TITLE 23. TAXATION
TITLE 23. TAXATION
DEPARTMENT OF TAXATION
Fast-Track Regulation
Titles of Regulations: 23VAC10-20. General Provisions Applicable to All Taxes Administered by the Department of Taxation (amending 23VAC10-20-60; repealing 23VAC10-20-30).
23VAC10-110. Individual Income Tax (amending 23VAC10-110-130, 23VAC10-110-142, 23VAC10-110-143; repealing 23VAC10-110-144, 23VAC10-110-250, 23VAC10-110-280).
23VAC10-115. Fiduciary Income Tax (repealing 23VAC10-115-10, 23VAC10-115-40, 23VAC10-115-50, 23VAC10-115-90, 23VAC10-115-151, 23VAC10-115-153).
23VAC10-120. Corporation Income Tax (repealing 23VAC10-120-70).
23VAC10-210. Retail Sales and Use Tax (repealing 23VAC10-210-32, 23VAC10-210-130, 23VAC10-210-220, 23VAC10-210-352, 23VAC10-210-353, 23VAC10-210-390, 23VAC10-210-485, 23VAC10-210-500, 23VAC10-210-590, 23VAC10-210-595, 23VAC10-210-650, 23VAC10-210-720, 23VAC10-210-766, 23VAC10-210-770, 23VAC10-210-790, 23VAC10-210-810, 23VAC10-210-900, 23VAC10-210-970, 23VAC10-210-1070, 23VAC10-210-1071, 23VAC10-210-2020, 23VAC10-210-2050, 23VAC10-210-4030).
Statutory Authority: § 58.1-203 of the Code of Virginia.
Public Hearing Information: No public hearing is currently scheduled.
Public Comment Deadline: September 13, 2024.
Effective Date: September 28, 2024.
Agency Contact: Joe Mayer, Lead Policy Analyst, Department of Taxation, P.O. Box 27185, Richmond, VA 23261-7185, telephone (804) 371-2299, FAX (804) 371-2355, or email joseph.mayer@tax.virginia.gov.
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 authority for the current regulatory action is discretionary.
Purpose: The agency has identified numerous sections that may be repealed or amended to reduce the number of requirements imposed in regulation. Some of these sections address statutes that have been amended or repealed. Other sections address statutes that are clear and unambiguous and do not need any regulatory interpretation. Other sections are duplicative of other regulation sections. Repeal of the regulatory provisions does not reflect a change in existing departmental policy.
Rationale for Using Fast-Track Rulemaking Process: There is no mandate associated with this action. Rather, it is prompted by Executive Order 19 (June 30, 2022), which requires executive branch agencies to achieve a 25% reduction of their regulatory requirements. The Department of Taxation has identified numerous regulation sections that may be repealed or amended to reduce the number of requirements it imposes in its regulations. As the provisions repealed are no longer necessary, this rulemaking is expected to be noncontroversial and therefore appropriate for the fast-track rulemaking process.
Substance: The amendments repeal selected provisions of the agency's chapters on General Provisions Applicable to All Taxes Administered by the Department of Taxation, Individual Income Tax, Fiduciary Income Tax, Corporation Income Tax, and Retail Sales and Use Tax to reduce the number of requirements imposed in regulation. Provisions are being repealed because the provisions (i) address statutes that have been repealed; (ii) address statutes that are clear and unambiguous and do not need regulatory interpretation; and (iii) are duplicative of other sections. Repeal of these provisions does not reflect a change in existing departmental policy.
Issues: The primary advantage of this regulatory action to the public is that it will reduce the number of requirements in regulation. The primary advantage to the Department of Taxation is that the agency will no longer need to maintain the provisions being repealed. As these provisions and the requirements imposed are unnecessary, their repeal will result in no disadvantage to the public or the Commonwealth.
Department of Planning and Budget's Economic Impact Analysis:
The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Code of Virginia and Executive Order 19. The analysis presented represents DPB's best estimate of the potential economic impacts as of the date of this analysis.1
Summary of the Proposed Amendments to Regulation. As the result of Executive Directive One (2022)2 the Department of Taxation has adopted a fast-track regulatory action to amend five regulations: the General Provisions Applicable to All Taxes Administered By the Department of Taxation, the Individual Income Tax, the Fiduciary Income Tax, the Corporation Income Tax, and the Retail Sales and Use Tax. In total, the action would update and retain four sections and repeal thirty-four sections that are either outdated or repetitive of tax provisions in the Code of Virginia.
Background. The Department of Taxation reports that these regulations are typically used by tax attorneys who are either helping clients plan for their tax liabilities or appeal an audit finding, and that taxpayers and tax preparers are typically only relying on the forms and instructions used to pay taxes or prepare tax returns. Thus, the agency's intent in reviewing the current regulation was to remove provisions that were outdated, and thus confusing, and provisions that mainly served to explain requirements in statute. Further, the regulation for Retail Sales and Use Tax contains numerous industry-specific provisions that the agency believes are either nearly obsolete (such as 23VAC10-210-970 governing microfilm/microfiche documents) or that follow the general rule for either retail sales or service providers and no longer need to be the subject of their own separate sections of the regulation. The proposed changes for each of the five regulations are briefly summarized below.
23VAC10-20 General Provisions Applicable to All Taxes Administered by the Department of Taxation: 23VAC10-20-30, pertaining to the filing of tax returns or payment of taxes by mail, is being repealed in its entirety because it paraphrases § 58.1-9 of the Code of Virginia.3 23VAC10-20-60, pertaining to the interest rates for late payments, currently contains interest rates for years up to December 1984. The Department of Taxation reports that these interest rates are now communicated to the public via a quarterly bulletin,4 and do not need to be updated in the regulation. This section would retain language noting that Virginia uses the nominal interest rate established by Internal Revenue Code § 6621 would be retained, and that Virginia applies simple interest computations without compounding. The agency also proposes to add a reference to § 58.1-15 of the Code of Virginia, which pertains to the rate of interest.5
23VAC10-110 Individual Income Tax: 23VAC10-110-130, pertaining to exemptions and exclusions, would be retained in part. The Department of Taxation notes that the filing thresholds in the current subsection A are outdated and that they are frequently updated by the General Assembly; thus, subsection A would be repealed entirely, and subsection B would be repealed in part such that only the item pertaining to part-year residents would be retained. The remaining items, which pertain to nonresidents and military personnel, would also be retained. A reference to Virginia Code § 58.1-321 would be added to the parenthetical note at the end of the section.6 23VAC10-110-142, pertaining to subtractions from Virginia taxable income, would also be retained in part. Subsections that would be removed are either outdated or redundant to § 58.1-322.02 of the Code of Virginia; a reference to this section of statute would be added.7 For example, the subsection governing WIN (Work Incentive) or targeted jobs tax credit would be repealed because it was replaced by the Work Opportunity Credit in 2017; the language pertaining to this subtraction can be found in § 58.1-322.02 of the Code of Virginia.8 This section would retain subsections pertaining to (i) interest or dividends on U.S. bonds or similar securities, (ii) interest or dividends on pass-through entities, and (iii) Social Security and Railroad Retirement benefits. 23VAC10-110-143, governing deductions from Virginia taxable income would largely be repealed as most provisions are also in Code § 58.1-322.03; a reference to this statute would be added.9 Two subsections would be retained, as follows: (i) subdivision 1, pertaining itemized deductions would be replaced with a statement that says, "For the purposes of computing the amount of reduction required to federal itemized deductions for income taxes imposed by Virginia or any other taxing jurisdiction, the term any other taxing jurisdiction includes any other state, any locality, and any foreign country"; (ii) subdivision 2, pertaining to the standard deduction, would be replaced with a definition of the term "earned income" and a statement that "this rule applies to dependents younger than age 19 years and full-time students who are eligible to be claimed on their parents return." 23VAC10-110-144 (modifications and adjustments), 23VAC10-110-250 (special cases in which nonresidents are not required to file a Virginia return), and 23VAC10-110-280 (nongame wildlife voluntary contribution) would be repealed as they are either outdated or repetitive of statute.10
23VAC10-115 Fiduciary Income Tax: 23VAC10-115-10 (definitions), 23VAC10-115-40 (Virginia taxable income of a resident estate or trust), 23VAC10-115-50 (Virginia taxable income of a nonresident estate or trust), 23VAC10-115-90 (other credits), 23VAC10-115-151 (amendments of declaration), and 23VAC10-115-153 (other payment dates) would all be repealed as they are either outdated or repetitive of statute.11
23VAC10-120 Corporate Income Tax: 23VAC10-120-70, pertaining to the imposition of tax for corporations would be repealed in its entirety, because it paraphrases § 58.1-400 of the Code of Virginia.12
23VAC10-210 Retail Sales and Use Tax: A majority of these sections describe what would or would not be considered taxable for specific service industries that are broadly covered under 23VAC10-210-4040 (services).13 23VAC10-210-500 (dentists, dental laboratories, and dental supply houses), 23VAC10-210-595 (financial institutions), 23VAC10-210-650 (furniture and storage warehousemen), 23VAC10-210-770 (interior decorators), 23VAC10-210-790 (kennels, stables, and pet shops), 23VAC10-210-810 (laundries and dry cleaners), and 23VAC10-210-2050 (photographs, photostats, and blueprints) would all be repealed as they are covered by the section governing services. 23VAC10-210-32 (adult care facilities) and 23VAC10-210-720 (hospitals and nursing homes) would be repealed as they refer to exemptions that have already been repealed.14 23VAC10-210-130 (artists and art dealers) would be repealed because it mainly states that sales of objects of art are sales of tangible personal property.15 Similarly, 23VAC10-210-390 (consignments) and 23VAC10-210-2020 (peddlers and street vendors) would be repealed because they state the basic principle of sales tax that goods are subject to the tax when sold by a dealer.16 23VAC10-210-220 (tax brackets) would be repealed. This section provides a breakdown of tax amounts for very small transactions, which used to be printed and used as a reference by retail merchants and has been made redundant by point-of-sale terminals. 23VAC10-210-352 and 23VAC10-210-353 (commercial watermen) are covered by § 58.1-609.2 of the Code of Virginia, which pertains to agricultural exemptions and by 58.1-1400 et seq. of the Code of Virginia, which covers Virginia watercraft sales and use tax.17 23VAC10-210-590 (feed making) is also covered by agricultural exemptions in § 58.1-609.2 of the Code of Virginia. 23VAC10-210-485 (the dealer's compensation or discount) would be repealed as it reflects obsolete statute, which has been superseded by Item 3-5.06 of the budget.18 23VAC10-210-766 (the Innovative Technology Authority) would be repealed because it was merged into the Innovation and Entrepreneurship Investment Authority (IEIA) in 2009 and was then replaced by the Virginia Innovation Partnership Authority (VIPA) in 2020.19 23VAC10-210-900 (machinists, foundrymen, and pattern makers) would be repealed as it is repetitive of § 58.1-609.3 of the Code of Virginia.20 23VAC10-210-970 (microfilm and microfiche copies of documents) would be repealed because the technology is largely obsolete. 23VAC10-210-1070 and 23VAC10-210-1071 (nonprofit organizations) would be repealed because the statutory section it referenced was repealed and replaced with § 58.1-609.11 of the Code of Virginia.21 Lastly, 23VAC10-210-4030 (seeds and seedlings) would be repealed because it is repetitive of 23VAC10-210-50, which would be retained.22
Estimated Benefits and Costs. The proposed amendments primarily serve to meet the regulatory reduction requirements, by removing obsolete or redundant requirements; these changes would thereby benefit readers of the regulation by enhancing the clarity of the regulation.
