23VAC10-210 Retail Sales and Use Tax

REGULATIONS

Vol. 32 Iss. 22 - June 27, 2016

TITLE 23. TAXATION

DEPARTMENT OF TAXATION

Chapter 210

Fast-Track Regulation

Title of Regulation: 23VAC10-210. Retail Sales and Use Tax (amending 23VAC10-210-160, 23VAC10-210-220, 23VAC10-210-250, 23VAC10-210-340, 23VAC10-210-450, 23VAC10-210-485, 23VAC10-210-630, 23VAC10-210-680, 23VAC10-210-2070, 23VAC10-210-3080, 23VAC10-210-6041, 23VAC10-210-6042, 23VAC10-210-6043).

Statutory Authority: § 58.1-203 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: August 26, 2016.

Effective Date: September 12, 2016.

Agency Contact: Andrea Muse, Department of Taxation, 600 East Main Street, Richmond, VA 23261-7185, telephone [phone], FAX [phone], or email [e-mail].

Basis: Section 58.1-203 of the Code of Virginia authorizes the Tax Commissioner to issue regulations relating to the interpretation and enforcement of the laws governing taxes administered by the Department of Taxation. The retail sales and use tax is administered by the Department of Taxation.

Purpose: Statutory rate change and legislative changes. This regulatory action is needed to (i) update the retail sales and use tax rate to the rate provided in statute, (ii) reflect the legislative change allowing dealers to absorb the sales and use tax during the sales tax holiday period, and (iii) reflect the legislative change in the dealer discount percentages. Updating Retail Sales and Use Tax, 23VAC10-210, for the rate change and the other legislative changes does not reflect any change in current tax policy and will have no impact on the administration of the retail sales and use tax.

Sourcing rules. As the additional 0.7% state retail sales and use tax is only imposed in certain localities, the retail sales and use tax rate may be different depending upon in which locality the sale or use is sourced. On June 13, 2013, the Department of Taxation published the "Guidelines for the Retail Sales and Use Tax Changes Enacted in the 2013 General Assembly Session" after working with affected dealers, providers of transient lodgings, and local governments. The guidelines set out rules based on long-standing policy pursuant to §§ 58.1-605 and 58.1-606 of the Code of Virginia regarding how to determine which Virginia locality is attributed the sale or use of tangible personal property for the purposes of the retail sales and use tax. The amendments are needed to set out these sourcing rules in a regulation.

Fuels for domestic consumption. The amendments are needed to update the list of cities and counties that the department is aware of having, as of 2014, adopted ordinances exempting fuels for domestic consumption from the local 1.0% sales and use tax. Updating the regulation does not reflect any change in current tax policy and will have no impact on the administration of the Retail Sales and Use Tax.

As the Commonwealth relies on tax revenues to fund core government activities, enforcement of its tax laws is essential to protect the health, safety, and welfare of citizens. Although administrative interpretations of the tax laws that are in the form of published rulings, tax bulletins, guidelines, and other published documents are accorded judicial notice, even published "rulings and policies themselves are not entitled to great weight, unless expressed in regulations" Chesapeake Hospital Authority v. Commonwealth, 262 Va. 551 (2001). Therefore, to ensure enforcement, it is necessary to promulgate regulations containing the Tax Commissioner's interpretations of the tax laws. This action is necessary to conform the retail sales and use tax regulation to statutory changes.

Rationale for Using Fast-Track Process: Legislative changes. Amending Retail Sales and Use Tax, 23VAC10-210, to update the tax rate and reflect legislative changes regarding the absorption of the retail sales and use tax and the dealer discount percentages is expected to be noncontroversial and appropriate for the fast-track rulemaking process.

Sourcing rules. Amending 23VAC10-210-2070 to provide sourcing rules is expected to be noncontroversial and appropriate for the fast-track rulemaking process as it will set out rules based on long-standing policy that were published in guidelines issued in 2013. These rules are set out for purposes of the 1.0% local option sales and use tax in §§ 58.1-605 and 58.1-606 of the Code of Virginia. The department provided the draft guidelines on April 8, 2013, to Commissioners of the Revenue in the Northern Virginia and Hampton Roads Regions; industry organizations such as the Virginia Chamber of Commerce, Virginia Retail Merchants Association, and the Virginia Petroleum, Convenience, and Grocery Association; the Virginia Society of Certified Public Accountants; the Virginia Bar; and several retailers. After allowing the interested parties time to comment and review and receiving no opposition, the department published the final "Guidelines for the Retail Sales and Use Tax Changes Enacted in the 2013 General Assembly Session" on May 1, 2013. The guidelines were subsequently revised and reissued on June 13, 2013, pursuant to a legal decision regarding the localities that fall within the Hampton Roads Region. The department is not aware of anyone disagreeing with the revised guidelines.

Fuels for domestic consumption. Amending 23VAC10-210-630 to update the list of cities and counties that the department is aware of having, as of 2014, adopted ordinances exempting fuels for domestic consumption from the local 1.0% sales and use tax is expected to be noncontroversial and appropriate for the fast-track rulemaking process.

Substance: Legislative changes. This action amends Retail Sales and Use Tax, 23VAC10-210, to (i) update the retail sales and use tax rate to the rate provided in the statute, (ii) reflect the legislative change allowing dealers to absorb the sales and use tax during the sales tax holiday period, and (iii) reflect the legislative change in the dealer discount percentages. Updating the retail sales and use tax regulation for the rate change and the other legislative changes does not reflect any change in current tax policy and will have no impact on the administration of the retail sales and use tax.

Sourcing rules. This regulatory action amends 23VAC10-210-2070 to set out sourcing rules for the retail sales and use tax. Traditionally, determining the situs of a sale subject to the Virginia retail sales and use tax was necessary to determine which city or county received the 1.0% local option sales and use tax. Effective July 1, 2013, determining the situs of a sale became more important because an additional state retail sales and use tax was imposed in Northern Virginia and Hampton Roads at the rate of 0.7% pursuant to Chapter 766 of the 2013 Acts of Assembly. "Northern Virginia Region" includes the Counties of Arlington, Fairfax, Loudoun, and Prince William and the Cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park. "Hampton Roads Region" includes the Counties of Isle of Wight, James City, Southampton, and York and the Cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg.

On June 13, 2013, the Department of Taxation published the "Guidelines for the Retail Sales and Use Tax Changes Enacted in the 2013 General Assembly Session" after working with affected dealers, providers of transient lodgings, and local governments. The guidelines set out rules based on long-standing policy regarding how to determine which Virginia locality is attributed the sale or use of tangible personal property for the purposes of the retail sales and use tax. These rules are set out for purposes of the 1.0% local option sales and use tax in §§ 58.1-605 and 58.1-606 of the Code of Virginia.

Generally, intrastate sales are sourced to the city or county of the place of business of the dealer collecting the tax, without regard to the city or county of possible use by the purchaser. The use tax is generally sourced to the city or county where the goods are used or consumed by the purchaser, or stored for use or consumption. Out-of-state dealers who hold Certificates of Registration to collect the use tax from their customers must source sales into Virginia according to the city or county of destination.

Fuels for domestic consumption. This action amends 23VAC10-210-630 to update the list of cities and counties that notified the department prior to March 1983 that ordinances had been adopted exempting fuels for domestic consumption from the local 1.0% sales and use tax. The amendment will add to the list of cities and counties that the department is aware of having, as of 2014, adopted an ordinance exempting fuels for domestic consumption from the local 1.0% sales and use tax.

