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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I have a general ledger and trial balance showing my company overpaid sales and use tax due to an accounting error -- is that enough documentation to get a refund?
No -- summary-level general ledger and trial balance data isn't enough on its own; Virginia requires transaction-level documentation to support a refund. A manufacturer of medical devices sought a ref…
I'm active-duty military stationed outside Virginia claiming a different home state -- is claiming a tax credit on my other state's return enough by itself to prove I'm not a Virginia resident?
No -- claiming a credit on another state's return for taxes paid to Virginia doesn't, by itself, prove you're not a Virginia domiciliary resident; you need actual evidence like a State of Legal Reside…
The Department's audit says my subcontractors should have been classified as employees, but the audit report just says I told them what job to do -- is that enough to support the assessment?
No -- and the Department overturned this misclassification assessment because the audit's reasoning was too thin. A drywall and painting LLC was audited and told three of its subcontractors should hav…
I moved for a new job in another state, but I still own a Virginia vacation home and briefly got a Virginia driver's license during the move -- does that make me a Virginia resident for tax purposes?
Not necessarily -- a Virginia driver's license and a Virginia vacation home are only two factors among many, and here they didn't outweigh the rest of the evidence pointing to a genuine move. The Depa…
The Department's audit says my painting subcontractors should have been classified as employees, but the audit report just concludes they were 'employees' without walking through the actual control/investment/relationship factors -- can that stand?
No -- and the Department overturned this misclassification assessment for the same reason it has in similar cases: the audit's conclusion wasn't backed by a real factor-by-factor analysis. A single-ow…
A construction audit reclassified 11 of my subcontractors as employees, but I think several genuinely were independent contractors (and one wasn't even really a worker) -- does the Department analyze each worker individually, or as one group?
Individually -- the Department evaluates each worker's own facts, and here that approach cleared four more of eleven reclassified construction workers. A Virginia construction LLC was audited and told…
A drywall business audit reclassified our subcontractors as employees based only on a general statement that we controlled the work -- is that conclusion enough to support the assessment?
No -- and the Department overturned this drywall business's misclassification assessment for the same reason it has in closely related cases: the audit's conclusion wasn't backed by a genuine factor-b…
A nonprofit I used to help run years ago still lists me as a contact on its Department tax account, and the Department is trying to hold me personally liable for taxes it never paid -- can they do that just because I never got removed from the paperwork, especially since a nonstock nonprofit doesn't even have 'owners' to transfer things to?
No -- simply being listed as a tax account contact isn't enough evidence to hold someone personally liable, and the Department abated this assessment for lack of proof. A nonprofit organization failed…
The Department disallowed our manufacturing parent's single sales factor election by looking only at its Virginia operations, adjusted our sales factor using our own public financial data without explanation, and disallowed our research-expense and jobs-credit subtractions with no stated reason -- can all of that really be upheld?
No to nearly all of it -- three separate audit adjustments were reversed for the same taxpayer. A corporate group filed combined Virginia returns for 2015 and 2016, with the parent using Virginia's mo…
The Department assessed me for Virginia income tax based on IRS information, and I told them my husband didn't work in Virginia that year -- isn't that enough to get the assessment corrected?
No -- a domiciliary resident of Virginia owes Virginia tax on all their income regardless of where they actually worked, so simply asserting 'he didn't work in Virginia' doesn't address whether Virgin…
I asked the Department to reconsider its ruling upholding my withholding tax assessments, saying the facts were wrong -- but I never actually sent the documentation to prove it. Can I still get reconsideration?
No -- claiming the facts were wrong isn't enough; you have to actually submit evidence proving it. A taxpayer sought reconsideration of a prior Department ruling (P.D. 23-50) that had upheld withholdi…
The Department estimated my company's sales tax liability because we never filed returns, and the estimate doesn't match our point-of-sale records -- can we get it corrected without ever filing the actual returns?
No -- simply asserting that the Department's estimate doesn't match your own records isn't enough; you have to actually file the missing returns with supporting documentation to displace an estimated …
The IRS accepted my charitable and business expense deductions without question -- can Virginia still disallow them on audit for lack of documentation?
Yes -- Virginia's Department of Taxation has independent statutory authority to disallow charitable contribution and Schedule C business expense deductions for lack of documentation, regardless of whe…
If I can't produce records during a Virginia sales tax audit, can I just argue the assessment should be reduced to my own rough estimate of taxable purchases?