Businesses and Other Entities Affected. As mentioned previously, the proposed amendments primarily affect tax attorneys who rely on the regulations, along with statute, to advise their clients. The Department of Taxation has confirmed that this action does not make any substantive changes to state tax policy and would not result in anyone owing either more or less money to the state.
The Code of Virginia requires DPB to assess whether an adverse impact may result from the proposed regulation.23 An adverse impact is indicated if there is any increase in net cost or reduction in net benefit for any entity, even if the benefits exceed the costs for all entities combined.24 Because the proposed amendments serve to only clarify and update the regulatory text, and would not result in any increased tax liability, an adverse impact is not indicated.
Small Businesses25 Affected.26 The proposed amendments would not adversely affect small businesses.
Localities27 Affected.28 No locality would be disproportionately affected. Local governments would not incur new costs.
Projected Impact on Employment. The proposed regulation does not appear to affect total employment.
Effects on the Use and Value of Private Property. The proposed amendments do not appear to affect the value of private property. Real estate development costs would not be affected.
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1Section 2.2-4007.04 of the Code of Virginia requires that such economic impact analyses determine the public benefits and costs of the proposed amendments. Further the analysis should include but not be limited to: (1) the projected number of businesses or other entities to whom the proposed regulatory action would apply, (2) the identity of any localities and types of businesses or other entities particularly affected, (3) the projected number of persons and employment positions to be affected, (4) the projected costs to affected businesses or entities to implement or comply with the regulation, and (5) the impact on the use and value of private property.
2 ED One, which was issued on January 15, 2022, directs executive branch agencies "to initiate regulatory processes to reduce by at least 25% the number of regulations not mandated by federal or state statute." See https://www.governor.virginia.gov/media/governorvirginiagov/governor-of-virginia/pdf/ed/ED-1-Regulatory-Reduction.pdf. ED One was subsequently amended and reenacted by Executive Order 19 (2022) to "require a 25% reduction in regulatory requirements instead of a reduction in regulations." See https://townhall.virginia.gov/EO-19-Development-and-Review-of-State-Agency-Regulations.pdf.
3 See https://law.lis.virginia.gov/vacode/title58.1/chapter0/section58.1-9/.
4 See https://www.tax.virginia.gov/tax-bulletins.
5 See https://law.lis.virginia.gov/vacode/title58.1/chapter0/section58.1-15/.
6 See https://law.lis.virginia.gov/vacode/title58.1/chapter3/section58.1-321/.
7 See https://law.lis.virginia.gov/vacode/title58.1/chapter3/section58.1-322.02/.
8 The specific statutory provisions corresponding to each subsection that would be repealed can be found on pages 8-9 of the Agency Background Document (ABD): https://townhall.virginia.gov/l/GetFile.cfm?File=75 \6353\10169\AgencyStatement_TAX_10169_v3.pdf.
9 See https://law.lis.virginia.gov/vacode/title58.1/chapter3/section58.1-322.03/.
10 See https://law.lis.virginia.gov/vacode/title58.1/chapter3/section58.1-315/, https://law.lis.virginia.gov/vacode/ 58.1-342/, and subsection B in https://law.lis.virginia.gov/vacode/ title58.1/chapter3/section58.1-344.3/, respectively. (Also in ABD, p. 9.)
11 See ABD, pp. 9-10 for the corresponding Code citations.
12 See https://law.lis.virginia.gov/vacode/title58.1/chapter3/section58.1-400/.
13 See https://law.lis.virginia.gov/admincode/title23/agency10/chapter210/section4040/.
14 See ABD, pp. 10-13 for specific citations for this and other sections in this regulation that would be repealed.
15 See https://law.lis.virginia.gov/vacode/title58.1/chapter6/section58.1-603/#v2/.
16 See https://law.lis.virginia.gov/vacode/title58.1/chapter6/section58.1-612/.
17 See item 4 under https://law.lis.virginia.gov/vacode/title58.1/chapter6/section58.1-609.2/ and https://law.lis.virginia.gov/vacode/58.1-1400/, respectively.
18 The budget language most recently appears in the introduced budget. See https://budget.lis.virginia.gov/item/2024/1/HB30/Introduced/3/3-5.06/.
19 See ABD, p. 11.
20 See item 2 (i) in https://law.lis.virginia.gov/vacode/title58.1/chapter6/section58.1-609.3/.
21 See https://law.lis.virginia.gov/vacode/title58.1/chapter6/section58.1-609.11/.
22 See https://law.lis.virginia.gov/admincode/title23/agency10/chapter210/section50/.
23 Pursuant to § 2.2-4007.04 D: In the event this economic impact analysis reveals that the proposed regulation would have an adverse economic impact on businesses or would impose a significant adverse economic impact on a locality, business, or entity particularly affected, the Department of Planning and Budget shall advise the Joint Commission on Administrative Rules, the House Committee on Appropriations, and the Senate Committee on Finance. Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation.
24 Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation. As a result, DPB has adopted a definition of adverse impact that assesses changes in net costs and benefits for each affected Virginia entity that directly results from discretionary changes to the regulation.
25 Pursuant to § 2.2-4007.04, 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."
26 If the proposed regulatory action may have an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include: (1) an identification and estimate of the number of small businesses subject to the proposed regulation, (2) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the proposed regulation, including the type of professional skills necessary for preparing required reports and other documents, (3) a statement of the probable effect of the proposed regulation on affected small businesses, and (4) a description of any less intrusive or less costly alternative methods of achieving the purpose of the proposed regulation. Additionally, pursuant to § 2.2-4007.1 of the Code of Virginia, if there is a finding that a proposed regulation may have an adverse impact on small business, the Joint Commission on Administrative Rules shall be notified.
27 "Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.
28 Section 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.
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) remove language that provides regulatory interpretation of statute that is clear and unambiguous, (ii) remove language that is duplicative of other regulatory text, and (iii) update language to address statutes that have been amended or repealed.
23VAC10-20-30. Filing of tax returns or payment of taxes by mail.
A. Generally.
1. When remittance of a tax return or a tax payment is made by mail, receipt of the return or payment by the person with whom the return is required to be filed or the payment is required to be made shall constitute timely filing or payment, provided that (a) the tax return or tax payment is received in a sealed envelope with sufficient postage; and (b) the envelope bears a postmark on or before midnight of the day the return is required to be filed or the payment be made without penalty or interest.
2. Returns mailed with insufficient postage shall not be deemed filed until actually received or remailed with adequate postage.
B. Definitions.
1. Person. The term "person" includes, but is not limited to, a Commissioner of the Revenue, a Director of Finance or the Department of Taxation.
2. Postmark. A "postmark" means the United States Post Office cancellation mark stamped upon the envelope. A mark made by a postage meter under control of a person other than the U.S. Post Office is not a postmark.
C. Example. Taxpayer X is required to file a sales tax return on February 20, which falls on a Saturday. Monday, February 22, is a legal holiday (Washington's birthday). The Department of Taxation receives the return on Friday, February 26 in a sealed envelope bearing a postmark of February 23 (Tuesday). No interest or penalties for late filing or late payment will be assessed.
23VAC10-20-60. Rate of interest.
A. In general. 1. Unless otherwise specifically provided, interest on omitted taxes, taxes paid after the date prescribed for payment, assessments and refunds shall be computed at a rate equal to the rate of interest established pursuant to § 6621 of the Internal Revenue Code of 1954, as amended. 2. Separate computations shall be made for each period during which the interest rate differs from the current rate by multiplying the deficiency or overpayment outstanding during each period by the rate of interest applicable to that period. 3. The Internal Revenue Code requires that interest accruing after December 31, 1982 be compounded daily. Although Virginia uses the nominal interest rate established pursuant to IRC § 6621, Virginia applies simple interest computations without compounding.