Issues: As the regulatory action will update Retail Sales and Use Tax, 23VAC10-210, to reflect current law and set out rules based on long-standing policy pursuant to §§ 58.1-605 and 58.1-606 of the Code of Virginia, there are no issues or disadvantages to the public or the Commonwealth associated with this regulatory action. The primary advantage to the public, the Department of Taxation, and the Commonwealth of this action is that it will conform the retail sales and use tax regulation to legislative changes in the statutory law and thereby assist taxpayers with voluntary compliance with the tax, ease administration of the tax by the Department of Taxation, and help ensure the steady flow of tax revenues to the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Department of Taxation (Department) proposes several amendments to reflect statutory changes, in particular the increase in the state Retail Sales and Use Tax rate from 4 percent to 4.3 percent, and the additional 0.7 percent state Retail Sales and Use Tax in the Northern Virginia and Hampton Roads regions. Also, the Department proposes to update the list of cities and counties that have adopted an ordinance exempting fuels for domestic consumption from the local 1% sales and use tax.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. The current regulation does not reflect numerous statutory changes that have been made regarding the Retail Sales and Use Tax. Legislation enacted by the 2013 General Assembly (2013 Acts of Assembly, Chapter 766) increased the state Retail Sales and Use Tax rate from 4 percent to 4.3 percent and imposed an additional state Retail Sales and Use Tax in the Northern Virginia¹ and Hampton Roads² regions at the rate of 0.7 percent, effective July 1, 2013. The Department proposes several amendments to the regulation to reflect these changes.

As the additional 0.7% state Retail Sales and Use Tax is only imposed in certain localities, the total Retail Sales and Use Tax rate may be different depending on which locality the sale or use is sourced. On June 13, 2013, the Department published the "Guidelines for the Retail Sales and Use Tax Changes Enacted in the 2013 General Assembly Session" after working with affected dealers, providers of transient lodgings, and local governments. The Guidelines set out rules based on long-standing policy pursuant to Va. Code §§ 58.1-605 and 606 regarding how to determine which Virginia locality is attributed the sale or use of tangible personal property for the purposes of the Retail Sales and Use Tax. The Department proposes to include these rules in the regulation.

The regulation grants compensation to dealers for accounting for and paying the state tax in the form of discounts. The discount percentages listed in the current regulation are out of date due to explicit changes in several bills during the 2010, 2011, 2012, 2013, 2014, and 2015 General Assembly sessions.³ Legislation enacted in 2006 (2006 Acts of Assembly, Chapter 593) allows dealers to absorb the sales and use tax during the sales tax holiday period. The Department proposes to amend the regulation to reflect the current statutory discount rates and the legislation on absorbing the sales and use tax during the sales tax holiday period.

The regulation (both current and proposed) state that "The local 1% sales and use tax will continue to apply to all purchases for domestic consumption of artificial or propane gas, firewood, coal and home heating oil unless the locality adopts an ordinance specifically exempting such fuels." The current regulation lists localities that as of 1983 had adopted such ordinances. The Department proposes to update the list of cities and counties with an ordinance exempting fuels for domestic consumption from the local 1% sales and use tax.

The proposed amendments will not affect the tax rates, rules and policies in effect, but will be beneficial by increasing clarity and reducing potential confusion for readers of the regulation.

Businesses and Entities Affected. The proposed amendments pertain to retailers, large and small, throughout the Commonwealth.

Localities Particularly Affected. Most of the proposed provisions apply to all localities. The additional 0.7 percent state Retail Sales and Use Tax applies to only the following: 1) the Counties of Arlington, Fairfax, Isle of Wight, James City, Loudoun, Prince William, Southampton, and York, and 2) the Cities of Alexandria, Chesapeake, Fairfax, Falls Church, Franklin, Hampton, Manassas, Manassas Park, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg.

Projected Impact on Employment. The proposed amendments do not significantly affect employment.

Effects on the Use and Value of Private Property. The proposed amendments do not significantly affect the use and value of private property.

Real Estate Development Costs. The proposed amendments do not affect real estate development costs.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

Costs and Other Effects. The proposed amendments do not significantly affect costs for small businesses.

Alternative Method that Minimizes Adverse Impact. The proposed amendments do not create adverse impact for small businesses.

Adverse Impacts:

Businesses. The proposed amendments will not adversely affect businesses.

Localities. The proposed amendments will not adversely affect localities.

Other Entities. The proposed amendments will not adversely affect other entities.

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¹ The "Northern Virginia Region" is defined as the Counties of Arlington, Fairfax, Loudoun, and Prince William and the Cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park.

² The "Hampton Roads Region" is defined as the Counties of Isle of Wight, James City, Southampton, and York and the Cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg.

³ House Bill 29 and House Bill 30 (2010 Acts of Assembly, Chapters 872 and 874); House Bill 1500 (2011 Acts of Assembly, Chapter 890); House Bill 1300 and House Bill 1301 (2012 Special Session I Acts of Assembly, Chapters 2 and 3); House Bill 1500 (2013 Acts of Assembly, Chapter 806); House Bill 5001, House Bill 5002, and House Bill 5010 (2014 Special Session I Acts of Assembly, Chapters 1, 2, and 3); and House Bill 1400 (2015 Acts of Assembly, Chapter 665).

Agency's Response to Economic Impact Analysis: The Department of Taxation agrees with the Department of Planning and Budget's economic impact analysis.

Summary:

The amendments (i) reflect statutory increases in the state retail sales and use tax rate from 4.0% to 4.3%, and an additional 0.7% state retail sales and use tax in the Northern Virginia and Hampton Roads Regions, and (ii) update the list of cities and counties that have adopted an ordinance exempting fuels for domestic consumption from the local 1.0% sales and use tax. The amendments do not reflect any change in current tax policy.

23VAC10-210-160. Bad debts.

A. Generally. Any dealer may obtain a credit for the amount of any sales or use tax previously reported and paid on a return for accounts found to be worthless. Such credit must be claimed on the return filed for the period in which the account is determined to be worthless.

B. Limitations. No credit may exceed the amount of sales price which is actually uncollectible. Prior payments made to the dealer on a debt which is subsequently determined to be uncollectible must be allocated to the sales price, sales tax and other nontaxable charges based on the percentage that those charges represent to the total debt originally owed.

If any part of the sales price for which a credit was taken is subsequently reported to the dealer, it must be included in such dealer's next sales and use tax return.

The following example illustrates the operation of this section.

Example: Dealer A repairs an item of property for a customer. The total charge for such repair is $77 $77.65, representing $50 in repair parts, $25 in separately stated, nontaxable repair labor, and $2 $2.65 in tax. A reports the transaction and remits the tax thereon. After collecting $30, A determines that the remainder of the debt is uncollectible. A may claim a credit calculated as follows:

Allocation of Amount Previously Collected:
50 / 77 77.65 x $30	Amount to be Allocated to Repair Parts = $19.48 $19.32
Amount of Sales Price for Computing Credit = $50.00 - $19.48 $19.32 = $30.52 $30.68
Amount of Credit which may be claimed = $1.22 (4% x $30.52) $1.63 (5.3% x $30.68)

Since only the charge for the repair parts was previously reported as a taxable sale, only the tax on that portion of the remaining outstanding debt attributable to the charge for such parts may be taken as a credit. If any portion of the $30.52 $30.68 remaining sales price is subsequently collected, such amount must be reported on the dealer's return for the period in which collected.

