Administrative Code

Virginia Administrative Code
2/25/2021

Chapter 210. Retail Sales and Use Tax

23VAC10-210-10. Adjustments, replacements and warranties.

When any taxable article is returned to the dealer for adjustment, replacement or exchange and the consumer is given a new article free or at a reduced price under a warranty or guarantee, the sales or use tax must be computed on the actual additional amount, if any, paid to the dealer for the new article.

For articles returned for cash or credit, see 23VAC10-210-3080.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-1, eff. January 1, 1985.

23VAC10-210-20. (Repealed.)

Historical Notes

Derived from VR630-10-2, eff. January 1, 1985; repealed, Volume 24, Issue 26, eff. October 1, 2008.

23VAC10-210-30. Admissions.

The tax does not apply to sales of tickets, fees, charges, or voluntary contributions for admissions to places of amusement, entertainment, exhibition, display, or athletic contests, nor to charges made for participation in games or amusement activities. However "cover charges" or "minimum charges" which include the provision of or the entitlement to food, drinks, or other tangible property constitute a sale of property and are subject to the tax. Admission fees or "door charges" which entail no right to receipt of or credit toward the purchase of food or other tangible personal property are not subject to the tax.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-2.1; added January 1979; revised January 1, 1985; amended, eff. July 1, 1993.

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.

Statutory Authority

§§ 58.1-203 and 58.1-609.8(10) of the Code of Virginia.

Historical Notes

Derived from VR630-10-2.2 §§ 1, 2, eff. July 1, 1994.

23VAC10-210-40. Advertising; definitions.

The following words and terms, when used in 23VAC10-210-40 through 23VAC10-210-43, shall have the following meanings unless the context clearly indicates otherwise:

"Advertising" means the planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting or other media, including without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision.

"Advertising business" means any person or group of persons providing "advertising" as defined herein.

"Media" means and includes newspapers, magazines, billboards, direct mail, radio, television, and other modes of communication.

Statutory Authority

§§ 58.1-203, 58.1-602 and 58.1-609.6(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-3 § 1, eff. January 1, 1985; amended, eff. March 5, 1987.

23VAC10-210-41. Advertising businesses.

A. Ad creation. The tax does not apply to charges by an advertising business for professional services in the planning, creating or placing of advertising in newspapers, magazines, billboards, direct mail, radio, television, or other media regardless of how such charges are computed by the advertising business and whether or not such business actually places the advertising in the media.

The tax does not apply to charges by an advertising business for the provision of concept, writing, graphic design, mechanical art, photography and production supervision in the development of an advertising campaign, whether or not all aspects of the campaign are actually performed by the same advertising business. For example, charges by an advertising business for concept, writing, graphic design, mechanical art, photography, etc. . ., provided by another advertising business, for use in the development of an advertising campaign are not subject to the tax.

B. Purchases. Advertising businesses are engaged in providing professional services and are the users and consumers of all tangible personal property purchased for use in such businesses. Therefore, the tax applies to all purchases by an advertising business including, without limitation, the following items:

1. Administrative items, including paper, ink, pencils, layout boards, blank audio and video tapes, office furniture, office supplies and similar equipment and supplies;

2. Printing, including direct mail items, non-customized or stock mailing lists, handbills, brochures, flyers, bumper stickers, posters and similar printed materials whether or not for use in the development of a specific advertising campaign, and whether or not any of such materials are intended for distribution out of state (for printing generally, see 23VAC10-210-3010; for catalogs and other printed materials, see 23VAC10-210-260); and

3. Promotional items, including pens, pencils, ash trays, calendars, balloons, t-shirts and similar items whether or not for use in a specific advertising campaign, and whether or not such items are intended for distribution out of state.

In addition, the tax applies to all purchases by an advertising business of concept, writing, graphic design, mechanical art, photography, etc. . ., not made pursuant to the development of a specific advertising campaign. For example, if an advertising business purchases scenic photographs of Virginia for possible use in future advertising campaigns, the purchase of such photographs will be subject to the tax. (For photographs generally, see 23VAC10-210-2050)

C. Billing. The tax does not apply to the total charge made by an advertising business for the creation or placement of advertising in the media, regardless of the method(s) used in computing such charge, as for example by fixed fee, hourly rate, percentage of media placed, or other method. Nor does the tax apply to handling fees or cost plus charges added to out of pocket expenses incurred by advertising businesses on behalf of their clients.

For example, if an advertising business contracts to develop a media advertising campaign for its client, and pursuant to such contract is permitted to retain a commission equal to 15% of all media placed during the campaign, and is reimbursed for any out of pocket expenses on an actual cost plus 20% handling fee basis, neither the 15% commission, nor the 20% handling fee would be subject to the tax. (For purchases by an advertising business generally, see subdivision B 2 of this section)

Statutory Authority

§§ 58.1-203, 58.1-602 and 58.1-609.6(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-3 § 2, eff. January 1, 1985; amended, eff. March 5, 1987.

23VAC10-210-42. Newspaper and other media advertising.

A. Space and time charges. Charges for placing or running advertising in the media, as defined in 23VAC10-210-40, are not subject to the tax. For example, the tax does not apply to charges for space in newspapers, magazines, or other print media nor to airtime charges on radio, television or other broadcast media.

B. Interstate commerce. Charges by an advertising business for professional services in the development and placement of advertising in the media are not subject to the tax whether the advertising business, the client which contracts with such business or the advertising media itself are located in Virginia. (For Interstate Commerce, see 23VAC10-210-780.)

Statutory Authority

§§ 58.1-203, 58.1-602 and 58.1-609.6 (5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-3 § 3, eff. January 1, 1985; amended, eff. June 6, 1985.

23VAC10-210-43. In-house advertising.

Materials and supplies and other tangible personal property used in "in-house" advertising, that is, advertising produced by any entity to advertise, promote or display its own products or services, are subject to the tax at the time of purchase.

For outdoor signs, see 23VAC10-210-4070; for interstate commerce, see 23VAC10-210-780; for catalogs and other printed materials for distribution out of state, see 23VAC10-210-260.

Statutory Authority

§§ 58.1-203, 58.1-602, and 58.1-609.6 of the Code of Virginia.

Historical Notes

Derived from VR630-10-3 § 4, eff. January 1, 1985; amended, eff. June 6, 1985; Volume 3, Issue 9, eff. March 5, 1987.

23VAC10-210-50. Agriculture.

