produce sales records, bank statements, or purchase invoices, so the Department used distributor records of the retailer's tax-free (for …
Does the ISP equipment exemption cover wholesale Internet access and 100%-exempt mixed-use claims, and can a refund be denied for unverified transactions?
Refund denied. This is one of three materially identical companion determinations the Department issued the same day (May 12, 2020) to related Internet service providers -- see P.D. 20-80 (the fuller …
Does the ISP equipment exemption cover wholesale Internet sales and 100%-exempt mixed-use claims, and can a refund be denied for unverified transactions?
Refund denied. This is one of three materially identical companion determinations the Department issued the same day (May 12, 2020) to related Internet service providers -- see P.D. 20-80 (the fuller …
Does the Internet service provider (ISP) equipment exemption cover wholesale Internet sales and mixed-use equipment, and can a refund be denied for unverified transactions?
Refund denied. The Internet service provider (ISP) equipment exemption (Va. Code Sec. 58.1-609.6 2) reaches only equipment used to provide Internet access to end-user subscribers -- retail ISPs -- not…
Can a pass-through entity claim the IRC 965(c) repatriation deduction and an IRC 754 basis deduction when computing its 2017 Virginia nonresident withholding tax?
Won -- the withholding assessment was abated. A pass-through entity owes 5% nonresident withholding on Virginia-source income allocated to nonresident owners (Va. Code Sec. 58.1-486.2). This entity cl…
Can a manufacturer make the modified (single sales factor) apportionment election retroactively on an amended return after an audit, instead of on a timely original return?
Denied. After an audit, a manufacturing corporation tried to elect the modified apportionment method for manufacturers (Va. Code Sec. 58.1-422) -- effectively a single sales factor -- for years it had…
Can a Virginia partner subtract the entire gain from selling a Historic Rehabilitation Tax Credit, or is the subtraction limited to net capital gain?
The entire gain is subtractable. A partner reported his share of a short-term capital gain from the partnership's sale of a Historic Rehabilitation Tax Credit and subtracted the full amount on his Vir…
Can Virginia estimate a use tax assessment from a contractor's income tax returns, and use a six-year period, when the contractor did not provide records or file sales tax returns?
Upheld, with one more chance. A real property contractor with a Virginia location never filed Virginia sales and use tax returns and did not respond to the auditor's repeated requests for records or t…
In a fuel dealer's audit, which sales qualified as exempt home heating fuel, and when do manufacturing or government exemptions and out-of-state certificates fail?
Partly won. This fuel dealer's audit was adjusted but mostly upheld. Home heating oil, gas, coal, or firewood sold to an individual for non-business use is exempt for domestic consumption (Va. Code Se…
Does the ISP equipment exemption cover wholesale Internet access and 100%-exempt mixed-use claims, and can a refund be denied for unverified transactions?
Refund denied. This May 5, 2020 determination is part of the same materially identical series of Internet service provider refund rulings as P.D. 20-80 (the fuller companion) and P.D. 20-81 and 20-82 …
What tobacco products tax rate changes took effect July 1, 2020, and how is the new tax on liquid nicotine (vaping) products applied?
These are the Department's guidelines implementing the July 1, 2020 tobacco products tax changes enacted by Item 3-5.21 of the 2020 Appropriation Act (House Bill 30). Effective July 1, 2020, the tobac…
Does a building-supply retailer's lumber mill shop qualify for the industrial manufacturing exemption when milling is only 12-15% of the business?
No exemption. A business that sells building materials at retail and also runs a lumber mill shop making custom millwork asked whether its mill equipment qualifies for the industrial manufacturing exe…
Can a Virginia resident who works remotely from Virginia for an out-of-state employer claim a credit for tax paid to the employer's state?
Denied. A wife who moved to Virginia and worked remotely from her Virginia home for an employer based in another state reported that income to the other state and claimed a Virginia credit for the tax…
Can a corporation reduce late-payment penalty and interest by carrying back a later net operating loss, and is a two-year-late appeal timely?
Denied as untimely. A corporation filed its 2016 return but did not pay, so the Department assessed the tax plus a late-payment penalty and interest in November 2017. The company later carried a 2017 …
Can taxpayers reopen assessments after exhausting appeals, and do photographs prove the value of donated items for a charitable deduction?