C. Hampton Roads Region and Northern Virginia Region. The total rate of the state and local sales and use tax in localities that fall within these regions is 6.0% (4.3% state, 0.7% regional, and 1.0% local). The provisions of this section apply to transactions sourced to the Hampton Roads Region and the Northern Virginia Region, mutatis mutandis. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

23VAC10-210-220. Brackets for collection of the tax.

A. The rate of the sales and use tax is 5.0% 5.3%, which is comprised of a 4.0% 4.3% state tax and a 1.0% local tax applicable throughout Virginia. (See 23VAC10-210-6040 through 23VAC10-210-6043 for special tax rate and provisions applicable to sales through vending machines.) An additional state sales and use tax is imposed in the Northern Virginia and Hampton Roads Regions at the rate of 0.7%. The total rate of the state and local sales and use tax is 6.0% in localities that fall within these regions (4.3% state, 0.7% regional, and 1.0% local). For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

The bracket system is used to eliminate fractions of $.01 and must be used to compute the tax on transactions of $5.00 or less. On transactions over $5.00, the tax is computed at a straight 5.0% 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions), with one half cent or more treated as $.01. Any dealer who collects the tax in accordance with the bracket system set forth herein shall not be deemed to have over collected the tax. For over collection of the tax generally, see 23VAC10-210-340 D.

B. The bracket system does not relieve the dealer from the liability to pay an amount equal to 5.0% 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) of his gross taxable sales. However, if the dealer can prove to the department that more than 85% of the gross taxable sales for the period were from individual sales of $.10 or less (and that he was unable to adjust his prices in such manner as to prevent the economic incidence of the sales tax from falling on him), the department will determine the proper tax liability of the dealer based on the portion of gross taxable sales that came from sales of $.11 or more. Any dealer who may claim this exception must file with each return a separate statement explaining his claim in detail for consideration by the department.

C. Below is the bracket system for the combined state and local tax of 5.0% 5.3% on transactions of $5.00 or less:

Sales Price	Tax Due
0.01 to 0.09	0
0.10 to 0.29	0.01
0.30 to 0.49	0.02
0.50 to 0.69	0.03
0.70 to 0.89	0.04
0.90 to 1.09	0.05
1.10 to 1.29	0.06
1.30 to 1.49	0.07
1.50 to 1.69	0.08
1.70 to 1.89	0.09
1.90 to 2.09	0.1
2.10 to 2.29	0.11
2.30 to 2.49	0.12
2.50 to 2.69	0.13
2.70 to 2.89	0.14
2.90 to 3.09	0.15
3.10 to 3.29	0.16
3.30 to 3.49	0.17
3.50 to 3.69	0.18
3.70 to 3.89	0.19
3.90 to 4.09	0.2
4.10 to 4.29	0.21
4.30 to 4.49	0.22
4.50 to 4.69	0.23
4.70 to 4.89	0.24
4.90 to 5.00	0.25

 

Sales Price	Tax Due
0.01 to 0.09	0
0.10 to 0.28	0.01
0.29 to 0.47	0.02
0.48 to 0.66	0.03
0.67 to 0.84	0.04
0.85 to 1.03	0.05
1.04 to 1.22	0.06
1.23 to 1.41	0.07
1.42 to 1.60	0.08
1.61 to 1.79	0.09
1.80 to 1.98	0.10
1.99 to 2.16	0.11
2.17 to 2.35	0.12
2.36 to 2.54	0.13
2.55 to 2.73	0.14
2.74 to 2.92	0.15
2.93 to 3.11	0.16
3.12 to 3.30	0.17
3.31 to 3.49	0.18
3.50 to 3.67	0.19
3.68 to 3.86	0.20
3.87 to 4.05	0.21
4.06 to 4.24	0.22
4.25 to 4.43	0.23
4.44 to 4.62	0.24
4.63 to 4.81	0.25
4.82 to 4.99	0.26
5.00	0.27

For differential rate on fuels for domestic consumption, see 23VAC10-210-630.

D. This subsection contains the bracket system for the combined state, regional, and local tax of 6.0% in the Hampton Roads and Northern Virginia Regions on transactions of $5.00 or less:

 

Sales Price	Tax Due
0.00 to 0.08	0
0.09 to 0.24	0.01
0.25 to 0.41	0.02
0.42 to 0.58	0.03
0.59 to 0.74	0.04
0.75 to 0.91	0.05
0.92 to 1.08	0.06
1.09 to 1.24	0.07
1.25 to 1.41	0.08
1.42 to 1.58	0.09
1.59 to 1.74	0.10
1.75 to 1.91	0.11
1.92 to 2.08	0.12
2.09 to 2.24	0.13
2.25 to 2.41	0.14
2.42 to 2.58	0.15
2.59 to 2.74	0.16
2.75 to 2.91	0.17
2.92 to 3.08	0.18
3.09 to 3.24	0.19
3.25 to 3.41	0.20
3.42 to 3.58	0.21
3.59 to 3.74	0.22
3.75 to 3.91	0.23
3.92 to 4.08	0.24
4.09 to 4.24	0.25
4.25 to 4.41	0.26
4.42 to 4.58	0.27
4.59 to 4.74	0.28
4.75 to 4.91	0.29
4.92 to 5.00	0.30

23VAC10-210-250. Cash and trade discounts.

A. The following words and terms when used in this section shall have the following meanings unless the content clearly indicates otherwise:

"Cash or trade discount" includes a discount for the early payment of the purchase price, a discount attributable to the value of an item taken in trade, or a discount based upon the method of payment.

B. Cash and or trade discounts taken on sales are not includible in the sales price for purposes of computing the tax. The amount of such discounts may be deducted from gross sales provided the discounts have been included in gross sales.

C. In computing the amount of a discount that may be subtracted from gross sales, the discount must be allocated between sales price and sales tax. The following examples illustrate the application of this concept.

Example 1: Dealer A sells an item to a customer for $100 and bills the customer $100 for the item and $5.00 $5.30 for the tax. The terms of the sale provide for a 10% discount if the bill is paid within 30 days. The customer pays within 20 days and is therefore entitled to the discount, which is computed as follows:

Amount Billed	$105.00 $105.30
Sales Price	$100.00
Tax	$5.00 $5.30
Less	$10.00 discount
Sales price discount	100.00 x l0% = 10.00
Tax discount	5.0 5.3 x 10% = $0.50 $0.53

Therefore, the customer remits $94.50 $94.77, which includes $90 in sales price and $4.50 $4.77 in sales tax. Dealer A may deduct $10.00 from gross sales, and will accordingly remit only $4.50 $4.77 in tax.

Example 2: Dealer B sells an item to a customer for $100 and bills the customer $100 for the item and $5.00 $5.30 for the tax. The terms of the sale provide for a $10 discount if the bill is paid within 30 days. The customer pays within 20 days and is therefore entitled to the discount, which is computed as follows:

Amount Billed	$105.00 $105.30
Sales Price	$100.00
Tax	$5.00 $5.30
Less	$10.00 discount
	$10.00 / $1.05 $1.053 = $9.52 $9.50 sales price discount
	$0.48 $0.50 tax discount

Therefore, the customer remits $95.00 $95.30, which includes $90.48 $90.50 in sales price and $4.52 $4.80 in sales tax. Dealer B may deduct $9.52 $9.50 from gross sales, and will accordingly remit only $4.52 $4.50 in tax.

