economic nexus

Storing goods in Virginia creates nexus and a tax obligation for out-of-state sellers as of June 1.

Employment is up in Virginia, as is capital investment, and Governor Terry McAuliffe continues to work toward growing the “new Virginia economy.” Yet there was still a substantial budget shortfall in FY2016, in part because of lower than expected sales tax collections. The new budget therefore contains a significant number of sales tax changes.

Accelerated sales tax

Under Virginia’s current accelerated sales and use tax program, vendors making taxable sales of $2.5 million or more for the 12-month period ending June 30, 2016, must make an accelerated retail sales and use tax payment by June 30, 2017 (Virginia Tax). The amount due is 90 percent of the sales tax owed for the previous month of June (2016 for this year’s accelerated payment). Vendors should file and pay electronically unless granted an electronic filing waiver by the Virginia Department of Taxation. Any other type of payment must be remitted by June 25.

However, the threshold for mandatory accelerated sales and use tax payments is changing for 2018 under HB 1500. “The threshold will increase to taxable sales and/or purchases of $4 million or greater in the previous fiscal year for the accelerated sales tax payment due in June 2018.” Failure to make accelerated sales tax payments will result in “a penalty of six percent of the amount of tax underpayment that should have been properly paid to the Tax Commissioner,” plus interest.

This isn’t the first time the Virginia Legislature has changed the threshold. Since 2010, the threshold has been $1 million (2010), $5.4 million (2011), $26 million (2012 and 2013), $48.5 million (2014), and $2.5 million (2015 – 2017). Additional information and examples are available from the Virginia Department of Taxation.

Admissions tax

Stafford County, which is one of the nation’s wealthiest counties, is authorized to impose a tax on admissions to any entertainment venue meeting the following criteria:

  • It must be licensed to do business in the county for the first time on or after July 1, 2015
  • It must require at least 75 acres of land for its operations
  • The required land must be purchased or leased by the entertainment venue owner on or after June 1, 2015

The tax cannot exceed 10 percent of the cost of admission. In the event there is no entertainment venue in Stafford County meeting the criteria, the tax will expire July 1, 2019.

R&D sales and use tax exemption

As of July 1, 2016, the retail sales tax exemption for tangible personal property purchased or leased for use or consumption in basic research, or research and development in the experimental or laboratory sense, applies to property in federally funded research and development centers.

Sales and use tax exemption for internet service providers

“For purchases made on or after July 1, 2006, any exemption from the retail sales and use tax applicable to production, distribution, and other equipment used to provide Internet-access services” by internet service providers will be treated as a refund request.

Sales tax nexus

Any vendor with inventory in Virginia has a physical presence in the state and an obligation to collect Virginia sales and use tax. See “Storing property in Virginia creates tax obligation for out-of-state sellers” for additional information.

Sunset dates for sales tax exemptions, income tax credit

With limited exceptions, including one for certain nonprofit exemptions, any sales and use tax exemptions or income tax credit enacted by the General Assembly prior to 2021 cannot have a sunset date beyond June 20, 2022.

In addition, the Department of Taxation must determine (and report to the General Assembly) the revenue impact of every sales tax exemption and tax credit set to expire on or before June 30, 2022. Updated revenue impact reports must be generated every five years.

Virginia Tax Amnesty Program

The Virginia Department of Taxation is to administer a Tax Amnesty Program “to improve voluntary compliance with the tax laws and to increase and … accelerate collections of certain taxes owed to the Commonwealth.” Although the Tax Commissioner will determine the precise dates of the program, it must be held sometime between July 1, 2017, and June 30, 2018, and last 60 – 75 days.

There is a lot more to Virginia’s state budget than sales tax. Check it out to learn more.

Companies that do business in Virginia are advised to scrutinize the new budget bill so as to not be caught by surprise. Tax automation software helps businesses manage sales and use tax changes, facilitating compliance. Learn more.

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