No. If you fail to keep or produce adequate records during a Virginia sales/use tax audit, the Department is authorized to assess tax based on the best information available to it, and the assessment …
What happens to my Virginia residency appeal if I don't respond to the Department's requests for more information?
A taxpayer who ignored two written requests to complete a domicile questionnaire was still given one final 30-day chance to respond before the Department finalized its position -- but was also warned …
If I find documentation proving a customer had a direct pay permit after my sales tax audit already closed, can I still get that sale removed from the assessment?
Yes. A dealer whose incomplete records led to an estimated first-audit assessment can still get specific transactions removed if it later produces supporting documentation -- here, a customer's direct…
If I couldn't produce detailed invoices during a Virginia sales tax audit, can I still get another chance to provide them on appeal?
Yes, but only once and only for a limited time -- when a first-generation sales and use tax audit had to estimate tax due because the taxpayer couldn't produce detailed invoices or exemption certifica…
Can Virginia estimate my withholding tax liability using industry payroll norms if I only reported a few employees but had a much larger crew, and what happens if I don't respond to follow-up requests on appeal?
Yes -- when a paving contractor reported withholding for only two or three employees while publicly available information showed crews of seven to twenty workers at its job sites (with some paid in ca…
What documentation do I need to support charitable contribution and Schedule C business expense deductions if the Virginia Department of Taxation asks for it in an audit?
You need real substantiation, not just copies of your federal schedules -- for noncash charitable donations, at minimum a donee receipt (and above $500, a written record of acquisition and cost basis,…
If I collect sales tax from a customer by mistake, can I keep it instead of remitting it to Virginia, since I'm a contractor who normally shouldn't charge tax?
No -- Virginia law requires any dealer who collects sales tax from a customer to remit it to the Department, even if it was erroneously or illegally collected, and a contractor's later claim of 'cleri…
If I claim I was a victim of identity theft, does that excuse me from having to document deductions the Department questions in an audit?
No -- an unsubstantiated claim of identity theft, fraud, or misrepresentation is not by itself a basis for the Department to adjust an assessment; the taxpayer still has to show how the identity theft…
Can Virginia treat all of a company's sales staff as employees for withholding tax purposes just because the IRS issued a Form SS-8 determination finding one of them was an employee?
No -- an IRS Form SS-8 determination is binding only on the IRS and only as to the specific worker (or class of workers) who requested it, and it isn't legally binding on the Virginia Department of Ta…
If my store doesn't keep detailed sales records, can I dispute the Department's estimate of my taxable sales just by asserting my own different percentage?
No -- once a dealer fails to keep the sales and inventory records required by law, the Department is authorized to issue an estimated assessment based on the best information available, and that estim…
The Department asked me for more documents to support my domicile-change claim and I haven't responded yet -- what happens to my assessment?
If you don't respond to the Department's follow-up requests for supporting documentation on a claimed domicile change, the Department will find you haven't met your burden of proving the change and tr…
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…
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…
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'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'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 …
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…
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…
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…
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 …
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…
I sold stock in a private tech company and claimed Virginia's long-term capital gain subtraction, but the company won't share its revenue figures with me -- can the Department still deny my subtraction just because I can't prove it met the $3 million revenue cap?
Yes -- the taxpayer, not the Department, has the burden of proving a qualifying business met the required revenue threshold, and the Department doesn't have to disprove it on the taxpayer's behalf. A …
My city assessed business personal property tax on equipment that's broken or idle and on a consumable supply item -- do I owe tax on all of it?
It depends on the item, and the taxpayer only partly won. The Tax Commissioner sent one disputed item (equipment the taxpayer claimed was returned to the manufacturer) back to the City for another cha…
I missed Virginia's 90-day appeal deadline for a sales tax audit because the audit notice was mailed to an old business address -- can I still get the assessment corrected?
Not through a normal appeal -- Virginia's 90-day appeal deadline runs from when an assessment is mailed to the address the Department has on file, even if that address is no longer current, because it…
The IRS never questioned my Schedule C vehicle expense deduction -- can Virginia still audit and disallow it if I can't produce documentation when asked?