Example 3: Dealer B repairs a piece of equipment for a customer and bills the customer $100 for parts, $50 for labor, and $5.00 $5.30 for tax. The terms of the sale provide for a $10 discount if the bill is paid within 30 days. B pays within 20 days and earns the discount which is computed as follows:

Amount Billed	$155.00 $155.30
Sales Price of Parts	$100.00
Separately Stated Repair Labor (nontaxable)	$50.00
Sales tax	$5.00 $5.30
Less $10.00 discount attributed as follows:
Attributable to Parts: (100 / $150) x $10.00 = $6.67 $6.67 / 1.05 1.053 = $6.35 $6.33 sales price  discount $0.32 $0.34 sales tax reduction $3.33 attributable to nontaxable labor

Therefore, the customer remits $145.00 $145.30, which includes $93.65 $93.67 in sales price for the parts, $4.68 $4.96 in sales tax attributable to the parts, and $46.67 for nontaxable labor. Dealer B may deduct $6.35 $6.33 from gross sales and will accordingly remit only $4.68 $4.96 in tax.

Regardless of whether a cash or percentage discount is used, the discount must be allocated between the sales price and the tax to avoid overcollection of the tax.

D. Hampton Roads Region and Northern Virginia Region. The total rate of the state and local sales and use tax in localities that fall within these regions is 6.0% (4.3% state, 0.7% regional, and 1.0% local). The provisions of this section apply to transactions sourced to the Hampton Roads Region and the Northern Virginia Region, mutatis mutandis. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

23VAC10-210-340. Collection of tax by dealers.

A. Generally. The tax must be paid to the state by the dealer, but the dealer must separately state the amount of the tax and add the tax to the sales price or charge. Thereafter, the tax is a debt from the purchaser, consumer or lessee to the dealer until paid and is recoverable at law in the same manner as other debts.

Identification of the tax by a separate writing or symbol is not required provided the amount of the tax is shown as a separate item on the record of the transaction. For special rules relating to vending machines sales, see 23VAC10-210-6040 through 23VAC10-210-6043.

B. Advertising absorption of tax by dealers is prohibited. It is a misdemeanor for a dealer to advertise or hold out to the public in any manner, directly or indirectly, that he will absorb all or any part of the sales or use tax, or that he will relieve the purchaser, consumer or lessee of the payment of all or any part of the tax, except as may be authorized under the bracket system or the special provisions relating to vending machine sales. This prohibition does not apply during the sales tax holiday provided under §§ 58.1-609.1, 58.1-611.2, and 58.1-611.3 of the Code of Virginia, nor for the 14 days immediately preceding the commencement of the sales tax holiday. During this 17-day period, dealers may advertise that they will absorb the tax on any or all nonqualifying items. The dealer may not absorb the tax prior to or following the sales tax holiday period and may not advertise that he will do so.

C. Erroneous collection of tax on nontaxable transactions. All sales and use tax collected by a dealer is held in trust for the state. Therefore, any dealer collecting the sales or use tax on nontaxable transactions must remit to the Department of Taxation such erroneously or illegally collected tax unless he can show that the tax has been refunded to the purchaser or credited to the purchaser's account.

D. Overcollection of the tax. Any dealer who collects tax in excess of a 4% 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) rate or who otherwise overcollects the tax, except as may be authorized under the bracket system or the special provisions relating to vending machine sales, must remit any amount overcollected to the state on a timely basis. Failure to do so will result in a penalty of 25% of the amount of the overcollection. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

23VAC10-210-450. Credit for taxes paid to other states or their political subdivisions.

A. Generally. Any person who purchases tangible personal property in another state and who has paid a sales or use tax to such state or its political subdivision or both on the property, is granted a credit against the use tax imposed by Virginia on its use within this state for the amount of tax paid in the state of purchase. This credit does not require that the state of purchase grant a similar credit for tax paid to Virginia. This credit does not apply to tax erroneously charged or incorrectly paid to another state. For example, if a person purchases and takes delivery in Virginia of tangible personal property purchased from an out-of-state dealer who incorrectly charges out-of-state tax, no credit is available. The purchaser must apply to the out-of-state seller for refund.

B. Amount of credit. The credit provided in this section is equal to the tax paid to the state or political subdivision or both in which the property was purchased, but cannot exceed the Virginia use tax imposed on the property. For example, if property is purchased in a state which imposes a 6.0% sales and use tax, the credit is limited to the 4.5% 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) use tax imposed by Virginia. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

C. Claiming the credit. To obtain a credit for tax paid to another state or its political subdivision, a person must apply, by letter, to the department and include a copy of the appropriate invoice stating the amount of tax billed and the state or political subdivision or both to which it was paid. A person requesting credit may be required by the department to furnish an affidavit stating that the tax has been paid and has not been refunded.

23VAC10-210-485. Dealer's compensation or discount.

A. Generally. As compensation for accounting for and paying the state tax, a dealer is allowed a discount of 2.0%, 3.0%, or 4.0% 0.8%, 1.2%, or 1.6%, depending on the volume of monthly taxable sales, of the first 3.0% of the state tax due in the form of a deduction, provided the amount due was not delinquent at the time of payment. No compensation is allowed on the remainder of the state sales tax or on the local tax. Dealers must compute the discount without regard to the number of certificates of registration that they hold (see subsection C below) of this section).

To compute the dealer's discount, a dealer (other than a vending machine dealer) would multiply the 4.0% 4.3% state tax listed on his return by:

1. 3.0% (or .03) 0.01116 if monthly taxable sales are less than $62,501; or

2. 2.25% (or .0225) 0.00837 if monthly sales are at least $62,501 but are less than $208,001; or

3. 1.5% (or .015) 0.00558 if monthly taxable sales equal or exceed $208,001.

Any dealer whose average monthly sales tax liability exceeds $20,000 is not eligible for the discount. No dealer discount is allowed on the 0.7% regional tax imposed in the Hampton Roads and Northern Virginia Regions. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Examples:

Dealer A who makes taxable sales of $10,000 during the month would report state and local tax of $500 ($400 $530 ($430 state tax and $100 local tax), from which he would retain a dealer's discount of $12 $4.80, provided that his return is timely filed and the state and local tax is timely paid. The $12 $4.80 discount is computed by multiplying the 4.0% 4.3% state tax ($400) ($430) by 3.0% 0.01116 since the dealer's monthly taxable sales volume is less than $62,501.

Dealer B who makes taxable sales of $250,000 during the month would report state and local tax of $12,500 ($10,000 $13,250 ($10,750 state tax and $2,500 local tax), from which he would retain a dealer's discount of $150 $55.99 provided that his return is timely filed and the state and local tax is timely paid. The $150 $55.99 discount is computed by multiplying the 4.0% 4.3% state tax ($10,000) ($10,750) by 1.5% 0.00558 since the dealer's monthly taxable sales volume is greater than $208,001.

B. Vending machine sales. In the case of a vending machine dealer who pays combined state and local tax at the rate of 6.0% 6.3% on his wholesale purchases for resale, the dealer's discount would be computed by multiplying the 5.0% 5.3% state tax listed on his return by:

1. 3.2% (or .032) 0.01208 if monthly taxable sales are less than $62,501; or

2. 2.4% (or .024) 0.00906 if monthly taxable sales are at least $62,501 but are less than $208,001; or

3. 1.6% (or .016) 0.00604 if monthly taxable sales equal or exceed $208,001.