A. Generally. The tax does not apply to commercial feeds, seed, plants, fertilizers, liming materials, breeding and other livestock, semen, breeding fees, baby chicks, turkey poults, agricultural chemicals, fuel for drying or curing crops, baler twine, containers for fruits or vegetables, farm machinery and agricultural supplies sold to farmers for use in agricultural production for market. Also, effective July 1, 1979, the tax does not apply to tangible personal property, except structural construction materials, necessary for use in agricultural production for market when sold to or purchased by a farmer or contractor or furnished to a contractor by a farmer to be affixed to real property owned or leased by a farmer. A purchase for personal or family use or consumption is not exempt. Exempt items must be purchased under a certificate of exemption. A farmer not engaged in the business of producing agricultural products for market cannot claim any agricultural exemptions.

The term "structural construction materials" includes but is not limited to the following: silos; barns and sheds; storage bins (not portable); greenhouses, including plastic covered houses; permanent fencing; fuel oil storage tanks; electrical wiring, except for wiring running from special purpose equipment to an on-off switch; plumbing, except as part of special purpose equipment (e.g., water feeding system in poultry house); cattleguards; farrowing houses; and bulk tobacco curing barns. These items are therefore subject to tax.

The term "structural construction materials" specifically excludes the following but may also exclude other items: milking systems; feeding systems; heating systems; artificial insemination equipment; lighting fixtures in poultry houses used for the purpose of extending the daily feeding period of chickens; power outage and water pressure alarm systems; egg cooling equipment, including wall mounted egg coolers; ventilating equipment, to include air inlets, curtains and curtain cables, cords and related fixtures, pull-ups, winches, fans and fan belts, louvers, shutters, motors, static pressure gauges, thermostats and replacement parts; shade cloth; and irrigation lines and sprinkler heads. These items are therefore exempt from tax.

B. Farmer-horse breeder. The production for sale of colts on a horse farm is regarded as "agricultural production." Horses used exclusively for the purpose of breeding colts for sale and the feed and supplies for such horses can be purchased tax exempt by the farmer-horse breeder.

Horses purchased for racing or showing are subject to the tax since they are not used exclusively for breeding purposes. The tax must also be paid on feed and supplies for such horses.

C. Commercial tree farming. The production of trees for sale or resale is regarded as "agricultural production," so any person engaged in commercial tree farming is entitled to the agricultural exemption. A person qualifying as a commercial tree farmer must act as any other farmer producing an agricultural product for market and must prepare the land for sowing, plant the seedlings, mulch the seedlings, nurture the trees, and harvest the trees at maturity for future use in commercial operations of producing a product for sale or resale.

D. Commercial fish farming. The raising of fish for sale or resale is regarded as "agricultural production," so any person engaged in commercial fish farming is entitled to the agricultural exemption. The exemption is allowed for purchases of commercial feed, fish eggs, and other agricultural supplies.

E. Commercial worm farming. Effective July 1, 1979, the raising of worms for sale or resale is regarded as "agricultural production," so any person engaged in commercial worm farming is entitled to the agricultural exemption. The exemption is allowed for purchases of worm feed, feed supplements, growing medium and other agricultural supplies.

F. Retail sales by farmers. A farmer regularly engaged in selling tangible personal property at retail must register as a dealer and collect and pay the tax due on retail sales.

The tax applies to regular or recurring sales of farm products by farmers or peddlers or at a public market, roadside stand, farm or any other place.

Statutory Authority

§§ 58.1-203 and 58.1-609.2(1),(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-4, eff. January 1, 1985.

23VAC10-210-60. (Repealed.)

Historical Notes

Derived from VR630-10-5 §§ 1, 2, eff. January 1, 1985; amended, eff. July 1, 1994; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-70. Aircraft sales, leases and rentals, repair and replacement parts and maintenance materials.

A. The following words and terms, when used in this regulation, shall have the following meanings, unless the context clearly indicates otherwise:

"Aircraft" means any contrivance used or designed for untethered navigation or flight in the air by one or more persons at an altitude greater than 24 inches above the ground. Such term shall not include parachutes.

"Aircraft sales tax" means the tax imposed under Chapter 15 (§ 58.1-1500 et seq.) of Title 58.1 of the Code of Virginia.

"Dealer" means any person owning and placing five or more aircraft for resale during a calendar year who the Tax Commissioner finds to be in the regular business of selling aircraft.

"Gross receipts" means the charges made or voluntary contributions received for the hourly rental and maintenance of an aircraft, all other charges for the use of an aircraft and, unless separately stated on the invoice, all charges for services of pilots or instructors in such aircraft. The term shall also include any amount by which the price estimated under § 58.1-1503 of the Code of Virginia exceeds the charge actually made.

"Sales price" means the total amount paid for an aircraft and all attachments thereon and accessories thereto, without any allowance or deduction for trade-ins or unpaid liens or encumbrances, but exclusive of any federal manufacturers' excise tax.

B. The sale, lease or rental (including charters) of aircraft is not subject to the retail sales and use tax provided such transaction is subject to the Virginia aircraft sales and use tax as set forth under Chapter 15 (§ 58.1-1500 et seq.) of Title 58.1 of the Code of Virginia.

C. Repair and replacement parts and accessories installed on an aircraft at the time of sale, which are included in the sale price for the purpose of computing the aircraft sales and use tax, are exempt from the retail sales and use tax. Such parts and accessories are also exempt from the retail sales and use tax when installed on leased or rented aircraft when such aircraft are subject to the aircraft sales and use tax based upon gross receipts. These items may be purchased by a dealer exclusive of the retail sales and use tax when a resale exemption certificate, Form ST-10, is presented to the retailer at the time of sale.

The retail sales and use tax is applicable to repair and replacement parts and accessories when an aircraft dealer elects to remit the aircraft sales and use tax upon his purchase of an aircraft rather than upon the gross receipts derived from the lease, charter, or other use of the aircraft. Likewise, purchases of such items by individual aircraft owners or nondealers are subject to the retail sales and use tax.

D. Maintenance materials such as oil, grease, soaps, cleaners, etc. used on aircraft are subject to the retail sales and use tax. See the Virginia Aircraft Sales and Use Tax Regulations for information relating to the aircraft sales and use tax generally.

Statutory Authority

§§ 58.1-203 and 58.1-609.1(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-6 §§ 1-4; revised July 1969; January 1979; January 1985; amended, eff. July 1, 1994.

23VAC10-210-80. [Reserved]. (Reserved)

23VAC10-210-90. Aircraft service establishments.