4. The rates of interest applicable to deficiencies and overpayments under this section and prior law are as follows:
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Prior to July 1, 1976
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6%
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July 1, 1976 through January 31, 1978
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7%
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February 1, 1980 through January 31, 1980
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6%
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February 1, 1980 through January 31, 1982
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12%
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February 1, 1982 through December 31, 1982
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20%
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January 1, 1983 through June 30, 1983
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16%
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July 1, 1983 through December 31, 1984
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11%
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5. B. Interest is computed by excluding the due date and including the date of payment in the number of days. For example, interest on $100 tax due June 20, 1983, and paid July 10, 1983, would be computed as follows:
June 21 through June 30 = 10 days at 16%
July 1 through July 10 = 10 days at 11%
Total Interest Factor 0.007396 x $100 = $0.74 interest
Note that June 20, the due date, is not counted, and that July 10 and all intervening days are counted.
B. § 6621. The text of IRC § 6621 as amended through December 31, 1983 is set forth below:
IRC Section 6621. Determination of rate of interest.
a. In general. The annual rate established under this section shall be such adjusted rate as is established by the Secretary under subsection (b).
b. Adjustment of interest rate.
1. Establishment of adjusted rate. If the adjusted prime rate charged by banks (rounded to the nearest full percent)
(A) during the 6-month period ending on September 30 of any calendar year, or
(B) during the 6-month period ending on March 31 of any calendar year, differs from the interest rate in effect under this section on either such date, respectively, then the Secretary shall establish, within 15 days after the close of the applicable 6-month period, an adjusted rate of interest equal to such adjusted prime rate.
2. Effective date of adjustment. Any adjusted rate of interest established under paragraph (1) shall become effective:
(A) on January 1 of the succeeding year in the case of an adjustment attributable to paragraph (1)(A), and
(B) on July 1 of the same year in the case of an adjustment attributable to paragraph (1)(B).
c. Definition of prime rate. For purposes of subsection (b), the term "adjusted prime rate charged by banks" means the average predominant prime rate quoted by commercial banks to large businesses, as determined by the Board of Governors of the Federal Reserve System.
C. See § 58.15 of the Code of Virginia for provisions defining rates of interest and methods to determine interest and additions to tax.
23VAC10-110-130. Exemptions and exclusions.
A. Generally. No tax is imposed upon any individual whose Virginia adjusted gross income, as defined in subsection B, for the taxable year is less than $3,000; nor is any tax imposed upon any individual and spouse whose combined Virginia adjusted gross income is less than $3,000. Persons who are not subject to the tax are not required to file a return; however, if any state income tax has been withheld, a return must be filed to obtain a refund. B. Virginia adjusted gross income, defined.1. Generally. As used in this regulation, "Virginia adjusted gross income" means FAGI for the taxable year plus the additions set forth in § 58.1-322(B) of the Code of Virginia, and less the subtractions set forth in § 58.1-322(C) of the Code of Virginia and the additional $400 deduction for taxpayers age 65 and over.Example: A taxpayer, age 67, has FAGI for taxable year 1983 of $3,200 ($2,000 in wage income and $1,200 in interest and dividends). The taxpayer had an additional $150 in interest which is exempt from federal but not exempt from state tax. Since the taxpayer is over 65 years of age, he qualifies for the additional $400 deduction. Therefore, his Virginia adjusted gross income is $2,950 ($3,200 (FAGI) plus $150 (taxable interest) less $400 (additional deduction)). Virginia adjusted gross income includes both earned and unearned income. The itemized and standard deductions, child care deduction and personal exemption amounts, except as noted above, may not be subtracted from FAGI in computing Virginia adjusted gross income.2. Part-year residents. The Virginia adjusted gross income of a part-year resident is computed only with respect to income derived during his the resident's period of residence in Virginia determined in the manner prescribed in 23VAC10-110-40 B.
3. B. Nonresidents. The Virginia adjusted gross income of a nonresident is computed as though such person had been a resident of Virginia during the full taxable year.
C. Military personnel.
1. Military pay. Armed forces personnel who are not domiciliary residents of Virginia and who maintain no place of abode within the State Commonwealth are not subject to Virginia income tax on compensation received from armed forces service. However, a member of the armed forces who is a domiciliary resident of Virginia is subject to tax on his income in the same manner as any other resident.
2. Other income. Pursuant to the Soldiers' and Sailors' Relief Act (50 USC § 574), compensation for military or naval service of any person residing in Virginia solely by reason of compliance with military or naval orders is not subject to income taxation in Virginia, unless such person is a domiciliary resident of this state the Commonwealth. Similarly, military personnel who are domiciliary residents of Virginia do not attain a domicile elsewhere solely by virtue of their presence without the state in compliance with military or naval orders. Therefore, a Virginia resident who enters military service is subject to Virginia income tax on all of his taxable income, regardless of where the resident is stationed.
However, members of the armed forces who derive income from Virginia sources, excluding compensation for military or naval service, are subject to Virginia tax on such income in the same manner as any nonresident. For example, the compensation derived by an armed forces member from a part-time job is subject to Virginia income tax on such compensation. Similarly, a member of the armed forces may subject himself to taxation in Virginia by acquiring a new legal domicile herein.
3. Spouse of armed forces member. The residency status of a spouse of a member of the armed forces, who is not a member of the armed forces, shall be determined without regard to this section.
(D. See § 58.15 of the Code of Virginia for provisions defining rates of interest and methods to determine interest and additions to tax. See also 23VAC10-110-30 B 3 for Domicile Generally. See also 23VAC10-110-190 B for allocation of deductions and exemptions between resident and nonresident spouses.)
23VAC10-110-142. Virginia taxable income; subtractions.
A. To the extent included in FAGI, the items enumerated below shall be subtracted from FAGI in determining Virginia taxable income. If an item was partially excluded or deducted in determining FAGI, it shall be subtracted from FAGI only to the extent included therein. If an item has already been excluded from Virginia taxable income, it shall not be subtracted again pursuant to this section.
1. Interest or dividends on obligations of the United States or Virginia.
a. "Obligation" means a debt obligation or security issued by the United States or any authority, commission, or instrumentality of the United States or by the Commonwealth of Virginia or any of its political subdivisions, which obligation or security is issued in the exercise of the borrowing power of the United States or Virginia and is backed by the full faith and credit of the United States or Virginia.
b. Guarantees by the United States or Virginia of obligations of private individuals or corporations are merely contingent obligations of the United States or Virginia even though the guarantees may be backed by the full faith and credit of the United States or Virginia. The obligation does not become an obligation of the United States or Virginia because of the guarantee and interest and dividends paid on such guaranteed obligations do not qualify for the subtraction unless specifically exempted by statute.
c. Specific statutory exemptions exist for certain securities issued by particular federal or Virginia agencies or political subdivisions. If a federal or Virginia statute exempts from state taxation the interest or dividends on specific securities of a particular agency or political subdivision, then such interest or dividends qualify for the subtraction.
d. Repurchase agreements are usually obligations issued by financial institutions which that are secured by U.S. obligations exempt from Virginia income taxation under subdivisions 1 a and c of this section. In such cases, the interest paid by the financial institutions to purchasers of repurchase agreements does not qualify for the subtraction. Repurchase agreements issued following current commercial practice will invariably be regarded as obligations of the issuing financial institution. However, if the purchaser is regarded as the true owner of the underlying exempt obligation, the interest will qualify for the subtraction even though collected by the seller and distributed to the purchaser. Any claim of such ownership must be substantiated by a taxpayer claiming a subtraction.
e. Interest received from regulated investment companies. Interest on exempt obligations received by a regulated investment company and passed through to the stockholders in qualifying distributions, as defined in IRC § 852, will retain its exempt status in the hands of the shareholders. If a shareholder receives a distribution which that includes interest from both exempt and non-exempt obligations, all distributions will be deemed taxable unless the shareholder can substantiate the exempt portion of the distributions. Any individual requiring advice as to the taxable status of distributions from any regulated investment company should contact such company. Due to the turnover in investments held by such companies and the commingling of interest from exempt and non-exempt obligations, the Department cannot render such advice.
f. Expenses. The subtraction for interest on exempt obligations must be reduced by any expenses attributable to such interest and by interest or indebtedness incurred or continued to purchase or carry exempt obligations pursuant to IRC § 265.
2. Interest or dividends from pass-through entities.
a. Under federal law, certain income received by a partnership, estate, trust, or regulated investment company (pass-through entity) and distributed to a partner, beneficiary, or shareholder (recipient) retains the same character in the hands of the recipient. If a pass-through entity receives interest or dividends on U.S. or Virginia obligations which that is distributed to the recipients in a manner that the distributions retain their character in the hands of the recipients under federal law, then such interest or dividends may be subtracted by the recipients in computing Virginia taxable income.
b. A pass-through entity may invest in several types of securities, some of which are U.S. or Virginia obligations. When taxable income is commingled with exempt income all income is presumed taxable unless the portion of income which is exempt from Virginia income tax can be determined with reasonable certainty and substantiated. The determination must be made for each distribution to each shareholder. For example, if distributions are made monthly, then the determination must be made monthly. As a practical matter, only pass-through entities which that invest exclusively in U.S. or Virginia obligations, or which that have extremely stable investment portfolios, will be likely to make such determinations.
c. Examples:
(1) ABC Fund, a regulated investment company, invests exclusively in U.S. Treasury notes and bills, which are exempt from state taxation under 31 USC § 3124. All distributions are considered to be interest on U.S. obligations and may be subtracted by the recipient.