Examples:

Vending machine dealer A with $15,000 in wholesale purchases for resale during the month would report state and local tax of $900 ($750  $945 ($795 state tax and $150 local tax), from which he would retain a dealer's discount of $24 $9.60, provided that his return is timely filed and the state and local tax is timely paid. The $24 $9.60 discount is computed by multiplying the 5.0% 5.3% state tax ($750) ($795) by 3.2% 0.01208 since the dealer's monthly taxable sales volume is less than $62,501.

Vending machine dealer B with $200,000 in wholesale purchases for resale during the month would report state and local tax of $12,000 ($10,000 $12,600 ($10,600 state tax and $2,000 local tax), from which he would retain a dealer's discount of $240 $96.04, provided that his return is timely filed and the state and local tax is timely paid. The $240 $96.04 discount is computed by multiplying the 5.0% 5.3% state tax ($10,000) by 2.4% 0.00906 since the dealer's monthly taxable sales volume is at least $62,501 but is less than $208,001.

C. Multiple registrations. Dealers holding two or more certificates of registration must compute the dealer's discount based upon taxable sales from all business locations. This requirement applies to dealers filing consolidated returns and those filing separate returns for each business location.

Example:

Dealer C holds separate certificates of registration for five business locations. Each location has monthly taxable sales of less than $62,501, but total taxable sales for all five locations are $300,000 for the month. Because total taxable sales exceed $208,001, the dealer's discount is computed using the 1.5% 0.00558 discount rate.

Dealers with multistate business locations must compute the discount based upon taxable sales from all business locations in Virginia and on Virginia taxable sales from out-of-state business locations.

Example:

Dealer A, with business locations in Virginia, also has business locations in other states, all of which are registered for collection and remittance of the tax. The out-of-state business locations sell goods to Virginia customers located in Virginia. The total monthly taxable sales for all Dealer A's Virginia business locations are $200,000, and the total Virginia taxable sales from Dealer A's out-of-state business locations are $100,000. Because total taxable sales exceed $208,001, the dealer's discount is computed using the 1.5% 0.00558 discount rate.

The department will perform a reconciliation, on an annual basis or more frequently, of dealers holding multiple certificates of registration in order to ensure that the dealer's discount is computed properly by those dealers.

D. Quarterly filers. Dealers filing quarterly returns may determine the appropriate dealer's discount rate by dividing their quarterly taxable sales by 3.

Example:

Dealer D has quarterly taxable sales of $100,000. His average monthly taxable sales for the quarter ($100,000 ÷ 3) are $33,333.33. Because his average monthly taxable sales are less than $62,501, Dealer D would compute the dealer's discount using the 3.0% 0.01116 rate.

E. Refund requests. Any amount of tax refunded by the department to a dealer will be reduced by any dealer's discount claimed on the transaction to which the refund relates. For example, if a dealer sells an item for $1,000, timely files a return reporting the $50 $53 tax on the transaction and claims the discount, the amount refunded would be $48.80 ($50 $52.52 ($53 less 3.0% 0.01116 of the $40 $43 state tax = $50 - 1.20 0.48 = $48.80) $52.52) (assuming the dealer's taxable sales during the month of the sale were less than $62,501).

For extensions, see 23VAC10-210-550; for penalties and interest, see 23VAC10-210-2030 through 23VAC10-210-2034 23VAC10-210-2032.

23VAC10-210-630. Fuels for domestic consumption.

A. Generally. The state sales and use tax does not apply to purchases of artificial or propane gas, firewood, coal or heating oil for domestic consumption.

B. Domestic consumption defined. "Domestic consumption" is the use of artificial or propane gas, firewood, coal, or home heating oil by an individual for other than business, commercial, or industrial purposes. The renting or leasing of residential units is considered commercial usage.

Domestic consumption is restricted to fuels used by individuals; purchases of fuel by groups or organizations will be subject to the tax unless the fuel purchased is for domestic consumption by an individual. For example, an organization may purchase firewood to be given away to indigent persons for use in heating their own homes; this transaction would be deemed a purchase for domestic consumption. Purchases by groups or organizations for use in their own facilities are not purchases for domestic consumption.

Domestic consumption usage is not restricted to heating purposes, but may also include cooking or heating water.

The term "domestic consumption" includes purchases of fuel by: (1) (i) an owner or lessee for use in a single-family dwelling in which he resides; (2) (ii) individual residents for use in apartments, townhouses, trailer courts, condominiums or other multi-family dwellings in which they reside; and (3) (iii) a condominium or similar owner cooperative association provided such association is comprised solely of the owners of the dwelling and more than 50% of the fuel purchased is for use in owner-occupied units.

The term "domestic consumption" does not include purchases by: (1) (i) nonprofit churches, civic or other charitable groups, except as set forth above; (2) (ii) businesses operated by nonprofit groups; (3) (iii) profit hospitals, nursing homes or homes for adults; (4) (iv) profit schools or institutions of learning; (5) (v) lessors of apartments, trailer courts, condominiums, rooming houses or other multi-family dwellings; fraternities or sororities; (6) (vi) hotels, motels, inns, cabins or lodges; and (7) (vii) any commercial, business or industrial operations.

Purchases of heating fuels for their own use or consumption by persons or entities who are entitled to a general sales tax exemption (for example: (1) (i) nonprofit schools and institutions of learning; (2) (ii) licensed nonprofit hospitals, nursing homes, and homes for adults; (3) (iii) nonprofit volunteer fire and rescue squads; and (4) (iv) federal, state, or local governments) are not subject to sales and use tax (state or local).

C. 1. Classifying purchases as domestic or nondomestic. In determining when tax is to be collected by the dealer on a purchase used for both domestic and nondomestic purposes, a principal usage test shall apply. A purchase shall be classified as exempt if more than 50% of the fuel purchased is for domestic consumption. However, if 50% or less of the fuel purchased is for domestic consumption, the entire purchase shall be taxable and the tax shall be collected by the dealer at the time of the sale.

The preceding paragraph 2. Subdivision 1 of this subsection establishes when a fuel dealer must collect tax at the time of sale, and it does not establish any rule of exemption for consumers. The ultimate taxability of a fuel purchase depends on its actual usage. The purchaser will be liable for payment to the department of use tax on any portion of a domestic purchase (i.e., a purchase on which no sales tax was paid to the dealer) subsequently used for nondomestic purposes. A purchaser who has paid tax under the above rules in subdivision 1 of this subsection, however, may apply to the department for a refund of tax paid on that portion which is actually used for domestic consumption. Refund claims must be filed on forms prescribed by the department between January 1 and April 15 of the year following the year of purchase. Refund applications pursuant to this exemption will be denied if post-marked after April 15 of the year following the year of purchase.

D. Exemption certificates. Sales and Use Tax Certificate of Exemption, Form ST-15, is available for use by dealers to substantiate sales of heating fuel for domestic consumption. A purchaser need file only one such certificate with a dealer to qualify for exemption. However, the certificate will be valid only for purchases of fuel made by the person named on the certificate and for use at his residence, the address of which is also listed on the certificate. Any change of address of purchaser will require completion of a new certificate of exemption.