Establishments engaged in rendering aircraft services, such as crop dusters, which make no sales of tangible personal property must pay the tax on all tangible personal property used or consumed in their operations.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-6.2; added January 1979; revised January 1, 1985; amended, eff. July 1, 1993.

23VAC10-210-100. Airlines operating in interstate commerce.

The tax does not apply to tangible personal property sold or leased to an airline operating in intrastate, interstate or foreign commerce as a common carrier providing service consisting of regularly scheduled flights to one or more Virginia airports at least five days per week for use or consumption by such airline directly in the rendition of its common carrier service. Meals, snacks and beverages furnished by such an airline to passengers or others are not use or consumption of tangible personal property by the airline directly in the rendition of its common carrier service and are subject to tax. Further as to meals, see 23VAC10-210-930.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(6) of the Code of Virginia.

Historical Notes

Derived from VR630-10-7, eff. January 1, 1985.

23VAC10-210-110. (Repealed.)

Historical Notes

Derived from VR630-10-8; revised July 1, 1969; June 1, 1979; amended, eff. July 1, 1993; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-120. Alterations.

Separately itemized charges for alterations to clothing sold by a dealer are not a part of the total sales price to the customer and are not subject to tax. Charges made for alterations to clothing by a person other than the dealer selling the clothing are likewise not subject to the tax. Materials used in performing alterations, including needles, thread, facing, etc., are taxable at the time of purchase by the person performing the alterations.

Statutory Authority

§§ 58.1-203 and 58.1-609.5(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-8.1; added July 1, 1969; revised January 1, 1979; amended, eff. March 1983.

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.

Statutory Authority

§§ 58.1-203 and 58.1-609.1(11) of the Code of Virginia.

Historical Notes

Derived from VR630-10-8.2; added July 1, 1969; revised August 1, 1983; January 1, 1985.

23VAC10-210-140. Auctioneers, agents, factors.

A. Generally. Auctioneers, agents or factors selling tangible personal property must collect and pay the sales tax on the gross sales price of each taxable sale, regardless of the fact that title to the property being sold may rest with another person. "Gross sales price" means the price for which the property is sold without any deduction for commissions, service charges or any other expenses.

B. Occasional sales.

1. Generally. Except as provided in subdivision 2 of this subsection, an auctioneer, factor or agent cannot make an "occasional sale" of tangible personal property because his business is the sporadic and occasional sale of property. Therefore, an auctioneer, factor or agent must collect the tax on all sales including estate sales and similar sales of short duration.

2. Exception. An auctioneer, factor or agent who sells substantially all the assets of a liquidating or reorganizing business as required in 23VAC10-210-1080 is deemed to be engaged in an occasional sale and is not liable for collection or payment of the tax provided the sale occurs in three days or less. For example, an auctioneer may contract to conduct a two day auction of the assets of a liquidating business. Such sale would qualify as an "occasional sale" and the auctioneer would not be liable for collection of the tax. However, if, for example, the liquidation of the business takes place over a period of three months and the assets are auctioned off on a weekly basis during the period, the occasional sale exemption will not apply and the auctioneer will be required to collect and remit the tax on all sales.

For occasional sales generally, see 23VAC10-210-1080.

Statutory Authority

§§ 58.1-203 and 58.1-609.10(2) of the Code of Virginia.

Historical Notes

Derived from VR630-10-9; revised January 1, 1979; June 1, 1985.

23VAC10-210-150. (Repealed.)

Historical Notes

Derived from VR630-10-10; revised July 1, 1969; January 1, 1978; January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-160. Bad debts.

A. Generally. Any dealer may obtain a credit for the amount of any sales or use tax previously reported and paid on a return for accounts found to be worthless. Such credit must be claimed on the return filed for the period in which the account is determined to be worthless.

B. Limitations. No credit may exceed the amount of sales price which is actually uncollectible. Prior payments made to the dealer on a debt which is subsequently determined to be uncollectible must be allocated to the sales price, sales tax and other nontaxable charges based on the percentage that those charges represent to the total debt originally owed.

If any part of the sales price for which a credit was taken is subsequently reported to the dealer, it must be included in such dealer's next sales and use tax return.

The following example illustrates the operation of this section.

Example: Dealer A repairs an item of property for a customer. The total charge for such repair is $77.65, representing $50 in repair parts, $25 in separately stated, nontaxable repair labor, and $2.65 in tax. A reports the transaction and remits the tax thereon. After collecting $30, A determines that the remainder of the debt is uncollectible. A may claim a credit calculated as follows:

Allocation of Amount Previously Collected:

50 / 77.65 x $30

Amount to be Allocated to Repair Parts = $19.32

Amount of Sales Price for Computing Credit = $50.00 - $19.32 = $30.68

Amount of Credit which may be claimed = $1.63 (5.3% x $30.68)

Since only the charge for the repair parts was previously reported as a taxable sale, only the tax on that portion of the remaining outstanding debt attributable to the charge for such parts may be taken as a credit. If any portion of the $30.68 remaining sales price is subsequently collected, such amount must be reported on the dealer's return for the period in which collected.

C. Hampton Roads Region and Northern Virginia Region. The total rate of the state and local sales and use tax in localities that fall within these regions is 6.0% (4.3% state, 0.7% regional, and 1.0% local). The provisions of this section apply to transactions sourced to the Hampton Roads Region and the Northern Virginia Region, mutatis mutandis. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-11; revised January 1, 1979; January 1, 1985; amended, Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-170. (Repealed.)

Historical Notes

Derived from VR630-10-12; revised July 1, 1969; January 1, 1979; repealed, Volume 25, Issue 04, eff. November 26, 2008.

23VAC10-210-180. (Repealed.)

Historical Notes

Derived from VR630-10-13; revised July 1, 1969; January 1, 1979; amended, eff. July 1, 1993; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-190. Bookbinders and paper cutters.

Persons engaged in binding books are deemed to be fabricating such articles and the total charge for the binding is subject to the tax. Machinery and tools, fuel, power, energy, and supplies used directly in the binding process may be purchased exempt from the tax. (See 23VAC10-210-920 for further description of the manufacturing/processing exemption.)

However, charges for the following transactions constitute charges for providing a service and are not subject to the tax:

1. Folding, when the customer provides the complete job to be folded;

2. Trimming and paper cutting, when the customer provides the complete job to be trimmed or cut; and

3. Application of stickers to paper envelopes, when the customer provides stickers and the items to which they are to be applied.