(2) Va. Fund, a regulated investment company, invests exclusively in obligations of Virginia and its political subdivisions. Distributions are considered to be interest on Virginia obligations and qualify for the subtraction to the extent that such distributions are included in the recipient's federal taxable income.
(3) XYZ Fund, a regulated investment company, invests in a variety of securities, including obligations of the U.S., Virginia, other states, corporations, and financial institutions (repurchase agreements). Due to the commingling of taxable and exempt income, the turnover in XYZ Fund's investments and the fluctuation in a shareholder's investment in XYZ Fund, all distributions are considered taxable income and do not qualify for the subtraction unless XYZ Fund determines the portion of distributions which that is interest and dividends from U.S. and Virginia obligations for each distribution to each shareholder. Note that any portion of XYZ Fund's distributions which that are excluded from federal taxable income as interest on obligations of other states must be added to Virginia taxable income.
3. Pension and retirement income. Income received by officers or employees of the Commonwealth, its political subdivisions or agencies as a pension or retirement income shall be subtracted from FAGI in determining Virginia taxable income to the extent that such income is specifically exempted from state taxation by law. Income specifically exempt from state taxation includes that received pursuant to provisions of the Virginia Retirement System, the Judicial Retirement System (§ 51.1-300 et seq. of the Code of Virginia and prior law), State Police Officers Retirement System (§ 51.1-200 et seq. of the Code of Virginia), and the special retirement system for officers and employees of counties, cities and towns (§ 51.1-800 et seq. of the Code of Virginia).
Qualified retirement income or pensions, as defined above, received by the retiree or his surviving spouse may be subtracted to the extent included in FAGI. No person claiming a deduction pursuant to this section may also claim the retirement income tax credit set forth in 23VAC10-110-200 nor may such person claim the disability income exclusion set forth in subdivision 4 of this section.
4. Disability income. Federal law (IRC § 37) allows retired individuals who are under age 65 and who qualified for retirement on the basis of a permanent and total disability a credit against federal tax liability for a specified percentage amount of a disability income base. Persons who qualify for such federal credit may deduct from FAGI in computing Virginia taxable income the amount on which the federal credit is based. This credit base amount to be deducted is limited to the amount actually allowed in computing the federal credit. Example follows:
Example: For the taxable year beginning January 1, 1984, Taxpayer A, a disabled retired single individual has FAGI of $12,500. Under federal law A is entitled to a 15% disability credit based upon a base of $5,000 less ½ of the amount by which FAGI exceeds $7,500. Since A's FAGI exceeds $7,500 by $5,000, his credit base for computing the federal credit is $5,000 (initial credit base)--½ X 5,000 (amount by which FAGI exceeds $7,500) or $2,500. Thus A may deduct $2,500 from FAGI in computing Virginia taxable income.
No person claiming a deduction pursuant to this section may also claim the retirement income tax credit set forth in 23VAC10-110-200 nor may such person claim a state or local retirement subtraction as set forth in subdivision 3 of this section.
5. Social Security and Railroad Retirement benefits. The amount of any Social Security benefits received under Title II of the Social Security Act (Old Age and Survivors Disability Insurance) and any other benefits included in FAGI solely by virtue of IRC § 86 shall be subtracted from FAGI in computing Virginia taxable income. "Other benefits" under IRC § 86 includes Tier 1 Railroad Retirement benefits and workers' compensation to the extent that it reduces OASDI benefits. Tier 2 Railroad Retirement benefits shall be subtracted from FAGI in computing Virginia taxable income by virtue of the Railroad Retirement Act.
6. Income tax refunds. The amount of any income tax refund or credit for overpayment of income tax to Virginia or any other taxing jurisdiction shall be deducted from FAGI to the extent included therein. For purposes of determining Virginia taxable income, the amount of federally allowable itemized deductions is reduced by the amount of income tax imposed by Virginia or other taxing jurisdictions. (See subdivision 1 of 23VAC10-110-143.) Therefore, any refunds or credits for overpayments of such taxes which are required, by federal law, to be included in FAGI, may be deducted in computing Virginia taxable income.
7. WIN or targeted jobs tax credit. Federal law permits employers to claim an income tax credit based upon certain wages paid under IRC §§ 40 and 44B. If such credit is elected, IRC § 280C bars the deduction of the wages on which such credit is based. To the extent such wages were not deducted from FAGI, they shall be subtracted therefrom in the computation of Virginia taxable income.
8. Foreign source income.
a. Generally. Foreign source income as defined in 23VAC10-110-30 shall be subtracted from FAGI, to the extent included therein, in determining Virginia taxable income.
b. Earned income. Federal law allows individual taxpayers to exclude in the computation of FAGI a portion of earned income from foreign sources. To the extent that this exclusion is elected, such earned income will similarly be excluded from Virginia taxable income. However, if a taxpayer does not elect, or is not eligible to elect, to exclude foreign source income from FAGI, he may not deduct such income from FAGI in computing Virginia taxable income.
c. Taxes paid to foreign country. Federal law generally allows an individual who has paid or accrued foreign income tax to elect to either treat such tax as a deduction from FAGI or to apply such taxes as a credit against federal tax liability. If a taxpayer elects to treat foreign taxes as a deduction from FAGI, his allowable itemized deductions will be reduced by such amount in computing Virginia taxable income. (See subdivision 1 of 23VAC10-110-143.)
9. Qualified agricultural contributions.
a. Generally. The amount of any qualified agricultural contribution shall be subtracted from FAGI in determining Virginia taxable income.
b. Qualified contributions. Contributions that qualify for subtraction from FAGI are contributions of agricultural products made between January 1, 1985, and December 31, 1987, by an individual who is engaged in the trade or business of growing or raising such products. Thus, contributions of agricultural products by an individual who is not engaged in the business of farming (for instance, contributions of goods raised in a family garden) do not qualify for subtraction.
To be subtractible, a contribution must be made to an organization exempt from federal income taxation under IRC § 501(c)(3) and must meet the following (i) the product contributed must be fit for human consumption; i.e. edible; (ii) the use of the product by the donee must be related to the purpose tests: or function for which the donee was granted exemption under IRC § 501(c)(3) (for instance, contributions of crops to a foundation organized for scientific or literary purposes would not qualify, but contributions of crops to a nonprofit food bank would qualify); (iii) the contribution is not made in exchange for money, property or service; and (iv) the donor must obtain from the donee a written statement representing that the donee's use and disposition of the product will be in accordance with its charitable mission. Such written statements also must list the type and quantity or volume of products contributed, state that the products donated are fit for human consumption, and state the use to which the donations will be put. Such written statements must be filed with the taxpayer's income tax return when the subtraction for qualified agricultural contributions is claimed.
To be subtractible from FAGI under the above tests, the donee must make use of the agricultural products donated to it consistent with the purpose for which it was granted exemption under IRC § 501(c)(3). Therefore, contributions of crops to a charitable organization which provides food to the needy would qualify. However, contributions of crops to an organization that does not itself provides food to the needy would not qualify, even if the donee in turn contributes the crops to an organization that provides food to the needy.
c. Agricultural product. Crops are the only agricultural products eligible for subtraction when donated. Thus, the subtraction is limited to contributions of products of the soil and does not include contributions of animal products.
d. Computation of subtraction. The subtraction for qualified agricultural contributions is equal to the lowest wholesale market price in the nearest regional market of the type of products donated during the months in which donations are made. For the purpose of determining the lowest wholesale market price for a particular product, a taxpayer must use the lowest wholesale market price, regardless of grade or quality, published in the month of contribution by the U.S. Department of Agriculture Market News Service on Fruits, Vegetables, Ornamentals, and Specialty Crops for the regional market nearest the taxpayer's place of business.
e. Limitation on subtraction. The subtraction for qualified agricultural contributions shall be reduced by the amount of any other charitable deductions relating to qualified agricultural contributions if the deductions are claimed on the donor's federal return for the taxable year in which the contribution is made, or if the deductions are eligible for carryover to subsequent taxable years under IRC § 170. For example, a farmer who itemizes deductions for federal and state income tax purposes and who claims a charitable deduction of qualified agricultural products on his federal return must reduce his Virginia subtraction for qualified agricultural contributions by the amount of his federal charitable deduction for the same products. If the farmer's total charitable contributions of qualified agricultural products exceed the deduction ceiling set by federal law and the farmer is eligible to carryover deductions to subsequent years, the farmer must also subtract the deductions eligible for carryover from the value of his qualified agricultural contributions.
Example: Farmer contributes fifty 50-pound sacks of round white potatoes to a local nonprofit food bank. The farmer's basis in the contributed property is $10, of which he claims $5 as a charitable contribution on his 1986 federal and state income tax returns and will carryover $5 as a charitable deduction on his 1987 federal and state income tax returns. During the month in which the contribution was made, the lowest wholesale market price for a 50-pound sack of round white potatoes published by the U.S. Department of Agriculture Market News Service in the regional market nearest the farmer's place of business was $2. The farmer's deduction for his qualified agricultural contribution would be computed as follows:
|
|
Units contributed
|
50
|
|
|
Lowest wholesale market price of unit/mx x
|
$2
|
|
|
|
$100
|
|
|
Charitable deduction claimed on contribution
|
(5)
|
|
|
Charitable deduction carried over
|
(5)
|
|
|
Deduction for qualified agricultural contribution
|
$90
|
B. See § 58.1-322.02 of the Code of Virginia for provisions defining computation of subtractions in figuring Virginia taxable income.
23VAC10-110-143. Virginia taxable income; deductions.
The following items shall be deducted in determining Virginia taxable income.