A dealer is not required to obtain a certificate of exemption for each transaction if the record of the sale is clearly identifiable as a sale of fuel for domestic consumption. However, this should not be construed as altering the fact that the burden of proof is on the dealer to demonstrate that each untaxed transaction is legitimately exempt from the tax.

Dealers will not be required to obtain a certificate of exemption on sales of small quantities of kerosene, firewood, or other fuels, provided sales receipts or daily sales records are available which clearly indicate the number of gallons (or other measure) of the specific type of fuel sold and the number of purchasers.

E. Local sales and use tax. The local 1% 1.0% sales and use tax will continue to apply to all purchases for domestic consumption of artificial or propane gas, firewood, coal and home heating oil unless the locality adopts an ordinance specifically exempting such fuels.

1. Sales tax. The local 1% 1.0% sales tax will be allocated to the locality in which the place of business from which the sale is made is located. Place of business is defined as an established business location at which orders are regularly received. Therefore the situs of sale shall be the business location that first takes the purchaser's order, either in person, by purchase order, or by letter or telephone, regardless of the location of the merchandise or the point of acceptance of the order or shipment.

2. Use tax. The local use tax on sales made to Virginia residents by out-of-state dealers and the local use tax remitted by consumers on any portion of a domestic purchase used for nondomestic consumption will be allocated to the locality in which the fuel is delivered. The following examples will clarify this.

Example 1: A resident of a city or county which imposes the 1% 1.0% local sales and use tax on fuels for domestic consumption purchases fuel from an out-of-state dealer who delivers it to the purchaser's residence in Virginia. The 1% 1.0% local tax will apply to the transaction.

Example 2: A resident of a city/county city or county which imposes the 1% 1.0% local tax purchases fuel for domestic consumption from a dealer located in a city/county city or county which does not impose the 1% 1.0% local tax. The purchaser uses a portion of the fuel for nondomestic purposes and is therefore liable for payment of the use tax on that portion. The purchaser will therefore be required to remit the 4% 5.3% use tax (3% (4.3% state; 1% 1.0% local) or 6.0% use tax in the Hampton Roads and Northern Virginia Regions (4.3% state, 0.7% regional, and 1.0% local). For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Example 3: A resident purchases fuel for domestic consumption from a dealer located in a locality which imposes the 1% 1.0% local tax and therefore pays the 1% 1.0% on the purchase of the fuel. The purchaser uses a portion of the fuel for nondomestic purposes and is consequently liable for payment of the use tax on that portion. The purchaser will be required to remit only 3% 4.3% (5.0% in the Hampton Roads and Northern Virginia Regions) state tax; the 1% 1.0% local tax was paid on the original fuel purchase. This applies regardless of whether the purchaser's city or county of residence does or does not impose the 1% 1.0% local tax on fuels.

3. Local exemption. Following is a list of those cities and counties which, as of December 1, 1982, have notified the department that ordinances have been As of 2014, the department is aware that the following cities and counties have adopted ordinances exempting fuel for domestic consumption from the local 1% 1.0% sales and use tax. Additional localities may adopt ordinances at any time and localities having exemption ordinances in effect may rescind such ordinances at any time.

Cities
Alexandria	Norfolk
Bedford	Norton
Chesapeake	Poquoson
Covington	Roanoke
Danville	Salem
Fairfax	Staunton
Fredericksburg	Virginia Beach
Lexington	Waynesboro
Manassas	Winchester
Martinsville
Counties
Alleghany	Lee
Arlington	Louisa
Augusta	Mathews
Bath	Middlesex
Bedford	Page
Caroline	Patrick
Clarke	Pittsylvania
Fairfax	Prince William
Fauquier	Pulaski
Floyd	Roanoke
Frederick	Shenandoah
Giles	Smyth
Goochland	Spotsylvania
Hanover	Stafford
Henry	Warren
James City	Washington
King William

NOTE: The following cities and counties have notified the department since December 1, 1982 that ordinances have been adopted exempting fuel for domestic consumption from the 1% local sales and use tax:

Cities
Hampton	Newport News
Counties
Franklin	Wise
Gloucester

 

Cities
Alexandria	Chesapeake	Covington
Danville	Fairfax	Fredericksburg
Hampton	Harrisonburg	Lexington
Manassas	Martinsville	Newport News
Norfolk	Norton	Poquoson
Portsmouth	Roanoke	Salem
Staunton	Virginia Beach	Waynesboro
Winchester

 

Counties
Alleghany	Arlington	Augusta
Bath	Bedford	Campbell
Caroline	Clarke	Fairfax
Fauquier	Floyd	Franklin
Frederick	Giles	Gloucester
Goochland	Hanover	Henry
James City	King William	Lee
Louisa	Madison	Mathews
Middlesex	Page	Patrick
Pittsylvania	Prince George	Prince William
Pulaski	Roanoke	Shenandoah
Smyth	Spotsylvania	Stafford
Warren	Washington	Wise

23VAC10-210-680. Gifts purchased in Virginia.

If a resident or nonresident buys a gift in Virginia and requests the seller to ship or mail such gift to another person, the purchaser is deemed to receive title to the gift at the time of purchase and the transaction is therefore taxable in Virginia. The location of the recipient of the gift has no bearing upon the taxability of the transaction; therefore, even if the recipient is located outside Virginia the sale is not a sale in interstate commerce. The following example illustrates this concept.

Example: A purchases a watch for $200 from a Virginia merchant, M, and tells M to send the watch to B who lives in Maryland. A must pay the sales tax of $8 $10.60 to M at the time of purchase.

The recipient of the gift ultimately receives title to the gift from the purchaser and not the merchant and there is no relationship between the merchant and the recipient.

The total rate of the state and local sales and use tax in localities that fall within the Hampton Roads and Northern Virginia Regions is 6.0% (4.3% state, 0.7% regional, and 1.0% local). The provisions of this section apply to transactions sourced to the Hampton Roads Region and the Northern Virginia Region, mutatis mutandis. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

23VAC10-210-2070. Place of business in Virginia; situs Situs of sale.

A. Generally. For determining the place of business in Virginia from which a sale is made, "place of business" means the business location in Virginia that first takes the purchaser's order, either in person, by purchase order or by letter or telephone, regardless of the location of the merchandise or the point of acceptance of the order or shipment. For example, an order placed for merchandise in a store in County A, forwarded by the store in County A to a sales office in City B and shipped to the purchaser from a warehouse or branch store in County C is a sale made in County A.

B. Place of business defined. The term "place of business in Virginia" includes, but is not limited to, a store, a sales or other office or any warehouse.

C. Out-of-state dealers. An out-of-state dealer who has a place of business in Virginia is required to register as a dealer at that place. If the same dealer, at a place of business outside this state, receives orders from Virginia customers directly and not through a place of business in Virginia, he must also register as an out-of-state dealer.

A. Definitions. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise:

"Hampton Roads Region" means the Counties of Isle of Wight, James City, Southampton, and York and the Cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg.

"Local sales and use tax" means the local retail sales and use tax imposed by ordinance in all Virginia cities and counties at the rate of 1.0%.

"Northern Virginia Region" means the Counties of Arlington, Fairfax, Loudoun, and Prince William and the Cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park.

"Place of business" means the business location in Virginia that first takes the purchaser's order, whether in person, by purchase order, or by letter or telephone, regardless of the location of the merchandise or the point of acceptance of the order or shipment. "Place of business" includes a store, a sales or other office, or any warehouse.