Denied across the board. On reconsideration of P.D. 18-144, the Commissioner upheld every assessment. The 2010 year had already been decided in prior determinations and would not be revisited. The 201…
Could Virginia consolidate a parent with its subsidiary and attribute partnership sales to the parent without proving Virginia destination sales, nexus, or income distortion?
No, not on the audit record developed here. Although Va. Code § 58.1-446 allows equitable adjustments for arrangements that improperly reflect Virginia income, the auditor did not establish a rational…
What happens when a taxpayer supplies, on appeal, the audit documentation it could not produce during the audit itself?
Closed and referred back. The taxpayer's whole appeal turned on documentation it could not provide during the audit. Because it supplied that documentation on appeal, the Department referred it to the…
Is cloud-delivered software exempt from Virginia use tax, are out-of-state-shipped purchases exempt, and can a third-generation audit's compliance and amnesty penalties be waived?
Mixed, with relief. This government contractor's use tax audit was adjusted on several fronts. Software from two vendors was cloud-based software-as-a-service, so it was electronically delivered and e…
Which Virginia tax payments received an automatic interest waiver during the 2020 COVID-19 crisis, and what deadlines and exclusions applied?
Virginia automatically waived interest and penalties on certain 2019 individual, corporate, fiduciary, estimated, and composite income-tax payments if paid by June 1, 2020; extension filers generally …
Are monthly charges for contractor-owned standby generators at Virginia grocery stores taxable equipment leases or exempt power services?
They were exempt service charges. The contractor owned, installed, monitored, maintained, fueled, and ultimately removed the generation systems; the grocery operator never possessed or could buy them …
Does a contractor's continuous work at a Virginia military facility create a definite place of business subjecting its service receipts to county BPOL tax?
Yes. Fourteen employees worked exclusively and continuously at the client's military facility for more than 30 consecutive days, creating a definite place of business under Va. Code § 58.1-3700.1 even…
When is a Virginia income-tax appeal timely and complete, and may a taxpayer appeal while the audit is still being completed?
A complete appeal must be filed within 90 days after the assessment is mailed. This taxpayer's appeal was postmarked more than 90 days after the June 6, 2019 assessments, and a letter saying only that…
May a Virginia business appeal a city BPOL assessment directly to the Department before first obtaining the city's final determination?
No. An assessment created an appealable event, but the taxpayer still had to appeal to the city first. The city employee's same-day explanation of the assessments was not a final local determination, …
How did Virginia implement the July 1, 2020 cigarette-tax increase, including stamp limits, the floor tax, and transition deadlines?
Virginia's cigarette tax doubled on July 1, 2020 from 1.5 to 3 cents per cigarette -- from 30 to 60 cents for a pack of 20. These guidelines limited old-stamp purchases during April-June 2020, barred …
Can a Virginia cigarette wholesaler defeat a sales-tax assessment with resale certificates and invoices obtained only after the audit began?
No. The wholesaler obtained two resale certificates only after the audit started, so they were not treated as accepted in good faith and required independent validation. Both customers' registrations …
Could two restaurants overturn estimated Virginia sales-tax assessments based on income returns and comparable businesses when they lacked verifiable sales records, and did first-audit penalties apply?
The estimated tax stood, but the compliance penalty was waived. Because the restaurants lacked adequate records and their reported figures were inconsistent or unverifiable, the auditor reasonably use…
When may a Virginia equipment distributor rely on cable-television and resale exemption certificates, and which purchases remain taxable?
Mixed. The distributor properly accepted a cable customer's Form ST-20 in good faith for equipment used to broadcast, amplify, transmit, or distribute cable signals, and properly accepted a facially v…
Must an out-of-state trucking company with Virginia routes file a Virginia corporate income tax return?
Yes. An out-of-state trucking company whose trucks pick up and deliver in Virginia has a positive Virginia apportionment factor (vehicle miles in Virginia), and Virginia treats that as creating income…
What happens when a Virginia taxpayer first supplies documents supporting a sales-tax refund claim during the administrative appeal?
The Department closed the appeal and referred the new documents to field audit staff to review the refund claim and revise it as appropriate. If issues remained after the refund audit revision, the ta…
How long does a Virginia taxpayer have to request reconsideration of a final Tax Commissioner determination?