1. Itemized deductions.a. Generally. Any taxpayer who itemizes his deductions for federal income tax purposes must also itemize deductions for Virginia income tax purposes. The federally allowable amount of itemized deductions (prior to the subtraction of the federal zero bracket amount) shall be subtracted from FAGI in determining Virginia taxable income, but must be reduced by any amount claimed as a deduction for income taxes paid to Virginia or any other state, locality, foreign country, or other taxing jurisdiction. (See subdivision 6 of 23VAC10-110-142.) b. Additional deduction for charitable mileage. The amount of itemized deductions allowed for federal income tax purposes shall be increased to allow a deduction for Virginia purposes of 18 cents per mile for charitable contribution transportation. The additional Virginia deduction is allowed only with respect to transportation expenses allowed under IRC § 170 and only to the extent that such expenses are actually deducted for federal purposes. The amount of charitable mileage expenses claimed for federal purposes is increased to result in a deduction of 18 cents per mile for Virginia purposes. If a person elects to compute the federal deduction based upon actual expenses, the increased Virginia deduction is computed by converting expenses to a per mile amount and adding to that an amount sufficient to equal 18 cents per mile. The amount of the addition is the additional Virginia deduction. Example 1: Taxpayer A uses his automobile for charitable purposes and determines annual expenses (gasoline, oil, etc.) attributable to charitable usage to be $500, which is deducted as a charitable contribution for federal tax purposes. A drove his automobile 4,350 miles in incurring the $500 in expenses, which results in a per mile cost of 11.5 cents. Therefore A is entitled to an additional Virginia deduction of $282.75 computed as follows: ($.18 - $.115) = $.065 X 4,350 = $282.75 If the standard federal mileage rate for charitable mileage is used, the amount of the Virginia addition is the difference between the standard rate and 18 cents per mile.Example 2: Taxpayer B is entitled to deduct expenses attributable to 5,555 miles of automobile use as a charitable contribution. B utilizes the standard mileage rate (9¢ per mile for taxable year 1983) and therefore is allowed a federal deduction of $500. B is entitled to an additional Virginia deduction of $500 computed as follows: ($.18 - $.09) = $.09 X 5,555 = $500.
2. Standard deduction. a. Generally. Any taxpayer who does not itemize deductions for federal purposes must claim the standard deduction in the computation of Virginia taxable income. The amount of the standard deduction for a single individual or a married couple filing jointly shall be fifteen percent (15%) of federal adjusted gross income not to exceed $2,000; except as set forth in c below, the standard deduction shall not be less than $1,300. In the case of a married individual filing a separate return or separately on a combined return, the standard deduction shall not exceed $1,000 or be less than $650. b. Lump sum distribution. When any taxpayer has received a lump sum distribution from a qualified retirement plan and, under the provisions of IRC § 402, has elected to use the special ten-year averaging method for the computation of federal tax on the distribution, then for purposes of computing the standard deduction FAGI shall be increased by any amount of the distribution which has not been included in FAGI. c. Dependents. Any individual who may be claimed as a dependent on another taxpayer's return may compute the standard deduction only with respect to earned income. As used in this section the term "earned income" shall mean wages, salaries or professional fees and other amounts received as compensation for professional services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. This rule applies to dependents under age 19 and full-time students who are eligible to be claimed on their parents, return even though the parents do not actually take the exemption.
3. Exemptions. There shall be deducted from FAGI $600 for each personal exemption allowed to the taxpayer for federal income tax purposes. For each exemption allowed to the taxpayer under the provisions of IRC § 151(c), there shall be deducted an additional $400. IRC § 151(c) allows an additional deduction for an individual who is at least 65 years of age during the taxable year. In the case of a husband and wife filing a joint return, each may claim the additional exemption if both are at least 65 years of age during the taxable year. This additional exemption may not be claimed for dependents even though such dependents may meet the age requirement. (Note: For purposes of qualifying for the additional federal exemption under IRC § 151(c), a person is deemed to be 65 years of age on the day before his birthday. For example, a person who is 65 on January 1, 1985 may claim the additional exemption for taxable year 1984.)
4. Child and dependent care. Effective for taxable years beginning on and after January l, 1982, the amount of employment-related expenses allowed for computing the federal child and dependent care credit (IRC § 44A) may be subtracted from FAGI in computing Virginia taxable income. The amount of employment-related expenses which may be subtracted is limited to that amount actually used in computing the federal credit. Such amount will be limited by the restrictions of IRC § 44A, including the maximum amount of expenses allowable in computing the federal credit and earned income limitations. This subtraction will further be limited to only expenses which qualify for federal credit. For example, if federal law places a ceiling on expenditures for purposes of computing the federal credit such ceiling will similarly limit the Virginia deduction.
The actual amount of the federal child and dependent care credit claimed has no bearing upon this deduction; only the base for computing the federal credit is relevant.
A. For provisions defining the computation of deductions from Virginia taxable income see § 58.1-322.03 of the Code of Virginia.
B. For the purposes of computing the amount of reduction required to federal itemized deductions for income taxes imposed by Virginia or any other taxing jurisdiction, the term "any other taxing jurisdiction" includes any other state, any locality, and any foreign country.
C. For the purposes of the Virginia standard deduction, the term "earned income" shall mean wages, salaries or professional fees, and other amounts received as compensation for professional services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by the taxpayer to a corporation that represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered. This rule applies to dependents younger than 19 years of age and full-time students who are eligible to be claimed on their parent's return.
23VAC10-110-144. Virginia taxable income; modifications and adjustments
The modifications set forth in § 58.1-315 of the Code of Virginia shall be added or subtracted, whichever is applicable, in determining Virginia taxable income. (See also 23VAC10-110-110.)
23VAC10-110-250. Special cases in which nonresident not required to file Virginia return
A. Commuters. A nonresident who did not maintain a place of abode in Virginia at any time during the taxable year and who commuted on a daily basis to employment in Virginia from his residence outside this state is not required to file a Virginia income tax return nor is he liable for the payment of tax to Virginia provided that all of the following conditions are met:
1. His only income from Virginia sources is from salaries and wages;
2. His salaries and wages from Virginia sources are subject to taxation by his state of residence;
3. Such taxpayer's state of residence imposes an income tax substantially similar to Virginia's, i.e., a net income tax;
4. The tax laws of the taxpayer's state of residence allow a credit against the tax liability of a Virginia resident to such state which is substantially similar to that accorded by Virginia as defined in 23VAC10-110-220 through 23VAC10-110-222; and
5. The tax laws of the taxpayer's state of residence accord Virginia residents commuting to work in such state on a daily basis the same relief from filing a return as provided herein for nonresidents of Virginia.
As of the adoption date of these regulations, residents of Kentucky, Maryland, West Virginia and the District of Columbia may qualify for a filing exclusion under the provisions of this section. Residents of these states who have Virginia income tax withheld on salary and wages earned in Virginia and who would otherwise qualify for the filing exclusion may obtain a refund of Virginia tax withheld by filing Form 763S, Special Nonresident Claim for Individual Income Tax.
B. Reciprocal agreements. The Department of Taxation may enter into reciprocal agreements with other states to relieve residents of such state from filing a return or paying tax to Virginia on compensation paid herein. Under such reciprocal agreements, Virginia residents will similarly be relieved from filing and payment requirements in the reciprocating state. For taxable years beginning on and after January 1, 1982, such an agreement is in effect with Pennsylvania.
23VAC10-110-280. Nongame wildlife voluntary contribution
Any individual who is eligible for a state income tax refund may elect to designate that all or a portion of such refund be used for the conservation and management of endangered species and other nongame wildlife. Such election will reduce the amount of refund which the individual will receive by an amount equal to that which is designated for contribution to the nongame wildlife fund.
The amount designated for contribution pursuant to this section must be in whole dollars, i.e., no fractional portions of a dollar may be designated, unless the entire refund is contributed.
If a husband and wife elect to file separately on a combined return (Filing Status #4), they may not designate separate contributions but must instead designate a joint contribution as they mutually agree. For purposes of this section, the term "non-game wildlife" shall include protected wildlife, endangered and threatened wildlife, aquatic wildlife, specialized habitat wildlife both terrestrial and aquatic, and mollusks, crustaceans, and other invertebrates under the jurisdiction of the Board of Game and Inland Fisheries.
23VAC10-115-10. Definitions
For the purpose of this chapter and unless otherwise required by the context:
"Accumulation distribution" has the meaning set forth in U.S. Treasury Reg. § 1.665(b)-1A(a).
"Income and deductions from Virginia sources" includes:
1. Items of income, gain, loss and deduction attributable to:
a. The ownership of any interest in real or tangible personal property in Virginia; or
b. A business, trade, profession or occupation carried on in Virginia.
2. Income from intangible personal property, including annuities, dividends, interest, royalties and gains from the disposition of intangible personal property to the extent that such income is from property employed by the taxpayer in a business, trade, profession, or occupation carried on in Virginia.
"Nonresident estate or trust" means an estate or trust which is not a resident estate or trust.
"Resident estate or trust" means:
1. The estate of a decedent who at his death was domiciled in Virginia,
2. A trust created by will of a decedent who at his death was domiciled in Virginia,
3. A trust created by, or consisting of property of a person domiciled in Virginia, or
4. A trust or estate which is being administered in Virginia. A trust or estate is "being administered in Virginia" if, for example, its assets are located in Virginia, its fiduciary is a resident of Virginia, or it is under the supervision of a Virginia court.
"Trust" or "estate" means a trust or estate, or a fiduciary thereof, which is required to file a fiduciary income tax return under the laws of the United States.