"Regional sales and use tax" means the additional state retail sales and use tax imposed in the Hampton Roads Region and the Northern Virginia Region at the rate of 0.7%.

B. Sourcing.

1. Sales tax. Sales by dealers located in Virginia are generally subject to the sales tax and sourced to the city or county of the place of business of the dealer collecting the tax, without regard to the city or county of possible use by the purchaser. The sale of tangible personal property at the place of business of the seller is sourced to that place of business, even if the goods are ultimately delivered to the purchaser at another location. The remote sale (by telephone, Internet, or mail order) of tangible personal property from an in-state dealer with a place of business in Virginia is sourced to the location in which the order was first taken, even if the goods are ultimately delivered to the purchaser at another location. Accordingly, an order placed for merchandise in a store in County A, forwarded by the store in County A to a sales office in City B and shipped to the purchaser from a warehouse or branch store in County C is a sale made in County A.

Example 1: Dealer A makes a sale to a customer at his place of business in the City of Fairfax in the Northern Virginia Region. Dealer A has the goods delivered to the customer in Loudoun County in the Northern Virginia Region. The sale is sourced to the City of Fairfax. Dealer A should collect 6.0% (4.3% state, 0.7% Regional, and 1.0% local) sales tax on the purchase. The 1.0% local tax should be sourced to the City of Fairfax.

Example 2: Dealer B makes a sale to a customer at his place of business in Loudoun County in the Northern Virginia Region, but the goods are delivered to the customer in Roanoke County, which is not in the Northern Virginia or Hampton Roads Region. The sale is sourced to Loudoun County, in the Northern Virginia Region. Dealer B should collect 6.0% sales tax on the purchase. The 1.0% local tax should be sourced to Loudoun County.

Example 3: Customer C orders merchandise from Dealer D by placing a call to Dealer D's store, located in the City of Newport News in the Hampton Roads Region. The goods will be shipped to Customer C's residence that is neither in the Hampton Roads nor the Northern Virginia Region. The sale is sourced to the City of Newport News in the Hampton Roads Region. Dealer D should collect 6.0% (4.3% state, 0.7% Regional, and 1.0% local) sales tax on the purchase. The 1.0% local tax should be sourced to the City of Newport News.

Example 4: Customer E orders merchandise from Dealer F's website, which has a place of business and warehouse in North Carolina. Dealer F is registered to collect the Virginia retail sales and use tax. The invoice indicates that the merchandise will be shipped to Customer E's residence in the City of Richmond, which is outside the Northern Virginia and Hampton Roads Regions. Because Dealer F's place of business and warehouse are located outside of Virginia, the sale is sourced to the location in which the merchandise is delivered, the City of Richmond, which is outside the Northern Virginia and Hampton Roads Regions. Dealer F should collect 5.3% (4.3% state and 1.0% local) sales tax on the purchase. The 1.0% local tax should be sourced to the City of Richmond.

2. Use tax collected by dealers. The use tax is generally sourced to the city or county where the goods are used or consumed by the purchaser, or stored for use or consumption. An out-of-state dealer who has a place of business in Virginia is required to register as a dealer at that place. If the same dealer, at a place of business outside this state, receives orders from Virginia customers directly and not through a place of business in Virginia, he must also register as an out-of-state dealer. Out-of-state dealers who hold Certificates of Registration to collect the use tax from their customers must source sales into Virginia according to the city or county of destination.

Example 1: Dealer A makes Internet sales from his place of business in North Carolina. Dealer A holds a Certificate of Registration to collect the use tax from Virginia customers. Dealer A makes a sale and ships the goods to the City of Fairfax. Dealer A would collect 6.0% (4.3% state, 0.7% Regional, and 1.0% local) use tax on the sale. The 1.0% local tax should be sourced to the City of Fairfax.

3. Consumer use tax. Generally, Virginia residents and others purchasing goods from a business that does not collect the Virginia retail sales and use tax or purchasing goods tax-free while outside Virginia and bringing them into Virginia are subject to the consumer use tax. The use tax is sourced to the city or county where the goods are used or consumed by the purchaser, or stored for use or consumption. For more information on use tax, see 23VAC10-210-6030.

Any person purchasing tangible personal property in other areas of the Commonwealth for use in either the Hampton Roads Region or the Northern Virginia Region is not responsible for the regional consumer use tax if the retail sales and use tax has been paid on the purchase.

Example 1: Customer A, who is located in the City of Fairfax, makes an Internet purchase of tangible personal property from a West Virginia dealer who does not hold a Virginia Certificate of Registration and does not collect the use tax from Virginia customers. Customer A must remit 6.0% (4.3% state, 0.7% regional, and 1.0% local) use tax on the purchase.

Example 2: Customer B is located in the City of Charlottesville. Customer B buys equipment in Charlottesville that is intended for use performing a construction contract in Fairfax County and pays 5.3% sales tax. Customer B subsequently moves the equipment into Fairfax County. Customer B does not owe the 0.7% regional use tax on the equipment as the sales tax has been paid.

23VAC10-210-3080. Returned goods.

A. Generally. A dealer may deduct from gross sales any portion of the sales price of tangible personal property returned by a customer provided that such amount has been refunded to or credited to the account of the purchaser. Adequate records must be kept to disclose the essential facts.

B. Returns before tax paid by dealer. If a dealer refunds or credits to a customer's account all or any portion of the sales price of returned goods and has not yet paid the sales tax to the department, such portion of the sales price may be deducted from gross sales by the dealer in the appropriate place on his return for the period.

Example 1. Customer A purchases a sweater from Dealer B for $20.00 $20 and pays to B the appropriate $1.00 $1.06 sales tax. A returns the sweater the same day and B refunds $21.00 $21.06. If the sale was included in gross sales for the month, B may deduct the $20.00 $20 sales price of the sweater.

C. Returns after tax paid by dealer. If a dealer refunds or credits to a customer's account all or any portion of the sales price of returned goods after the dealer has paid the tax on the goods to the department, such portion may be deducted from gross sales on the dealer's return for the period in which the refund was made or credit given.

Example 2. 1. In December Customer C purchases a bed from Dealer D for $700 and pays the $35 $37.10 tax. C returns the bed to D in January and D credits C's account for $735 $737.10. In reporting gross sales for January, D may deduct the $700 sales price of the bed reported in a previous month.

D. Refund or credit for returned goods. If a dealer as described in subsection C of this section has insufficient gross sales during the period in which goods are returned or a refund/credit refund or credit issued to absorb the amount of the sales price of the returned goods, the dealer may carry the deduction forward as a credit against gross sales until used. If any portion of such credit has not been used by the time a dealer ceases business or if a dealer is no longer engaged in making retail sales, he may request a refund for any portion of the unused credit for returned goods. The amount of refund will be the net amount of tax remitted, therefore, if a dealer deducted dealer's discount in filing his original return, such discount shall similarly be deducted from the amount to be refunded. The following example illustrates this concept.