Forty-five days under 23 VAC 10-20-165 F. The taxpayer asked on September 18, 2019 to reconsider P.D. 19-49, issued May 8, 2019, well after the deadline. Further review was barred, P.D. 19-49 remained…
What happens when a Virginia sales-tax taxpayer first provides supporting audit documentation during its administrative appeal?
The Department closed the appeal and sent the newly supplied documentation to field audit staff for review and any appropriate audit adjustments. If issues remained after the auditor revised the audit…
Did a couple who moved abroad for work change their Virginia domicile, and did rent from their retained Virginia home remain taxable?
Yes, they changed domicile before 2015. Their initially temporary 2012 assignment became indefinite in 2014; they leased a foreign residence, obtained local driver's licenses, registered a vehicle, di…
How does Virginia treat a taxpayer who is a California actual resident but retains Virginia domicile, and where is the California tax credit claimed?
The taxpayer remained a Virginia domiciliary resident because her California employment began as temporary and she retained Virginia property, voter registration, vehicle registration, and a driver's …
Can a Virginia taxpayer challenge old nonfiler assessments and recent self-reported tax bills with a general statement that the amount owed is disputed?
No. An appeal postmarked September 12, 2019 was too late for assessments issued from 2009 through 2015, because Va. Code § 58.1-1821 allows 90 days. The Department had jurisdiction only over 2017-2018…
May Virginia individual owners claim fixed-date-conformity bonus-depreciation subtractions shown on their pass-through entities' VK-1 forms when no prior addition appears on their personal returns?
Yes on these facts. The couple accurately reported 2015-2016 FDC subtractions shown on asset reports and VK-1 forms from two pass-through entities for assets placed in service earlier with federal bon…
Could Virginia tax an individual as a domiciliary resident for 2016 after a prior ruling had already concluded she did not re-establish Virginia domicile until 2017?
No. P.D. 19-83 had already concluded in the taxpayer's 2015 case that she could not have re-established Virginia domicile until she returned to the United States and began residing in Virginia in 2017…
Did working in another state and spending fewer than 183 days in Virginia change a consultant's Virginia domicile when he stayed in a hotel and kept Virginia ties?
No. The husband may not have been an actual resident under the 183-day test, but he remained a Virginia domiciliary resident. His hotel in the work state was not a permanent or indefinite residence, a…
What records must Virginia taxpayers provide to substantiate charitable gifts, unreimbursed employee expenses, and Schedule C business deductions?
They must provide records sufficient to verify each deduction under the federal rules Virginia follows. This couple failed to substantiate charitable gifts, unreimbursed employee expenses, and expense…
Could Virginia rely on federal W-2 data to add omitted wages to nonresident, part-year, and resident returns when the taxpayer offered no contrary evidence?
Yes. Wages are generally income under IRC § 61 and flow into Virginia taxable income. For 2015, Virginia could rely on the W-2 showing Virginia wages absent proof they were not Virginia-source compens…
Did Virginia's deduction for 'long-term health care insurance' also cover premiums for ordinary health insurance?
No. The phrase covered long-term care insurance for extended nursing-home or in-home care, not general medical insurance. Legislative history used 'long-term care insurance' and 'long-term health care…
Did a couple change domicile from Virginia during a two-year move when they initially stayed with a relative and retained Virginia property, licenses, and vehicles?
Yes. Although the move took two years and the couple retained Virginia ties during the transition, the evidence showed a continuing process of establishing domicile in the new state: living there, att…
Did maps, clothing lists, and phone-payment logs substantiate unreimbursed employee expenses for mileage, work clothes, laundry, phone, and internet?
No. The maps lacked exact addresses and conflicted with the employment record; the clothing list had no receipts and the contract imposed no uniform requirement; and the phone and internet logs did no…
How should Virginia taxpayers report claim-of-right income received in one year and repaid in a later year?
They should follow their federal IRC § 1341 treatment on the Virginia return for the repayment year, not revise the year the income was received. If a repayment over $3,000 qualifies, they may use the…
Was a 2019 amended Virginia return claiming a 2014 refund timely when another state had just assessed the taxpayer for 2014?
Yes. The ordinary three-year refund period had expired in May 2018, but Va. Code § 58.1-1823 A (v) gave the taxpayer one year after another state's final determination to amend the Virginia return. Sh…
Did a military couple establish Virginia domicile before the wife's active-duty assignment despite claiming another state as home of record?