Items used in performing a service, such as paper cutters, glue, and folding machines, do not qualify under the manufacturing/processing exemption and are subject to the tax at the time of purchase.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-14; revised January 1, 1985; amended, eff. July 1, 1993.

23VAC10-210-200. (Repealed.)

Historical Notes

Derived from VR630-10-15 or VR630-10-16; revised January 1, 1979; amended, eff. July 1, 1993 or January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

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

Statutory Authority

§ 58.1-203 of the Code of Virginia

Historical Notes

Derived from VR630-10-17 §§ 1‑4; revised July 1969; January 1979; January 1985; January 1987; November 1987; amended, eff. May 15, 1988, retroactive to November 30, 1987; Volume 25, Issue 11, eff. March 4, 2009; Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-230. Burglar, security, and fire alarm systems.

A. Monitored systems. As used in this section, the term "monitored systems" shall mean burglar, security and fire alarm systems which are furnished, installed and monitored under contract with the person furnishing and installing such systems. Systems which are monitored by a person other than the person who furnishes and installs such systems, e.g., those which are connected directly to the police or fire department, are not "monitored systems" as the term is used in this section.

Charges for monitored systems constitute charges for a service which is not subject to the tax. The person selling/leasing and installing the monitored system is deemed to be the consumer of all property used in providing the service and must pay the tax on such property at the time of purchase.

B. Nonmonitored systems. Persons engaged in the sale or lease and installation of burglar, security or fire alarm systems are engaged in making retail sales, the total charge for which is subject to the tax. Separately stated installation charges are not subject to the tax. Persons engaged in retail sales or leases must register as a dealer and collect and pay the tax with respect to such transactions. All items used by a dealer in installing such a system, for example wiring which remains a part of the building, nails and similar items, are taxable to the dealer at the time of purchase.

C. Other security devices. The sale of security and fire devices such as smoke detectors, and similar items which do not become attached to realty are retail sales of tangible personal property, the total charge for which is subject to the tax. Persons engaged in the sale and installation of other types of security devices such as permanent window bars and similar items which become permanently affixed to realty are contractors with respect to such transactions and must pay the tax on all property installed or used in installation at the time of purchaser withdrawal from nontax paid inventory.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-17.1, eff. January 1, 1985.

23VAC10-210-240. (Repealed.)

Historical Notes

Derived from VR630-10-17.2, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-250. Cash and trade discounts.

A. The following words and terms when used in this section shall have the following meanings unless the content clearly indicates otherwise:

"Cash or trade discount" includes a discount for the early payment of the purchase price, a discount attributable to the value of an item taken in trade, or a discount based upon the method of payment.

B. Cash or trade discounts taken on sales are not includible in the sales price for purposes of computing the tax. The amount of such discounts may be deducted from gross sales provided the discounts have been included in gross sales.

C. In computing the amount of a discount that may be subtracted from gross sales, the discount must be allocated between sales price and sales tax. The following examples illustrate the application of this concept.

Example 1: Dealer A sells an item to a customer for $100 and bills the customer $100 for the item and $5.30 for the tax. The terms of the sale provide for a 10% discount if the bill is paid within 30 days. The customer pays within 20 days and is therefore entitled to the discount, which is computed as follows:

Amount Billed

$105.30

Sales Price

$100.00

Tax

$5.30

Less

$10.00 discount

Sales price discount

100.00 x l0% = 10.00

Tax discount

5.3 x 10% = $0.53

Therefore, the customer remits $94.77, which includes $90 in sales price and $4.77 in sales tax. Dealer A may deduct $10.00 from gross sales, and will accordingly remit only $4.77 in tax.

Example 2: Dealer B sells an item to a customer for $100 and bills the customer $100 for the item and $5.30 for the tax. The terms of the sale provide for a $10 discount if the bill is paid within 30 days. The customer pays within 20 days and is therefore entitled to the discount, which is computed as follows:

Amount Billed

$105.30

Sales Price

$100.00

Tax

$5.30

Less

$10.00 discount

$10.00 / $1.053 = $9.50 sales price discount

$0.50 tax discount

Therefore, the customer remits $95.30, which includes $90.50 in sales price and $4.80 in sales tax. Dealer B may deduct $9.50 from gross sales, and will accordingly remit only $4.50 in tax.

Example 3: Dealer B repairs a piece of equipment for a customer and bills the customer $100 for parts, $50 for labor, and $5.30 for tax. The terms of the sale provide for a $10 discount if the bill is paid within 30 days. B pays within 20 days and earns the discount which is computed as follows:

Amount Billed

$155.30

Sales Price of Parts

$100.00

Separately Stated Repair
Labor (nontaxable)

$50.00

Sales tax

$5.30

Less $10.00 discount attributed as follows:

Attributable to Parts: (100 / $150) x $10.00 = $6.67
$6.67 / 1.053 = $6.33 sales price discount
$0.34 sales tax reduction

$3.33 attributable to nontaxable labor

Therefore, the customer remits $145.30, which includes $93.67 in sales price for the parts, $4.96 in sales tax attributable to the parts, and $46.67 for nontaxable labor. Dealer B may deduct $6.33 from gross sales and will accordingly remit only $4.96 in tax.

Regardless of whether a cash or percentage discount is used, the discount must be allocated between the sales price and the tax to avoid overcollection of the tax.

D. Hampton Roads Region and Northern Virginia Region. The total rate of the state and local sales and use tax in localities that fall within these regions is 6.0% (4.3% state, 0.7% regional, and 1.0% local). The provisions of this section apply to transactions sourced to the Hampton Roads Region and the Northern Virginia Region, mutatis mutandis. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-18 §§ 1-3; revised July 1, 1969; January 1, 1979; January 1, 1985; amended, eff. July 1, 1993; Volume 25, Issue 11, eff. March 4, 2009; Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-260. (Repealed.)

Historical Notes

Derived from VR630-10-18.1 §§ 1, 2 or VR630-10-19, eff. or revised January 1, 1985; amended, eff. February 1, 1987; repealed, Virginia Register Volume 23 Issue 8, eff. March 10, 2007.

23VAC10-210-280. Certificates of exemption.

A. Generally. All sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. The certificate will remain in effect except upon notice from the Department of Taxation that it is no longer acceptable. However, a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice.

Certificates of exemption in the various categories will be furnished to dealers on request. Each certificate explains its use, and it may be reproduced by the dealer for use on purchase orders, sales slips or other documents relating to the transaction. (See subsection E of this section for an exception).

