Updated on November 11, 2015 to reflect changes with Virginia sales tax nexus and fulfillment centers
This post will hopefully make things easier to understand if you’re an online seller wondering if you need to collect sales tax from customers in Virginia. I’ll walk you through the most common examples that our customers experience – including if you’re a Fulfillment by Amazon (FBA) seller. As always, if none of these examples match your own business, or if you still have doubts or questions, contact a tax professional.
Living in a state other than Virginia
If you’re an online seller living in any state other than Virginia and your business has no ties to Virginia (no office, no employee, no inventory, etc.) then you’re not required to collect sales tax from orders delivered to Virginia. Consider yourself lucky. This post is about to get a lot more complicated.
Living and operating your business in Virginia
If you’re an online seller living in Virginia and running your business out of your home (like a lot of us do) then you’re required to register your business with the state and collect sales tax on taxable items delivered to customers in Virginia and then remit that money to the state. How much sales tax you’re required to collect is covered a bit later in the post.
Living out-of-state while using FBA
While, as of this writing, Virginia is home to two Amazon Fulfillment Centers, on October 16th, 2015 the Virginia Department of Taxation issued a letter ruling declaring that only using a fulfillment center in Virginia does not create sales tax nexus. So if you sell on Amazon FBA and have items stored in Virginia, but that’s the only element that ties your business to Virginia, then you, the FBA seller, don’t have sales tax nexus in Virginia.
Read more about the Virginia fulfillment center nexus letter ruling here.
Virginia sales tax rates
The sales tax rate in Virginia is a sum of the state sales tax rate and the local sales tax rate.
The state rate is not always the same. As of July 1, 2013, the state sales tax rate is 4.3 percent except for “the localities that make up the Northern Virginia and Hampton Roads regions.” In those cases the state rate is 5.0 percent.
The local rate, on the other hand, is always 1 percent.
So for example, the sales tax rate in Midlothian, VA is 5.3 percent. The sales tax rate in Falls Church (which is in Northern Virginia) is 6.0 percent.
Collecting sales tax if you’re in-state
Here’s where things get really interesting. Normally, states are considered either origin-based (you collect based on where the seller is located) or destination-based (you collect based on where the buyer is located). Virginia is both.
If you live in VA and operate your business there (you’re what the state refers to as an “in-state dealer”), then you are supposed to collect sales tax based on your business location. Here’s the exact language provided by the state on Page 6 of their Guidelines For The Retail Sales And Use Tax Changes Enacted In The 2013 General Assembly Session (PDF):
You’ll notice I also included the example the state provided in that same section of the document. I’ll use a more real example: let’s say you’re an online seller operating out of your house in Big Stone Gap, VA. Since Big Stone Gap is not located in either Northern Virginia or Hampton Roads the sales tax rate is 5.3 percent (4.3 percent for the state + 1 percent local). In this case you would charge 5.3 percent on all taxable transactions shipped to customers in Virginia – regardless of where the customer is located.
If you’re a seller located in either Northern Virginia or Hampton Roads, the only difference for you is that you’ll charge 6 percent sales tax on transactions delivered to customers in Virginia because that’s the rate where you live/operate your business. Just like the seller in Big Stone Gap, you only charge one rate for in-state sales.
Collecting sales tax if you’re out-of-state
If you’re out-of-state but have nexus in Virginia due to another nexus-causing factor (such as an office, employee, etc.) then the state says you should collect based on the ship-to destination of the item. Like I did in the last example, here’s the exact language as well as an example of a sale provided by the state on Page 7 of their Guidelines For The Retail Sales And Use Tax Changes Enacted In The 2013 General Assembly Session (PDF):
So here are some additional examples:
Example 1: you’re an online seller in Detroit, MI with but have an employee in Virginia. You sell a taxable item to a customer who wants it shipped to their home in Glade Spring, VA. Since Glade Spring is not in Northern Virginia or Hampton Roads then the state says to collect sales tax at a rate of 5.3 percent (based on the destination of the item).
Example 2: you’re the same online seller in Detroit, MI with that employee in Virginia who causes you to have Virginia sales tax nexus. You sell a taxable item to a customer who wants it shipped to their home in Virginia Beach, VA. Since Virginia Beach is in the Hampton Roads region, then the state says to collect sales tax at a rate of 6.0 percent (again, based on the destination of the item).
Filing sales tax returns in Virginia is painful
If your business has to collect based on the destination of delivery then filing your sales tax return for Virginia will be a lot more difficult than if you’re an in-state dealer. The reason is VA wants to see tax collected per local jurisdiction. So it’s up to the seller to go through each sale and determine what local jurisdiction that sale belongs to (particularly tough if you’re out-of-state and have zero sense of what cities are in which counties) and add up tax collected. The good news is that TaxJar does all of that work for you in its local jurisdiction reports. That means less time having to mess around with spreadsheets and figures and more time finding good deals at Target or the next garage sale.
For more information on what you can expect when you files your sales tax return, check out this video from the Department of Taxation:
Summary: if your business has nexus, collect based on shipping address
If you’re an out-of-state seller with zero ties to Virginia, consider yourself lucky and move along. If you’re an in-state seller, register with the state and collect a single sales tax rate for all of your customers in VA. Base the rate on where you live. If you’re an out-of-state FBA seller then register with the state and collect sales tax based on where the item is shipped.
Have any questions? Feedback? Tell me about your experience selling in Virginia in the discussion section below.
Tired of having to calculate sales and tax collected by local jurisdiction? Start your free 30 day trial to TaxJar today.