Yes. They voluntarily moved to Virginia in May 2015, obtained a Virginia license and vehicle registrations, leased and later bought a home, and had no definite departure plan. The wife's active-duty a…
Did a demolition contractor's construction-material recycling equipment qualify for Virginia's industrial manufacturing and processing exemption?
No. The contractor's primary activity fit NAICS 238910, Site Preparation Contractors, in Sector 23 rather than manufacturing Sectors 31-33, so its recycling equipment and parts did not qualify. Virgin…
Could owners claim Virginia fixed-date-conformity bonus-depreciation subtractions reported on their pass-through entity forms when Virginia had no record of an earlier addition?
Yes. The couple accurately reported the 2015 and 2016 subtractions shown on the entity's Virginia asset reports and VK-1 forms, so they were entitled to claim them and the assessments were abated. If …
Is a discharged servicemember's severance pay taxable by Virginia when he received it after separation while still living in Virginia?
Yes. A servicemember was discharged in January 2015 and received his final military pay plus a severance payment in February 2015. He left those amounts out of his federal adjusted gross income, but t…
What proof did Virginia require for 2017 personal-property-tax and cash or noncash charitable deductions?
Property-tax bills alone were insufficient; the couple needed receipts, canceled checks, or other proof of payment and received 30 days to provide it. Cash gifts would be adjusted to the supplied rece…
Could taxpayers receive Virginia's Qualified Equity and Subordinated Debt Investments Tax Credit when their 2018 applications arrived after April 1, 2019?
No. The applications arrived May 8, 2019, after the hard April 1 deadline for capped credits. The taxpayers also could not move the 2018 investments into the 2019 credit pool; the 15-year carryforward…
How should a Virginia taxpayer report bonus depreciation embedded in a federally suspended passive activity loss?
The suspended loss and embedded bonus depreciation were not in federal adjusted gross income, so separate Virginia additions and subtractions were not required. The passive loss offset the bonus-depre…
Could a Virginia distributor use the manufacturers' single-sales-factor election because it owned 99.9% of a separate manufacturing partnership?
No. The distributor was a Sector 42 entity that did not produce or assemble products. Its Sector 31 partnership's manufacturing activity, income, and factor attributes could flow through proportionate…
Did Virginia decide whether an event venue's space rentals were taxable when the operator refused to provide rental records during audit?
No. Without the records, the Department could not evaluate the venue's claim that it rented only space and provided no transient lodging. The estimated six-year assessments were upheld, but the operat…
Which companies must use Virginia's Debt Buyer Apportionment method, and how are recovered-debt receipts sourced?
A company whose majority business is buying qualifying nonperforming debt from unaffiliated commercial entities must use a single sales factor. Debt recoveries are sourced first to the debtor's actual…
How should a Virginia county calculate BPOL tax for a multistate staffing firm with temporary workers at client sites?
The county had to first apply the staffing-firm deduction, then identify the taxpayer's own definite places of business and situs remaining receipts under the statutory hierarchy, and only then test t…
Could a Virginia county require a farm winery's event-rental operation to hold a separate BPOL license and assess up to six preceding years of omitted tax?
Yes, if local officials found the event rentals were an independent business rather than ancillary to winemaking. The winery license would not cover that business, and failure to apply allowed—but did…
Could a Virginia convenience store overturn an assessment for sales tax collected but not remitted when earlier records were destroyed and no proof of overpayment was supplied?
No. Available 2018 z-tapes and tax records showed that the store collected tax at correct rates but underreported sales and tax. The assessment was presumed correct, and the owner supplied no evidence…
Were structural 'blue boxes' permanently attached to a building to support a manufactured sign treated as real property or taxable tangible personal property in Virginia?
They were taxable tangible personal property. Virginia's manufactured-sign rule covered the sign and structural additions built to support it, even when permanently attached to the building. The Commi…
Could a regulated investment company subtract undistributed capital gains from Virginia income, or could resident shareholders claim credit for Virginia tax paid by the company?
No. Federal conformity included the undistributed gains in both the RIC's Virginia taxable income and resident shareholders' FAGI. Virginia law provided neither the requested corporate subtraction nor…
Could a Virginia home-staging company keep design services nontaxable by separately stating them from taxable furniture rentals on the same invoice?
Yes. 'Billed separately' required separate line-item charges, not separate invoices. Because the staging company separately stated design services and furniture rentals and collected tax on the rental…
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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.