WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in Virginia is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in Virginia include physical property, like furniture, home appliances, and motor vehicles.
The purchase of both prescription and non-prescription medicine and gasoline are tax-exempt.
Virginia charges a reduced rate on the purchase of groceries with a respective State and Local Tax rate of 1.5 and 1.0%.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Virginia does not require businesses to collect sales tax on the sale of digital goods or services.
However, Virginia has one exception to this policy. Businesses must collect sales tax on pre-written computer software that is sold online.
HOW TO REGISTER FOR VIRGINIA SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Business location; address; EIN and basic info,
- Sales tax types your business need to pay
- Owner's basic info
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Norfolk, Virginia. Since books are taxable in the state of Virginia, Mary charges her customers a flat-rate sales tax of 6.000% on all sales. This includes Virginia’s state sales tax rate of 4.300%, Norfolk’s city sales tax rate of 1.000%, and Mary’s local district tax rate of 0.700%
The state of Virginia follows what is known as a origin-based sales tax policy. This means that long-distance sales within Virginia are taxed according to the address of the buyer. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Richmond, Virginia. A customer living in (city name B) finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 4.300% state tax rate for Virginia, plus 1.000% for Richmond’s city tax rate. At a total sales tax rate of 5.3%, the total cost is $368.55 ($18.55 sales tax).
Virginia businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your Virginia seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
Virginia requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
How often you need to file depends upon the total amount of sales tax your business collects.
- The state of Virginia requires all businesses to file their sales tax returns on a monthly basis for at least the first 12 months. If after 12 months the State determines that the business is collecting less than $100.00 in sales tax per month, then the sales tax return will be filed on a quarterly basis.
Note: Virginia requires you to file a sales tax return even if you have no sales tax to report.
All Virginia sales tax return deadlines fall on the 20th day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day.
- Q1 (Jan. - Mar.): Due April 20
- Q2 (April - June): Due July 20
- Q3 (July - Sept.): Due October 22
- Q4 (Oct. - Dec.): Due January 22
Monthly filing: The 20th of the following month, or the next business day, e.g. April 20 for the month of March, or May 22 for the month of April.
Penalties for Late Filing
If the amount of sales tax due is $150.00 or greater, Virginia charges a late filing penalty of 6% per month up to a maximum of 30% of the tax that is reported on the tax return.
If the amount of sales tax due is less than $150.00, then the late filing penalty is $10.00.
Virginia Helpful Resources
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