B. Legitimate use of exemption certificates is vital. Reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates. An exemption certificate cannot be used to make a tax free purchase of any item of tangible personal property not covered by the exact wording of the certificate.

C. Illustrations of the misuse of exemption certificates.

1. Purchases under Form ST-10 (resale exemption certificate) by a registered dealer, who is operating a grocery store, for example, of items such as adding machines, typewriters, cash registers, or showcases for use in the business. Such items are subject to the tax. No exemption certificate offered in making such a purchase is acceptable.

2. Purchases under Form ST-10 (resale exemption certificate) by a registered automobile dealer, garage or service station operator, of items such as jacks or hand tools for use in the business. Such items are subject to the tax. No exemption certificate offered in making such a purchase is acceptable.

3. Purchases under Form ST-10 (resale exemption certificate) by a registered operator of a hotel, motel, inn or restaurant, of items such as furniture or fixtures; fuel oil, coal or bottled gas for heating or cooking; linens, refrigerators or stoves, for use in the business. Such items are subject to the tax. No exemption certificate offered in making such a purchase is acceptable.

4. Purchases under Form ST-11 (manufacturers exemption certificate) by the operator of a manufacturing, processing or mining business of items such as tires, batteries or repair parts for delivery equipment; tools for use in repairing machinery; office furniture or office machines; or office supplies. Such items are not used directly in manufacturing, mining, processing, refining or converting products for sale or resale and are subject to the tax. No exemption certificate offered in making such a purchase is acceptable.

5. Purchases under Form ST-18 (agricultural exemption certificate) of items such as tires, batteries or repair parts for off-the-farm vehicles; feed for pets; feed for riding or pleasure horses; or household equipment or supplies. Such items are not for use in agricultural production for market and are subject to the tax. No exemption certificate offered in making such a purchase is acceptable. A person who calls himself a "farmer" but who is not engaged in the business of producing agricultural products for market is not entitled to claim any agricultural exemption. No exemption certificate offered by him in making a purchase is acceptable.

D. Taxable use of property after tax-exempt purchase makes property subject to sales tax. If a purchaser or lessee who gives an exemption certificate makes any use of the property other than an exempt use or retention, demonstration or display while holding property for resale, distribution or lease in the regular course of business, the use is treated as a taxable sale by the purchaser or lessee at the time the property is first used by him. The cost of the property to him is the sales price of such retail sale. If the sole use of the property other than retention, demonstration or display in the regular course of business is the rental of the property while holding it for sale, distribution or lease, the purchaser may elect to pay the tax on the amount of the rental charged, rather than the cost of the property to him. For example, a grocer may purchase lollipops tax exempt under the resale exemption but subsequently elect to give some of these away to children on Halloween. Because the items were purchased tax exempt and used by the grocer rather than sold, he is liable for accruing and remitting use tax based upon the cost price of the lollipops. The same principle is applicable to items donated to charitable organizations, civic groups, etc. and to free product samples distributed by manufacturers or wholesalers.

E. Exemption certificates issued only by department. As noted in subsection A of this section, exemption certificates are generally available on request from the department. However, persons seeking exemption for property to be used in a certified pollution control project (see 23VAC10-210-2090) or contractors purchasing exempt manufacturing or processing equipment or construction materials for use in an exempt project outside of Virginia which are temporarily stored in Virginia (see 23VAC10-210-410 and 23VAC10-210-920) must apply in writing to the department for the issuance of an exemption certificate, Form ST-11A. The request for the certificate must include a description of the project, the items being purchased and, if applicable, the owner of the project. Upon receipt of this information, the department will issue exemption certificates.

Statutory Authority

§§ 58.1-203 and 58.1-623 of the Code of Virginia.

Historical Notes

Derived from VR630-10-20; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-290. Certificate of registration.

A. Generally. The Virginia Retail Sales and Use Tax Act requires every individual, partnership, corporation, etc., desiring to engage in or conduct business as a dealer in Virginia to file an application for Certificate of Registration with the Virginia Department of Taxation. Appropriate application forms are available from the department. A separate application for a Certificate of Registration is required for each place of business located in Virginia.

B. Issuance of Certificate of Registration.

1. Generally. The Department of Taxation will review and approve an application for registration and issue the dealer an official Certificate of Registration without charge for the specific place of business noted in the application. The Certificate of Registration is not transferable and is valid only for the designated dealer and place of business. It must always be displayed conspicuously at the designated place of business.

If a dealer ceases to conduct his business at the place indicated on the Certificate of Registration, the certificate immediately expires. The dealer is required to notify the Department of Taxation in writing within 30 days and return the Certificate of Registration. However, if the dealer wants to relocate his place of business in the state, he must inform the department in writing and return the certificate so a revised certificate can be issued. For successor upon sale of business, see 23VAC10-210-3090; for trustees, etc., see 23VAC10-210-6010; for vending machines, see 23VAC10-210-6040 through 23VAC10-210-6043.

2. Out-of-state dealers. Any person who is liable only for the collection of the use tax may be issued a Certificate of Registration. An out-of-state dealer who is required to obtain a Certificate of Registration for the collection of the use tax only, or if not so required, desires to obtain it as a service to his Virginia customers, should write the Virginia Department of Taxation for an application form. He should include in his letter a description of his business's relationship to Virginia. See also 23VAC10-210-1090.

C. Changes in ownership or corporation structure.

1. If a sole proprietorship or a partnership changes to a corporation, the corporation must apply for and obtain a Certificate of Registration.

2. If a corporation changes to a sole proprietorship or to a partnership, the sole proprietorship or partnership must apply for and obtain a Certificate of Registration.

3. If a partnership adds or drops a partner and the partnership retains the same name and at least one of the original partners, the new partnership is only required to inform the Department of Taxation of the names of all partners under the change. If only the name of the partnership changes, a revised Certificate of Registration will be issued. If none of the partners in the old partnership remains a partner in the new partnership, the new partnership must apply for and obtain a Certificate of Registration.

4. If a partnership becomes a sole proprietorship, the proprietor must apply for and obtain a Certificate of Registration.

5. If a sole proprietorship becomes a partnership, the partnership must apply for and obtain a Certificate of Registration.

6. If a corporation changes its name without change in corporate structure, a revised Certificate of Registration will be issued.

7. If a subsidiary corporation which is a registered Virginia dealer consolidates with its parent corporation which is not a registered Virginia dealer, and the parent corporation continues the Virginia place of business in the parent corporation's name, the parent corporation must apply for and obtain a Certificate of Registration.