Yes -- Virginia generally relies on the accuracy of your federal return, but it keeps independent authority to demand supporting documentation for any deduction and to disallow it if you don't provide…
The IRS accepted our Schedule C and Form 2106 deductions across three tax years with no questions -- can Virginia still audit and disallow them for all three years if we can't produce documentation when asked?
Yes -- Virginia's independent authority to demand documentation for a federal-form deduction applies year after year, and this ruling shows it enforced across three full tax years at once. These taxpa…
I was converted a responsible officer for my restaurant company's unpaid sales tax, and I have records that would lower the assessment -- but I haven't been able to get them together yet. Can I still get the assessment corrected?
No -- promising to gather supporting documentation isn't the same as actually providing it, and this taxpayer's assessment was upheld because he never followed through. He was the president and minori…
I moved out of Virginia and set up a home, license, and voter registration in another state, but I never gave up my Virginia driver's license or voter registration -- have I actually changed my domicile for tax purposes?
No -- changing your domicile requires both abandoning your old home state AND establishing a new one, and here the husband only showed the second half. He had real ties to his new state (State A) -- p…
The auditor estimated my underreported sales by comparing my federal and state tax returns, and I submitted my bank deposit records to challenge it -- why wasn't that enough to fix the assessment?
Because the bank records this retailer submitted only covered credit card deposits and left out cash sales entirely, they couldn't reliably show the true total of sales -- so they didn't meet the burd…
I'm appealing a Virginia tax assessment and claiming I was a resident of another state, but I never actually filled out Virginia's domicile questionnaire -- what happens now?
The taxpayer gets one final chance to actually provide the information -- but simply claiming residency elsewhere, without responding to the Department's request for proof, doesn't work. Virginia lear…
A locality took over a year to rule on my BPOL appeal, and I might get taxed twice by two localities for the same software royalties -- do I automatically win, and does the software-development exclusion apply?
No to all three of the taxpayer's arguments -- and the underlying BPOL assessments were upheld. A software royalty recipient argued it should win automatically because its county took more than a year…
I'm a Virginia domiciliary who went to college out of state and earned summer internship wages in a different state -- do I still owe Virginia income tax on those wages?
Yes, unless he can show he actually abandoned his Virginia domicile -- and the facts here pointed the other way. A Virginia resident who enrolled in college out of state (a different state than his su…
My business claims its supply purchases were tax-exempt for resale and its vendor invoices were labor-only -- but I don't have great paperwork proving it. Does the assessment still get upheld?
Yes, the assessment was upheld -- without adequate records, a business can't prove its purchases actually qualified for the resale exemption or the labor-only services exemption. A seasonal frozen yog…
How much proof does a company need to show that royalty payments to an affiliate were 'actually taxed' by another state, in order to escape Virginia's intangible-expense addback?
The taxpayer still couldn't meet its burden, and a request to reconsider that failure was denied. This is a Circuit Court order in the long-running Kohl's Department Stores litigation over Virginia's …
My vendors told me by letter and email that our software was delivered electronically, not on a disc -- is that enough to get it exempted from a Virginia use tax audit assessment?
No -- a vendor's letter or email saying software was delivered electronically, by itself, isn't enough proof to win the exemption; you need contemporaneous sales documentation that expressly certifies…
My business claims its supply purchases were tax-exempt for resale and its vendor invoices were labor-only -- but I don't have great paperwork proving it. Does the assessment still get upheld?
Yes, the assessment was upheld -- without adequate records, a business can't prove its purchases actually qualified for the resale exemption or the labor-only services exemption. A seasonal frozen yog…
The Department assessed me based on IRS 1099 information because I never filed a Virginia return, and the tax due looks way too high -- what can I do?
File the missing Virginia return (with any corrected 1099s) within the Department's deadline -- an assessment based on IRS-supplied information isn't automatically wrong just because it looks high, bu…
I bought used restaurant equipment for less than what the city says it's worth for tax purposes -- shouldn't the price I actually paid control the value used to tax it?
No -- for most business tangible personal property, Virginia law requires localities to determine fair market value using a percentage of the property's ORIGINAL cost (what the FIRST purchaser paid a …
The Department disallowed my itemized medical and charitable deductions because I couldn't produce enough documentation -- and one of my charitable receipts was for a donation to a church I personally run. Does that matter?
Yes -- without proper documentation, itemized medical and charitable deductions can be disallowed, and a donation receipt you write to yourself (as when you run the recipient charity) needs ADDITIONAL…
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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.