Administrative Code

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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 500. Business, Professional and Occupational License Tax Regulations

23VAC10-500-90. Other exclusions and deductions from gross receipts.

Examples of items deemed not to be receipts derived from the licensable business include, but are not limited to, the following:

1. Certain adjustments that may be required by reason of the accounting method or system or otherwise to reflect events subsequent to the sale, such as the return of merchandise for credit or refund. If the local ordinance requires gross receipts to be reported using the same method of accounting as used for federal income tax purposes, and the accrual method is used, sales will often be accrued, reported and taxed before actual payment is received. Adjustments may then be required to prevent the taxation of items accrued but never received. For example:

a. A business may record a customer's exchange of merchandise as a refund and new sale. If so, the refund of the previously taxed sale would be deductible because there would have been only one sale -- the first sale would have been rescinded when the refund/exchange was made.

b. A business that offers customers a discount for volume purchases, prompt payment, or other reason, may record the sale at full value and deduct the discount at the time of payment. If so, the discount from the previously taxed full sales price would be deductible from gross receipts since the amount was not and never will be received.

c. A business that makes sales on credit may accrue the full sales price and set up a receivable account for the installment payment or revolving charge account agreement. If the business subsequently determines that all or a portion of the receivable is worthless, entitling the business to a bad debt deduction for federal income tax purposes, the portion of the previously taxed sale that is determined to be worthless would be deductible because it was not received. The subsequent collection of a debt deducted from gross receipts as worthless would be includible in gross receipts when received, and considered ancillary to the business activity that created the debt.

d. A business that reports its receipts on the cash method of accounting would include all customer payments on installment contracts and revolving charge accounts when received since none of the receipts would be attributable to previously taxed sales.

2. The borrower's receipt of the proceeds of a loan transaction are not gross receipts arising from the exercise of a licensable privilege in the ordinary course of business even if the business regularly obtains money, goods or services on credit.

3. A business that lends money in the regular course of business may receive interest, points, origination fees, and other fees in connection with the loan transaction, all of which would be gross receipts derived from the licensable business. Customer payments to a lender that represent the return of principal on a loan are not gross receipts arising from the exercise of a licensable privilege in the ordinary course of a money lending business. As described in subdivision 1, the treatment of return of principal on the loans, installment contracts and the accounts receivable of other types of businesses may depend on the nature of the transaction in which the debt was created and the method of accounting used.

4. Patronage dividends, to the extent they represent a reduction in purchase price to a co-operative member.

Statutory Authority

§ 58.1-3701 of the Code of Virginia.

Historical Notes

Derived from Virginia Register Volume 24, Issue 23, eff. October 6, 2008.

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