8. If a parent corporation which is a registered Virginia dealer forms a subsidiary corporation, and transfers to the subsidiary corporation a Virginia place of business, the subsidiary corporation must apply for and obtain a Certificate of Registration.

9. If corporation "A" which is a registered Virginia dealer merges with corporation "B" which is not a registered Virginia dealer, and corporation "B" (the surviving corporation) continues the Virginia place of business in "B's" name, corporation "B" must apply for and obtain a Certificate of Registration.

10. If corporation "A" and corporation "B" are both registered Virginia dealers, and they form corporation "C," which continues the Virginia place or places of business, corporation "C" must apply for and obtain a Certificate of Registration for each place of business.

11. If corporation "A" and corporation "B" are both registered Virginia dealers, and they merge into one corporation under a name different from the name of corporation "A" and different from the name of corporation "B," the merged corporation must apply for and obtain a Certificate of Registration for each place of business.

D. Combined and consolidated returns.

1. Combined registration. Any dealer who has two or more business locations for which he/she is required to hold a certificate of registration within the same locality may elect to file a single combined return to report and remit sales and use tax for all locations within that locality. However, this election does not eliminate the requirement that a certificate of registration be obtained for each business location.

2. Consolidated registration. Any dealer who has five or more business locations for which he/she is required to hold a certificate of registration within the state may request permission to file a consolidated return to report and remit sales and use tax for all locations. By electing to file a single consolidated return, a dealer agrees to separately account for and report sales and use tax for each locality in which he has a business location(s) with such return. The election to file a consolidated return does not eliminate the requirement that a certificate of registration be obtained for each business location.

For dealers' returns, see 23VAC10-210-480.

Statutory Authority

§§ 58.1-203 and 58.1-613 of the Code of Virginia.

Historical Notes

Derived from VR630-10-21; revised July 1, 1969; January 1, 1979; August 1, 1982; amended, eff. January 1, 1985.

23VAC10-210-300. (Repealed.)

Historical Notes

Derived from VR630-10-22; revised January 1, 1979; January 1, 1985; amended, eff. July 1, 1993; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-310. Churches.

A. Definitions.

The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise:

"Carrying out the work of the church and its related ministries" means engaging in activities that communicate or spread the religious teachings and practices of a church.

"Church" means a nonprofit religious organization, regardless of faith, that would be considered a church under the standards promulgated by the Internal Revenue Service for federal income tax purposes (i) that has been specifically recognized by the Internal Revenue Service as being exempt from taxation under § 501(c)(3) of the Internal Revenue Code or (ii) whose real property is exempt from local real property taxation under § 58.1-3606 of the Code of Virginia. The term "church" includes any departments, regular schools of religious education, and other activities of a church that are not separate legal or business entities, including kindergartens, elementary and secondary schools, preschools, nurseries, and day care centers. The term "church" does not include broadcasting television organizations, such as evangelical television and radio ministries, missionaries, political action committees (PACs), affiliated entities separately incorporated from a nonprofit religious organization, and camps and conference centers. However, a limited exemption is available to camps and conference centers as set forth in subsection F of this section.

"Church department" means any administrative division of a church used in carrying out the work and related ministries of the church. This term includes, but is not limited to, boards; committees; councils; men's, women's or youth ministries; and outreach ministries of the church.

"Public church building" means a building, the primary purpose of which is to house the regularly scheduled worship services of the church and those adjacent offices and buildings at a single location in which activities are conducted to carry out the work of the church and its related ministries.

"Regular school of religious education" means any program instituted by a church to provide regularly scheduled classes on the teaching of the church and includes, but is not limited to, Sunday school, catechism, Hebrew school, vacation Bible school, and Bible study classes.

"Religious worship service" means regularly scheduled church services and includes, but is not limited to, weddings, bar mitzvahs, bat mitzvahs, baptisms, christenings, funerals, and special services conducted during religious holidays, when conducted at the public church building.

B. Overview. This section addresses the sales and use tax exemption provided to churches pursuant to § 58.1-609.10 of the Code of Virginia using Form ST-13A, Certificate of Exemption. In general, a church is entitled to an exemption from the sales and use tax on certain purchases of tangible personal property for use in:

1. Religious worship services by a congregation or church membership while meeting together in a single location;

2. Libraries, offices, meeting or counseling rooms, kitchens, or other rooms in the public church buildings used in carrying out the work of the church and its related ministries, including kindergarten, elementary and secondary schools, preschools, nurseries, and day care centers;

3. Recording and reproducing church services; and

4. Caring for or maintaining property owned by the church.

Churches also have the option of using the general nonprofit entity sales tax exemption provided for under § 58.1-609.11 of the Code of Virginia. In order to obtain the general nonprofit entity exemption, the church must apply to the Department of Taxation and receive a Retail Sales and Use Tax Certificate of Exemption. This section is applicable only to the self-issued exemption for churches pursuant to subdivision 16 of § 58.1-609.10 of the Code of Virginia using Form ST-13, Certificate of Exemption. It does not apply to the general nonprofit entity sales tax exemption provided for under § 58.1-609.11 of the Code of Virginia.

C. Exercising the exemption. In order to qualify for exemption, tangible personal property must be purchased by, invoiced to, and paid for directly by the church. If a minister, church member, or other church worker purchases tangible personal property on behalf of the church using his personal funds, the purchase is taxable even if reimbursed to the person by the church. A personal check is payment made by an individual and not by the church. Cash payment provides no proof that the church makes direct payment to the dealer of the merchandise. If a supplier fails to collect the tax on any taxable purchase, the church must report and pay the use tax on Form ST-7, Consumer's Use Tax Return.

When purchasing an item qualifying for exemption, a church must furnish to the supplier a properly completed Form ST-13A, Certificate of Exemption. This self-issued certificate of exemption is limited to tangible personal property specified in § 58.1-609.10 of the Code of Virginia.