Example 1. Customer E purchases equipment from Dealer G in January for $10,000 and pays the $500 $530 sales tax. The transaction is reported on G's January sales tax return which is filed timely. E returns the equipment in April and G refunds to E $8,000 of the sales price and the applicable tax of $400 $424. G's gross sales for April are only $5,000, therefore, only $5,000 of the amount refunded may be used as a credit. G goes out of business on April 30 and applies for refund of the tax attributable to the remaining $3,000 of sales price which was refunded. G will be issued a refund of $146.40 $155.40 computed as follows:

(Sales Price X 5.0% 5.3% tax) - dealer's discount = Refund ($3,000 X 5.0% 5.3% tax) - (4.0% (1.6% X $90) = $146.40 $157.56

E. Sales of returned goods. When any returned tangible personal property is resold, the sale is subject to the sales tax.

F. Hampton Roads Region and Northern Virginia Region. The total rate of the state and local sales and use tax in localities that fall within these regions is 6.0% (4.3% state, 0.7% regional, and 1.0% local). The provisions of this section apply to transactions sourced to the Hampton Roads Region and the Northern Virginia Region, mutatis mutandis. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

23VAC10-210-6041. Vending machine sales; dealers engaged in the business of placing vending machines.

A. Registration requirements. Except as otherwise authorized by the Tax Commissioner, every person engaged in the business of placing vending machines and selling tangible personal property through such machines shall apply for a Certificate of Registration for each county and city in which machines are placed. A separate registration is required for each place of business from which nonvending machine sales are made. Dealers holding or applying for multiple vending or nonvending registrations may request permission at the time of application to file consolidated vending or nonvending returns.

B. Computation of tax. All items of tangible personal property sold through vending machines by those vending machines dealers engaged in placing vending machines and selling tangible personal property through such machines are taxable at the rate of 6.0% (5.0% 6.3% (5.3% state and 1.0% local) and 7.0% (5.3% state, 0.7% regional, and 1.0% local) in the Hampton Roads and Northern Virginia Regions. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Any dealers, all of whose machines are under contract to nonprofit organizations, should refer to 23VAC10-210-6042. Dealers acquiring items from other suppliers and selling them in the same condition which they were acquired shall compute the 6.0% 6.3% (7.0% in the Hampton Roads and Northern Virginia Regions) tax on the cost price of the purchased tangible personal property. Dealers who manufacture the tangible personal property to be sold through vending machines shall compute the 6.0% tax on the cost of the manufactured tangible personal property (cost of goods manufactured). The cost of manufactured personal property includes raw material cost plus labor and overhead attributable to the manufacture of the item being sold.

Example:

Dealer A purchases (or manufactures) items, with a total cost price of $1,000, during the month for sale through vending machines. Dealer A would compute the tax as follows:

Total cost price ($1,000) X State tax rate (.05) (.053) = State tax ($50) ($53)

Total cost price ($1,000) X Local tax rate (.01) = Local tax ($10)

TOTAL TAX = $60 $63

The method of accounting used for federal income tax purposes shall be the accounting method used in determining the cost price of purchased tangible personal property and the cost of manufactured tangible personal property. For example, if the first-in, first-out method of accounting is used for federal income tax purposes, this accounting method shall be used each month for computing the cost price of purchased tangible personal property or the cost of manufactured tangible personal property.

As an alternative method of computing the tax, any dealer unable to maintain satisfactory records to determine the cost price of purchased tangible personal property and the cost of manufactured tangible personal property may request in writing to the Tax Commissioner authority to remit an amount based on a percentage of gross receipts which takes into account the inclusion of the 5.0% 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) sales tax.

Example:

Dealer B, who has been authorized by the Tax Commissioner to compute the tax based on gross receipts, had gross receipts from vending machine sales during the month of $3,000. Dealer B would compute the tax as follows:

Gross receipts ($3,000) X State tax rate (.04) (.043) = State tax ($120) ($129)

Gross receipts ($3,000) X Local tax rate (.01) = Local tax ($30)

TOTAL TAX = $150 $159

Upon receiving such authorization from the Tax Commissioner, a return shall be filed to report the 4 5.0% 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) sales tax beginning with the period set out in the authorization letter. All subsequent returns shall be filed using this method unless the dealer applies in writing to the Tax Commissioner and is given authorization in writing to change his filing status. Authorization to compute the tax using this alternative method will not eliminate the requirement to maintain records which show the location of each vending machine, purchases and inventories of merchandise bought for sale through vending machines, and total gross receipts for each vending machine.

C. Filing of returns. Except as otherwise authorized by the Tax Commissioner, dealers engaging in the business of placing vending machines and selling tangible personal property through such machines must file a return to report the tax on the items sold through vending machines.

Returns are due by the 20th day of the month following the period in which tangible personal property is sold through vending machines, with the tax to be computed in the manner set out in subsection B above of this section. A return is required to be filed for each locality where vending machines are located unless a dealer has requested and been granted authority to file a consolidated return.

D. Purchases. Tangible personal property purchased for resale through vending machines may be purchased under Certificate of Exemption, Form ST-10. All tangible property purchased for use or consumption by the dealer and not for resale, including vending machines and repair parts for such machines, and withdrawals of tangible personal property from a tax exempt manufacturing or resale inventory for use or consumption by the dealer are subject to the tax at the rate of 5.0% 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) of the cost price of the property. If the supplier does not charge the tax on purchases for use or consumption, the vending machine dealer shall pay the tax directly to the Department of Taxation on the Retail Sales and Use Tax Return (if he is registered for nonvending sales) or on the Consumer's Use Tax Return. Dealers who manufacture or process tangible personal property for sale may be entitled to the industrial exemption for tangible personal property used directly in manufacturing or processing as set forth in subdivision 2 of § 58.1-609.3(2) of the Code of Virginia and 23VAC10-210-920.

E. Records. Records shall be kept for a period of three years and shall show the location of each machine; purchases and inventories of merchandise bought for sales through vending machines; and the cost price of purchased tangible personal property or the cost of manufactured tangible personal property for each machine.

23VAC10-210-6042. Vending machine sales; dealers under contract with nonprofit organizations.

A. Registration requirements. A separate Certificate of Registration is required for each county and city in which vending machines are placed. Dealers holding multiple registrations may request permission to file a consolidated return at the time of application.

B. Computation of tax. Dealers engaged in the business of placing vending machines all of which are under contract to nonprofit organizations may deduct sales of $.10 or less from gross receipts and divide the remaining balance by 1.05 1.053 (1.06 in the Hampton Roads and Northern Virginia Regions) to determine the amount of taxable sales upon which the 5.0% tax is due and payable. To qualify for this method of computing the tax, all machines of the vending machine dealer must be under contract to nonprofit organizations. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

C. Filing of returns. The Retail Sales and Use Tax Return, is required to be filed for each locality in which vending machines are placed by the 20th day of the month to report the 5.0% 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) tax on (i) sales made in the previous period and (ii) untaxed purchases for use or consumption by the dealer or withdrawals from tax exempt inventory for use or consumption by the dealer.

D. Records. A contract shall be kept for each vending machine under contract to nonprofit organizations. Additionally, records shall be kept for a period of four years to show the location of each vending machine, purchases and inventories of merchandise bought for sale, and total gross receipts for each vending machine separating items sold for $.10 or less from items sold for more than $.10.

23VAC10-210-6043. Vending machine sales; other dealers selling tangible personal property through vending machines.

Dealers not engaged in the business of placing vending machines but who use vending machines at their places of business to sell merchandise, (e.g., service station operators,) must report the tax at the rate of 5.0% 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) of gross taxable sales on the same return on which nonvending machine sales are reported. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

VA.R. Doc. No. R16-4601; Filed June 6, 2016, 1:34 p.m.