"Virginia fiduciary adjustment" means the net amount of the applicable modifications described in § 58.1-322 of the Code of Virginia and regulations promulgated thereunder (including subsection E thereof if the estate or trust is a beneficiary of another estate or trust) which relate to items of income, gain, loss or deduction of an estate or trust. The fiduciary adjustment shall not include the modification in subsection D of § 58.1-322 of the Code of Virginia and regulations promulgated thereunder, except that the amount of state income taxes excluded from federal taxable income shall be included. For example, the Estate of Frederick Jones received $1,750 of interest from obligations of the State of Massachusetts (not subject to federal income tax), $5,400 in interest from U.S. Treasury obligations (not subject to Virginia income tax), $875 in Virginia income tax (permitted as a federal, but not state, itemized deduction) and $3,250 in other itemized deductions deducted on the federal return. The Virginia fiduciary adjustment is a subtraction of $2,775, computed as follows in accordance with § 58.1-322 B and C of the Code of Virginia:
|
Add
|
|
|
Massachusetts obligations
|
$1,750
|
|
Virginia income tax
|
875
|
|
|
2,625
|
|
Subtract
|
|
|
U.S. Treasury obligations
|
(5,400)
|
|
|
($2,775)
|
23VAC10-115-40. Virginia taxable income of a resident estate or trust
A. The Virginia taxable income of a resident estate or trust means its federal taxable income for the taxable year to which there shall be added or subtracted, as the case may be, the share of the estate or trust in the Virginia fiduciary adjustment determined under subsection B.
B. The respective shares of an estate or trust and its beneficiaries (including, solely for the purpose of this allocation, nonresident beneficiaries) in the Virginia fiduciary adjustment shall be in proportion to their respective shares of distributable net income of the estate or trust. If the estate or trust has no distributable net income for the taxable year, the share of each beneficiary in the Virginia fiduciary adjustment shall be in proportion to his share of the estate or trust income for such year, under local law or the governing instrument, which is required to be distributed currently and any other amounts of such income distributed in such year. Any balance of the Virginia fiduciary adjustment shall be allocated to the estate or trust.
Example 1: The Estate of Jane Doe has federal taxable income of $36,000 for calendar year 1983 and its Virginia fiduciary adjustment is a subtraction of $6,000. The Estate has three beneficiaries, two of whom are Virginia residents and the third who is a resident of Maryland. Each beneficiary has a 1/4 share of distributable net income of the Estate. In calendar year 1983 the Estate distributes $27,000 (3/4 times $36,000). Each beneficiary is entitled to subtract $1,500 (1/4 of the $6,000 Virginia fiduciary adjustment) from his federal adjusted gross income. The $1,500 balance of the adjustment is allocated to the Estate, yielding Virginia taxable income of $7,500 ($36,000 minus $27,000 distribution minus $1,500 adjustment).
Example 2: Trust X has no distributable net income and no federal taxable income for calendar year 1982. The Virginia fiduciary adjustment is $15,000, comprised of excess cost recovery under § 58.1-322 B 6 of the Code of Virginia. The trust instrument provides that all income shall be distributed currently, in the following percentages: 50% to A, 30% to B and 20% to C. All of the adjustment ($7,500 to A, $4,500 to B and $3,000 to C) is accordingly allocated to the beneficiaries and the trust's Virginia taxable income is $0.
23VAC10-115-50. Virginia taxable income of a nonresident estate or trust.
A. The Virginia taxable income of a nonresident estate or trust shall be its share of income, gain, loss and deduction attributable to Virginia sources as determined under 23VAC10-115-60 increased or reduced, as the case may be, by:
1. The amount derived from or connected with Virginia sources of any income, gain, loss and deduction recognized for federal income tax purposes but excluded from the computation of distributable net income of the estate or trust; and
2. The net amount of any modifications as provided for in § 58.1-322 of the Code of Virginia and regulations promulgated thereunder (not including subsection D thereof) with respect to the income or gain referred to in A 1 of this section.
B. Example: Nonresident Trust Z owned rental property in Virginia. It disposed of the property and recognized a short-term capital gain of $10,000. The trust instrument provides that capital gains are allocable to corpus and are not paid, credited or required to be distributed to any beneficiary during the taxable year. Under federal law, the capital gain is excluded from the computation of distributable net income and, accordingly, must be added to the trust's share of income from Virginia sources. If the share of nonresident Trust Z in income, gain, loss and deduction attributable to Virginia sources is $45,000, the Virginia taxable income of Trust Z would be $55,000 ($45,000 + $10,000).
23VAC10-115-90. Other credits.
A. Virginia Neighborhood Assistance Act credit. A tax credit is provided under the Virginia Neighborhood Assistance Act for businesses which invest in approved neighborhood assistance projects designed to benefit low income individuals. The Act is administered by the Virginia Department of Social Services, which should be contacted for additional information. To claim the credit, fiduciaries or beneficiaries must attach to their respective income tax returns a copy of a statement from the Department of Social Services certifying the credit. A statement from the fiduciary should also be attached specifying the amount of the business credit applicable to each beneficiary.
B. Urban Enterprise Zone credit. A tax credit is provided under the Virginia Urban Enterprise Zone Act to qualified business firms which derive income from conducting business in an urban enterprise zone. The Act is administered by the Virginia Department of Housing and Community Development, which should be contacted for additional information.
To claim the credit, fiduciaries or beneficiaries must attach to their respective income tax returns a copy of a certificate of qualification to receive state tax incentives issued by the Department of Housing and Community Development. A statement from the fiduciary should also be attached specifying the amount of credit applicable to each beneficiary. Form 301, Urban Enterprise Zone Credit, must be attached to the fiduciary income tax return.
23VAC10-115-151. Amendments of declaration.
If any amendment of a declaration is filed, the remaining installments, if any, shall be ratably increased or decreased (as the case may be) to reflect any increase or decrease in the estimated tax by reason of such amendment. If any amendment is made after September 15 of the taxable year, any increase in the estimated tax by reason thereof shall be paid at the time of making such amendment.
23VAC10-115-153. Other payment dates.
A. Fiscal year. If the estate or trust has a taxable year other than a calendar year then the payments shall be due on the fifteenth day of the fourth, sixth, or ninth month of the taxable year or on the fifteenth day of the first month of the succeeding taxable year, as appropriate.
B. Installments or entire estimated tax paid in advance. A fiduciary may elect to pay any installment of the estimated tax before the date prescribed for its payment. A fiduciary may also elect to file a declaration of estimated tax in the closing days of a calendar year for the taxable year about to begin, and may pay in full the amount of the estimated tax for such taxable year at the time the declaration is filed.
23VAC10-120-70. Imposition of tax.
A tax at the rate of six percent is imposed on the Virginia taxable income of every corporation organized under Virginia law and every foreign corporation having income from Virginia sources, as defined in 23VAC10-120-20, regardless of whether or not such foreign corporation has registered with the State Corporation Commission and obtained a certificate of authority to transact business in Virginia.
23VAC10-210-32. Adult care facilities.
A. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise:
"Adult care residence" means an adult care residence often referred to as a "home for adults" and defined in § 63.1-172 of the Code of Virginia as any public or private place, establishment, or institution operated or maintained for the maintenance or care of four or more adults who are aged, infirm, or disabled and who are cared for in a primarily residential setting, except (i) a facility or portion of a facility licensed by the State Board of Health or the Department of Mental Health, Mental Retardation and Substance Abuse Services, but including any portion of such facility not so licensed, and (ii) the home or residence of an individual who cares for or maintains only persons related to him by blood or marriage, and (iii) a facility or portion of a facility serving infirm or disabled persons between the ages of 18 and 21, or 22 if enrolled in an education program for the handicapped pursuant to § 22.1-214 of the Code of Virginia, when such facility is licensed by the Virginia Department of Social Services as a child-caring institution under Chapter 10 (§ 63.1-195 et seq.) of Title 63.1 of the Code of Virginia, but including any portion of the facility not so licensed. Included in this definition are any two or more places, establishments or institutions owned or operated by a single entity and providing maintenance or care to a combined total of four or more aged, infirm or disabled adults.
"Adult day care center" means an adult day care center as defined in § 63.1-194.1 of the Code of Virginia as a facility which provides supplementary care and protection during part of the day only to four or more aged, infirm, or disabled adults who reside elsewhere, except (i) a facility or portion of a facility licensed by the State Board of Health or the Department of Mental Health, Mental Retardation and Substance Abuse Services, and (ii) the home or residence of an individual who cares for only persons related to him by blood or marriage.
B. Purchases of tangible personal property by nonprofit adult care residences and nonprofit adult day care centers licensed by the Department of Social Services are exempt from the tax. Purchases of tangible personal property by all other adult care residences and adult day care centers, whether conducted for profit or not, are taxable unless otherwise exempt. If a vendor fails to collect the tax from a nonexempt entity, the entity must remit the tax to the department as provided in 23VAC10-210-6030.
Any adult care residence or adult day care center, whether for profit or nonprofit, which engages in selling tangible personal property shall register as a dealer and collect and remit the tax to the department. For example, sales of meals to residents or day care attendees for which a separate charge is made and to nonresidents are taxable. However, meals furnished in connection with services provided in caring for persons and the cost price of which are included as a part of the charge for such services are nontaxable. Purchases of tangible personal property for subsequent resale may be made exempt from the tax under a certificate of exemption, Form ST-10.
Charges for the care and maintenance of persons by adult care residences and adult day care centers are not taxable.
23VAC10-210-130. Artists and art dealers.
A. Generally. Sales of objects of art, including paintings, sculptures and models, are sales of tangible personal property. The total charge for the property, including any labor or other components of such charge, is subject to tax.
B. Sales by prisoners. The tax does not apply to sales by prisoners confined in state correctional facilities of artistic products personally made by such prisoners.