D. Exempt purchases.

1. Purchases for use in religious worship services and in public church buildings in carrying out the work of the church and its related ministries. The following tangible personal property may be purchased exempt from the tax when purchased by the church for use in religious worship services by a congregation or church membership while meeting together in a single location and for use in public church buildings in carrying out the work of the church and its related ministries. The list is exemplary and not all inclusive.

a. Acolyte robes;

b. Administrative supplies (letterheads, envelopes, office supplies, etc.);

c. Altar cushions and cloths;

d. Baptism, marriage, and membership certificates;

e. Baptismal font;

f. Baptistries;

g. Bibles and Bible stands;

h. Bulletins, programs, newspapers, and newsletters that do not contain paid advertising (including paper and ink used to print these);

i. Candles and candelabra;

j. Choir robes;

k. Communion supplies and tables;

l. Curtains and flags;

m. Flowers and plants, live or artificial, and accessories thereto;

n. Fuel oil;

o. Funeral pall;

p. Gifts, including food, for distribution outside the public church building;

q. Hymnals and hymnal racks;

r. Kitchen equipment that is not incorporated into realty;

s. Musical instruments (e.g., organ, piano, hand bells, drums, brass instruments, woodwind instruments, etc.);

t. Name tags for ushers and guests, and attendance records;

u. Offering envelopes;

v. Office machinery and equipment;

w. Pews, cushions, chairs, and other seating systems;

x. Portable heaters, and fans and window air conditioners used at the location of the worship service;

y. Prayer books;

z. Pulpit, lectern, pulpit lamp;

aa. Rosaries, crosses, crucifixes;

bb. Rugs and carpeting not affixed to the realty;

cc. Sheet music;

dd. Systems to assist persons who are hearing-impaired

ee.Tallithim;

ff. Torahs;

gg. Vestments for ecclesiastical celebrants;

hh. Wafers, bread, wine, grape juice used in communion service; and

ii. Yarmulkes.

2. Purchases for recording and reproducing church services. Equipment, tools, supplies, or other tangible personal property used in any form of recording or reproducing of church services can be purchased exempt of the retail sales and use tax. Recording and reproduction items shall include, but are not limited to, the following:

a. Amplifiers, microphones, speakers, and wires;

b. Audiovisual recording devices;

c. Tools and testing equipment;

d. Tape or disk duplicating devices;

e. Audiovisual cameras;

f. Television broadcasting cameras;

g. Radio and television transmitting devices; and

h. Photographic cameras, film, developing supplies.

3. Property used in caring for or maintaining property owned by the church.

a. Tangible personal property that is purchased for use in caring for or maintaining property owned by the church is exempt from the retail sales and use tax. Such property shall include, but not be limited to, the following:

(1) Mowing equipment including but not limited to, lawn mowers, baggers, weed-eaters, edgers, and replacement parts (lawn mower blades, tires, wheels, lights, spark plugs, filters, other mechanical components, etc.);

(2) Ladders;

(3) Vacuums;

(4) Mops;

(5) Buckets;

(6) Janitorial supplies;

(7) Pressure washers;

(8) Rakes;

(9) Brooms;

(10) Cleaning equipment and supplies;

(11) Light bulbs

(12) Leaf blowers;

(13) Tools (hammers, drills, saws, screwdrivers, knives, paint brushes, nails, screws, etc.);

(14) Property used in maintenance of church grounds including, but not limited to, grass seed, trees, shrubs, and fertilizer; and

(15) Repair parts, accessories, oil, and similar items for use in motor vehicles owned by the church, even if such motor vehicles are not used exclusively for church-related activities.

b. Certain building materials. Building materials that are installed in the public church buildings that are used in carrying out the work of the church and its related ministries may be purchased by the church exempt of the retail sales and use tax, provided such equipment is installed by the church and the church does not contract with a person or entity to have such property installed. Building materials shall include, but not be limited to, the following:

(1) Wood products (lumber, plywood, moldings, etc.);

(2) Drywall;

(3) Flooring (hardwood floors, laminate, vinyl, tile, carpet, etc.);

(4) Paint;

(5) Kitchen and bathroom sinks;

(6) Toilets;

(7) Electrical materials (wires, receptacles, light switches, etc.);

(8) Telephone wires;

(9) Cable television wires;

(10) Roofing materials (shingles or other types of roofing, gutters, roofing nails, etc.);

(11) Siding (aluminum, wood, vinyl, stone, brick, stucco, etc.);

(12) Masonry materials (cinderblocks, bricks or stones, concrete mix, etc.);

(13) Insulation;

(14) Windows;

(15) Doors, door handles, and door locks;

(16) Plumbing materials (pipes, septic systems, garbage disposals, etc.); and

(17) Cabinets, counters, and countertops.

E. Taxable purchases.

1. Generally. Tangible personal property purchased by a church is generally taxable when it is (i) not used in religious worship services by a congregation or church membership while meeting in a single location; (ii) not used in sanctuaries, libraries, offices, meeting or counseling rooms, or other rooms in the public church buildings used in carrying out the work of the church and its related ministries; or (iii) used by separate legal or business entities that may be associated with the church.

2. Construction and building materials furnished to contractors.

a. If building materials, kitchen equipment, heating and air conditioning equipment, tool sheds, and picnic shelters are furnished by the church to a contractor for incorporation in real estate, and the church did not pay the tax on the materials, the contractor, as the user and consumer of the materials, must pay the use tax directly to the department based on the fair market value of the materials used, irrespective of whether or not any right, title, or interest in the materials become vested in the contractor.

b. A baptistry that will be incorporated into real estate at the public church building and used in the religious services of a church is exempt from the tax whether purchased by the church or the contractor.

3. Examples of other taxable purchases. Other taxable purchases are described in the following list, which is exemplary and not all inclusive.

a. Any property used on church trips, picnics, or similar outings outside a public church building; or

b. Bulletins, programs, newspapers, and newsletters that contain paid advertising (including paper and ink used in printing).

F. Camps and conference centers.

1. Church-related activities.

a. Purchases. The tax does not apply to purchases of food and beverages, disposable serving items (such as paper plates, cups, napkins, plastic forks, spoons, and knives), cleaning supplies, and teaching materials used and consumed in operating camps or conference centers by a church or an organization composed of churches that are exempt from the sales and use tax and that are used in carrying out the work of the church and its related ministries. The purchase may be made exempt of the tax by the church or the camp or conference center using Form ST-13A, Certificate of Exemption.

Example 1: A church organization that is composed of a number of church congregations allows one of its church affiliates to hold a youth camp at its conference facilities located in Virginia in order to educate the participants in the church's religious teachings. The church organization purchases food, disposable serving items, and teaching materials that will be given to the participants in the youth camp. In addition, cleaning supplies are purchased for maintaining the facilities. The purchase of food, disposable serving items, teaching materials, and cleaning supplies provided by the church organization would be exempt from the tax.

b. Sales.