23VAC10-210-220. Brackets for collection of the tax.
A. The rate of the sales and use tax is 5.3%, which is comprised of a 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 5.3% (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 5.3% (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 5.3% on transactions of $5.00 or less:
|
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
|
23VAC10-210-352. Commercial watermen; typical taxable items.
A commercial waterman's purchase of the following items is taxable since they are not directly used in commercial fishing activities:
1. Boat marking letters;
2. Cooking utensils;
3. Deck brooms;
4. Fuel for cooking or space heating aboard vessels;
5. Flashlight and batteries;
6. Hand held radios and other communication devices not permanently affixed to a boat;
7. Life preservers;
8. Maps;
9. Tools used to repair equipment;
10. Any other tangible personal property purchased for family or personal use or not purchased for use in extracting seafood from waters for commercial purposes.
23VAC10-210-353. Commercial waterman; taxation of certain vessels.
Certain vessels are subject to the watercraft sales and use tax despite the fact that they may be exempt from the retail sales and use tax pursuant to this regulation. See Chapter 14 (§ 58.1-1400 et seq.) of Title 58.1 of the Code of Virginia and the regulations thereunder.
23VAC10-210-390. Consignments.
Tangible personal property consigned, delivered or entrusted to a dealer for the purpose of sale is taxable at the time of sale at retail. The tax must be collected in accordance with the definition of sales price in 23VAC10-210-4000 with no deduction for the amount of any consignment commission.
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 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 of this section).
To compute the dealer's discount, a dealer (other than a vending machine dealer) would multiply the 4.3% state tax listed on his return by:
1. 0.01116 if monthly taxable sales are less than $62,501; or
2. 0.00837 if monthly sales are at least $62,501 but are less than $208,001; or
3. 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 $530 ($430 state tax and $100 local tax), from which he would retain a dealer's discount of $4.80, provided that his return is timely filed and the state and local tax is timely paid. The $4.80 discount is computed by multiplying the 4.3% state tax ($430) by 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 $13,250 ($10,750 state tax and $2,500 local tax), from which he would retain a dealer's discount of $55.99 provided that his return is timely filed and the state and local tax is timely paid. The $55.99 discount is computed by multiplying the 4.3% state tax ($10,750) by 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 6.3% on his wholesale purchases for resale, the dealer's discount would be computed by multiplying the 5.3% state tax listed on his return by:
1. 0.01208 if monthly taxable sales are less than $62,501; or
2. 0.00906 if monthly taxable sales are at least $62,501 but are less than $208,001; or
3. 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 $945 ($795 state tax and $150 local tax), from which he would retain a dealer's discount of $9.60, provided that his return is timely filed and the state and local tax is timely paid. The $9.60 discount is computed by multiplying the 5.3% state tax ($795) by 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 $12,600 ($10,600 state tax and $2,000 local tax), from which he would retain a dealer's discount of $96.04, provided that his return is timely filed and the state and local tax is timely paid. The $96.04 discount is computed by multiplying the 5.3% state tax ($10,000) by 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 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 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 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 $53 tax on the transaction and claims the discount, the amount refunded would be $52.52 ($53 less 0.01116 of the $43 state tax = $50 - 0.48 = $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 23VAC10-210-2032.
23VAC10-210-500. Dentists, dental laboratories, and dental supply houses.
A. Dentists are deemed to be providing professional services and charges for their services are not subject to the tax. Similarly, dentists are deemed to be the consumers of all tangible personal property purchased for use in their practice except controlled drugs which may be purchased exempt from the tax.
The tax applies to sales to a dentist by a dental laboratory or supplier of dentures, plates, braces and similar prosthetic devices, or the component parts thereof, unless such dentures, braces, etc. are purchased on behalf of a specific patient. If such items are purchased in bulk and then dispensed to a particular patient, the original purchase will be subject to the tax even if the items withdrawn from the bulk inventory are modified for a specific patient. The tax does not apply to charges by the dentist to the patient for such dentures, plates, braces, etc.
The tax applies to sales to a dentist of furnishings, equipment, tools and all other dental supplies of any type.
B. Dental laboratories engaged in the production of dentures and the prosthetic items are deemed to be industrial manufacturers and qualify for the exemption set out in 23VAC10-210-920. Dental laboratories making sales of tangible personal property to dentists must collect and pay the tax on all charges for such property without deduction for labor or other expenses.
C. Dental supply houses are those businesses primarily engaged in selling fixtures, equipment, instruments, materials and supplies to both dentists and dental laboratories. Dental supply houses must collect and pay the tax on retail sales of tangible personal property to dentists, dental laboratories, and other users unless a properly executed certificate of exemption is furnished by the purchaser.
23VAC10-210-590. Feed making.
When used directly in making feed for sale or resale, the tax does not apply to the following items:
1. Machinery, tools, or repair parts;
2. Cereal grains and other feed ingredients;
3. Fuel, power, or energy; or
4. Supplies.
Feed ingredients include drugs, vitamins, minerals, nonprotein nitrogen, supplements, and additives. Tangible personal property used in administration, distribution, or indirectly in feed making, such as in heating and illumination of a building, is subject to the tax.
23VAC10-210-595. Financial institutions.
A. Purchases. The tax applies to purchases of tangible personal property by all national, state and local banks, savings and loan associations, and loan and finance companies.
B. Sales. When any bank, savings and loan association, or loan and finance company engages in selling, leasing or renting tangible personal property to consumers or users, it must register as a dealer and collect and pay the tax to the Department of Taxation. The tax applies to all sales even if the property has been repossessed or obtained by default of the borrower.
The rental of safe deposit boxes does not qualify as the rental of tangible personal property and is not subject to the tax. For trustees, see 23VAC10-210-6010.
23VAC10-210-650. Furniture and storage warehousemen.
Furniture and storage warehousemen are primarily engaged in the business of moving, storing, packing and delivering tangible personal property belonging to other people. These activities are services and are not subject to tax. The tax does apply, however, to crating, boxing, packing materials, etc., purchased by warehousemen for use in the performance of such services. Warehousemen are also required to collect and pay the tax on retail sales of furniture or other tangible personal property.
An operator of a furniture and storage warehouse who is also engaged in business as a common carrier of property by motor vehicle is not entitled to any exemption under 23VAC10-210-370 (common carrier of property) on purchases made for the conduct or operation of the business of storage.
23VAC10-210-720. Hospitals and nursing homes.
A. Hospitals and nursing homes conducted for profit. A hospital or nursing home is primarily engaged in the business of selling services and is a user or consumer of all tangible personal property purchased for use or consumption in connection with its operations. Each is required to pay the tax to its vendor at the time of purchase.
B. Hospitals and licensed nursing homes conducted not for profit. The tax does not apply to sales of tangible personal property to such hospitals or licensed nursing homes, for use or consumption by them, and paid for out of their own funds.
C. Hospitals and nursing homes (conducted for profit and not for profit.) When any hospital or nursing home, through any division or department, engages in selling tangible personal property, it must register as a dealer and collect and pay the tax.
For sales of medicines, drugs and certain other enumerated items of tangible personal property sold on prescriptions of licensed physicians or dentists, 23VAC10-210-940.
D. Clinics. Unless a clinic is an integral part of a hospital conducted not for profit or is itself licensed as a hospital under the provisions of § 32.1-123 of the Code of Virginia and conducted not for profit, sales to such a clinic are taxable.
E. Hospital cooperatives and hospital corporation conducted not for profit. The tax does not apply to sales of tangible personal property to hospital cooperatives or hospital corporations conducted not for profit when organized and operated for the sole purpose of providing services exclusively to hospitals conducted not for profit.
F. Homes for adults conducted not for profit. Effective July 1, 1980, the tax does not apply to sales of tangible personal property to homes for adults as defined by § 63.1-172 of the Code of Virginia conducted not for profit. The tax applies to sales of tangible personal property to all other homes for adults whether conducted for profit or not.
23VAC10-210-766. Innovative Technology Authority.
The Innovative Technology Authority is exempt from the sales and use tax under § 9-262 of the Code of Virginia on all of its purchases, leases or rentals of tangible personal property. The application of the tax generally to political subdivisions such as the Innovative Technology Authority is set forth in 23VAC10-210-690 through 23VAC10-210-694. In addition, all tangible personal property purchased, leased or rented by a nonprofit college or university in conjunction with research sponsored, encouraged or inspired by the Innovative Technology Authority or the Center for Innovative Technology is exempt from the tax pursuant to 23VAC10-210-4020.
Effective July 1, 1986, tangible personal property withdrawn from inventory for donation to the Innovative Technology Authority, Center for Innovative Technology, or nonprofit colleges or universities is not taxable to the donor pursuant to § 58.1-609.8(5) of the Code of Virginia.
For additional information on the manufacturing exemptions, see 23VAC10-210-920; for the research exemption, see 23VAC10-210-3070 through 23VAC10-210-3074; for the "true object" test, see 23VAC10-210-4040.
23VAC10-210-770. Interior decorators.
The tax does not apply to an interior decorator's charges for services. When a decorator goes beyond the rendition of services and sells tangible personal property, the decorator must register as a dealer and collect and pay the tax on retail sales. When a decorator makes a lump sum charge for services and furnishes tangible personal property, the tax applies to the total charge, unless the charge for services is billed separately from the tangible personal property.
23VAC10-210-790. Kennels, stables and pet shops.
The tax does not apply to charges for keeping pets. Operators of kennels, stables and pet shops are required to pay the tax on purchases of tangible personal property used in their operations. Sales of pets are subject to the tax. The sale or rental of riding horses is also subject to the tax.
23VAC10-210-810. Laundries and dry cleaners.
The tax applies to all tangible personal property purchased by laundries and dry cleaners for use in providing services. This includes machinery, equipment, repair parts, materials and supplies. Services rendered by these operators are not taxable. However, when the operators go beyond the rendition of services and sell clothing or other articles of tangible personal property, they must register as dealers and collect and pay the applicable tax.
The tax does not apply to receipts from coin operated laundry and dry cleaning devices. The tax does apply to all tangible personal property purchased by coin operated laundries for use in providing services, including machinery, equipment, repair parts, materials and supplies. For linen supply operations, see 23VAC10-210-860.
23VAC10-210-900. Machinists, foundrymen and pattern makers.
The tax applies to dies, castings, patterns, tools, machinery and other tangible personal property made by machinists, foundrymen and pattern makers. However, if such items are purchased by an industrial manufacturer, processor, etc., for direct use in manufacturing, etc., or pursuant to any other exemption, the purchase may be made under a certificate of exemption. (For manufacturers, processors, etc., see 23VAC10-210-920.)
When machinists, foundrymen, etc., perform fabrication, the total charge for such fabrication is subject to the tax. For example, if a machinist takes customer-supplied metal piping and cuts threads into such piping, he has fabricated a new item and the total charge is subject to the tax.
Machinists, foundrymen and pattern makers engaged in making or fabricating tangible personal property for sale or resale may qualify for exemption as an industrial manufacturer or processor. (See 23VAC10-210-920.)
23VAC10-210-970. Microfilm and microfiche copies of documents.
Sales of microfilm and microfiche copies of documents and other printed or other graphic matter are taxable as sales of tangible personal property. A retailer of microfilm or microfiche copies should collect sales tax on the total sales price of furnishing the microfilm or microfiche to the customer, even though a separate charge for services may have been billed to the customer. Also, where the customer furnishes the microfilm or microfiche to be used in copying documents, the sales tax would apply to the charge for making the copies.
The retailer may purchase raw materials and supplies that become component parts of the finished product under the resale certificate of exemption. Also, if the retailer orders reproductions of microfilm or microfiche that he has produced, on a customer's behalf (i.e., for resale to a customer), he may purchase them under a resale certificate of exemption; however, he must collect sales tax from the customer purchasing such reproductions.
23VAC10-210-1070. Nonprofit organizations; criteria for exemption.
A. The Tax Commissioner has no authority to grant an exemption from the retail sales and use tax to a nonprofit organization. Only the General Assembly can enact legislation which will grant exemption from the tax.
The General Assembly has not enacted a general exemption from the retail sales and use tax for nonprofit organizations. The only nonprofit organizations exempt from the tax are those specifically set forth in §§ 58.1-608.1 and 58.1-609.1 through 58.1-609.13 of the Code of Virginia. These organizations are typically exempt from federal and state income taxes and serve educational, medical, civic, religious, charitable or cultural purposes. However, the vast majority of nonprofit organizations which are exempt from federal and state income taxes are not exempt from the Virginia retail sales and use tax because they do not qualify for a sales and use tax exemption set out in the Code of Virginia.
If a nonprofit organization is not exempt by Virginia statute from tax on the purchase of tangible personal property or taxable services, it must pay tax on those purchases used or consumed in its operations. If a supplier of the nonprofit organization is not registered to collect the tax or if the supplier is a registered dealer who fails to collect the tax, the nonprofit organization must report and pay the use tax on a Consumer's Use Tax Return, Form ST-7.
If a nonprofit organization regularly engages in selling tangible personal property, it is required to register as a dealer and collect and remit to the department the tax on retail sales unless it is specifically exempt by statute from collecting the tax.
B. Strict construction of the exemption. As indicated in 23VAC10-210-540, when determining which organizations qualify for exemption from the tax, the department is bound by court decisions to strictly construe laws granting the tax exemption. This means that a nonprofit organization must meet all of the requirements specified in the law in order to qualify for an exemption. For example, subdivision 15 of § 58.1-609.4 of the Code of Virginia exempts:
From July 1, 1991, through June 30, 1996, tangible personal property purchased for use or consumption by a nonprofit organization exempt from taxation under § 501(c)(3) of the Internal Revenue Code and organized exclusively to combat illiteracy by tutoring and training adults and by increasing community awareness of the illiteracy problem within the metropolitan Richmond area.
Under strict construction of the statute, to meet the criteria established for this exemption, an organization must (i) purchase tangible personal property during the period July 1, 1991, to June 30, 1996, (ii) have a § 501 (c)(3) designation from the Internal Revenue Service, (iii) be organized for the sole purpose of combating illiteracy in adults, and (iv) conduct operations in the metropolitan Richmond area. Organizations that provide programs to combat illiteracy as part of a larger operation do not qualify for this exemption. In addition, similar organizations created solely to combat illiteracy, but operating outside the metropolitan Richmond area, would not qualify for this exemption. Lastly, when an exemption "sunsets," it typically applies to a specific period and expires after a certain date. Purchases before or after that period are taxable. Therefore, in the example above, purchases made before July 1, 1991, or after June 30, 1996, would be taxable.
23VAC10-210-1071. Nonprofit organizations; exempt transactions.
A. The exemptions that have been granted by the General Assembly typically apply only to the use or consumption of tangible personal property by an organization. When an exemption is limited solely to the use or consumption of tangible personal property, the organization generally will be subject to the tax on purchases of meals and lodging, which are considered taxable services. In limited situations, the General Assembly has granted broader exemptions to certain organizations so as to exempt taxable services, such as meals and lodging, and sales of tangible personal property.
When a nonprofit organization is exempt from paying the tax on the purchase of tangible personal property or services, it should furnish to its supplier a properly completed exemption certificate, either Form ST-13 or ST-13A. If such nonprofit organization is not making taxable sales as a registered dealer or is not required to register for consumer use tax, it will usually not have a Virginia Retail Sales and Use Tax registration number. In this instance, there is no requirement to place a registration number on the exemption certificate when making purchases. Instead, "Not Applicable" should be placed on the Certificate of Exemption where the registration number is required.
If the nonprofit organization does not have an exemption certificate but has received a ruling letter from the department stating that it is exempt by statute, then this letter may be furnished to suppliers instead of the exemption certificate in order to verify that the purchase is exempt from the tax.
B. According to 23VAC10-210-4040, meals and lodging are considered taxable services rather than tangible personal property. In order to make an exempt purchase of meals and lodging, an organization's exemption must contain specific language which exempts the purchase of services. An example of this language is found in subdivision 4 of § 58.1-609.4 of the Code of Virginia, which exempts:
Tangible personal property and services purchased by an educational institution doing business in the Commonwealth which (i) admits regularly enrolled high school and college students and (ii) provides a face-to- face educational experience in American government, a program which leads towards the successful completion of United States history, civics, and problems in democracy courses in high school, or which is acceptable for full credit towards an undergraduate or graduate level college degree, provided such institution is conducted not for profit.
Therefore, nonprofit organizations are subject to the sales tax on meals and lodging unless their respective statutes specifically exempt services.
C. If an organization is regularly engaged in selling tangible personal property, it is not required to collect the tax if the organization's exemption contains specific language exempting these sales. An example of this language is found in subdivision 14 of § 58.1-609.8 of the Code of Virginia, which exempts:
. . .tangible personal property purchased for use or consumption, or to be sold at retail, by any nonsectarian youth organization exempt from taxation under § 501(c)(3) of the Internal Revenue Code which is organized for the purposes of the character development and citizenship training of its members using the methods now in common use by Girl Scout or Boy Scout organizations in Virginia.
23VAC10-210-2020. Peddlers and street vendors.
Any person engaged in the retail selling of tangible personal property, whether through stores, from private residences, from trucks or wagons, by house-to-house canvass, or in any other manner, is required to file an application for a Certificate of Registration and to collect and pay the tax due the state.
A vendor of tangible personal property at retail, who peddles property in Virginia from his place of business outside the state, is required to register as a dealer for each county and city in which he peddles, and to collect and pay the state and local tax on all sales.
The Department of Taxation may decline to issue a Certificate of Registration to certain peddlers, street vendors and others who sell at retail from other than an established place of business, because of the transient nature of their business. The department may require vendors selling to such persons to collect the tax on the sale of property to them. Any person who questions whether he must register as a dealer should apply in writing to the department for a ruling. A ruling may also be requested by a vendor selling to such persons.
23VAC10-210-2050. Photographs, photostats, blueprints, etc.
A. Sales. The tax applies to sales of photographs, portraits, prints, slides from camera film, photostats, blueprints, frames, camera film, etc. The tax does not apply to charges for developing films (including movie films) and coloring or tinting photographs.
The tax is applicable to the total charge to the customer for a photograph, slide, etc., including, but not limited to, charges for labor, photocomposition, setting design, photography time, and any other components of the charge, regardless of whether such components are separately stated.
The tax also applies to the total charge for aerial photographs, security photographs, audio-visual films, and similar items produced under a contractual agreement which includes design time and similar labor charges.
B. Purchases. Chemicals, paper and other materials that become a component part of the finished photograph or other print for sale may be purchased under a resale certificate of exemption. Purchases of cameras, equipment and other tangible personal property by commercial photographers and others for use or consumption are taxable.
For industrial processing, see 23VAC10-210-920.
23VAC10-210-4030. Seeds and seedlings.
The tax does not apply to sales of seeds and seedlings to a person who plants them in soil for growing agricultural products for market.
The tax applies to purchases of seeds and seedlings for use on lawns, golf courses, or in residential, commercial or other beautification projects.
For agricultural production of trees, see 23VAC10-210-50.
VA.R. Doc. No. R24-7737; Filed June 18, 2024