(1) Rooms, lodgings, and accommodations. When a church or organization composed of churches operates a camp or conference center and makes separate charges for room rentals, lodging, and accommodations, the charges are taxable as provided in 23VAC10-210-730. The church or organization must register as a dealer, collect the tax on the amount of the charge, and remit the tax to the department. Tangible personal property used and consumed in providing rooms, lodging, and accommodations is taxable at the time of purchase.

(2) Meals. When a church or organization composed of churches operates a camp or conference center and sells meals to participants, the sales price of meals are taxable as provided in 23VAC10-210-930. The church or organization must register as a dealer, collect the tax on the amount of the charge, and remit the tax to the department. However, the food provided in the meals, as well as paper placemats, plastic silverware, and similar items furnished with the meals and disposed of after the use by only one person, may be purchased exempt of tax under a resale exemption certificate.

(3) Camp fees. When a church or organization composed of churches operates a camp and charges the participants a camp fee that covers expenses incurred to provide meals, lodging, and camp activities, the camp fee is tax exempt. Further, the church or organization carrying out the work of the ministry may purchase the items described in subdivision 1 a of this subsection exempt from the tax.

Example 2: A nonprofit organization composed of nonprofit churches operates a retreat facility. The churches that comprise this nonprofit organization may purchase food items for the consumption of participants at the retreat facility exempt from the tax. Any church associated with the nonprofit organization may also purchase food exempt for resale, but the subsequent sale of that food to participants is taxable. A church that is not associated with the nonprofit organization and that purchases food items for consumption while using the retreat facility must pay retail sales and use tax.

2. Nonchurch-related activities. When food, disposable serving items, teaching materials, or cleaning supplies are purchased by a church or organization of churches for use in camps and conference centers for nonchurch-related activities, they are subject to the sales and use tax in the same manner of other providers of meals and accommodations. Nonchurch-related activities would include, but are not limited to, the renting of the facility for conferences, retreats, etc., by businesses, business groups, governmental organizations, and civic groups.

G. Donations of tangible personal property to churches. A church is exempt from the use tax on donations of tangible personal property that it receives from individuals, businesses, and other organizations. Persons making such donations are liable for the tax not previously paid on the cost price of the donated items unless those items are withdrawn from inventory, as provided in subdivision 15 of § 58.1-609.10 of the Code of Virginia or otherwise exempt from the tax.

H. Affiliated organizations.

1. Generally. Tangible personal property purchased by affiliated religious associations or corporations, such as political action committees (PACs) and separately organized broadcasting ministries, is taxable.

2. Separate legal and business entities. Kindergartens, primary schools, secondary schools, preschools, nurseries, day care centers, and similar activities held in the public church buildings that carry out the work and ministry of the church and that are not separate legal or business entities are generally exempt from the tax on the purchases of tangible personal property. Tangible personal property purchased for an activity that is a separate legal or business entity is taxable. Although not all inclusive, the following factors considered as a whole are used to determine that an activity is a separate legal or business entity from the church that would not qualify for the exemption:

a. The activity is a separate corporation from the church;

b. The federal identification number of the activity is different from the church;

c. Payroll and other expenses of the activity are paid out of separate bank accounts;

d. Activities are located at a different location from the public church building; and

e. Activities are not subject to the authority or control of the church.

However, preschools, primary schools, and secondary schools that are separate legal and business entities from the church may qualify for a sales and use tax exemption pursuant to § 58.1-609.11 of the Code of Virginia.

Example 3: As part of its education ministry to inner city youth, a church operates a child day care center out of its public church buildings. The center's federal identification number is the same as the church, pays its expenses out of the church's checking account, and functions under the authority and control of the church. Tangible personal property purchased by the center would qualify for the church exemption since the center is not considered a separate legal or business entity from the church.

Example 4: Facts are the same as Example 3, except that the center has a separate federal identification number and pays is expenses out of a separate checking account. Tangible personal property purchased by the center would continue to be exempt.

Example 5: Facts are the same as Example 3, except that the center is a separate nonprofit corporation that is still affiliated with the church, has a separate federal identification number, and pays its expenses out of a separate checking account. Even though the center is located in the public church building, tangible personal property purchased by the center is taxable since the center is a separate legal entity from the church.

Example 6: Facts are the same as Example 3, except that the center is located five miles from the public church buildings. Tangible personal property purchased by the center would be taxable since the center is not located in the public church buildings.

I. Sales.

1. Generally. Churches that make retail sales of tangible personal property are required to register as dealers, collect the tax from customers (who may include church members, visitors, or other persons outside the church membership) and remit the tax to the department.

2. Food. If a church makes sales of food for which a profit is realized, the church should collect tax from the customers and remit the tax to the department. In these instances, the church may purchase the food exempt from the tax using a resale exemption certificate. For purposes of this subdivision only, if the sales price charged for food is completely offset by the cost of the food, and the church realizes no profit, then the church is not required to charge the tax to its customers on the sales price of the food. Instead, the church must pay the tax to its vendors on the purchase price of the food purchased. As long as the church pays tax on the purchase price of the food that it sells at cost, the church is not required to register as a dealer while conducting this activity or charge tax to customers.

3. Other sales. If a church makes sales of cassette tapes, audiovisual tapes, books, photo directories, and jewelry or makes sales of tangible personal property in yard sales or bazaars, the church should register as a dealer, collect the tax from its customers and remit the tax to the department.

4. Occasional sales. Except as provided in subdivision 2 of this subsection of this regulation, the church must collect the tax on all sales and remit the amount to the department unless the sales meet the criteria for occasional sales as provided in subdivision 2 of § 58.1-609.10 of the Code of Virginia and 23VAC10-210-1080. Yard sales and bazaars qualify as occasional sales under subdivision 2 of § 58.1-609.10 of the Code of Virginia and 23VAC10-210-1080.

Example 7: A church holds yard sales to raise money to support ministries and other church-related activities. The yard sales are held in the church facility or on church grounds, and consist of the sales of tangible personal property donated by church members. Although numerous items of tangible personal property are sold at each yard sale, each day's yard sale is considered to be one sale for purposes of the occasional sale rule. As long as the church does not hold more than three yard sales in a calendar year, the church is not required to register as a dealer and collect and remit sales tax.

Example 8: Facts are the same as in Example 7, except that the church rents a booth or space for one day from a flea market organizer who is registered as a dealer. The primary business of the flea market is to rent a booth or space to sell tangible personal property. As the church yard sale takes place as part of a regular ongoing business (the flea market) that takes place more than three times a year, the yard sale would not qualify as an occasional sale. The flea market organizer is held responsible for the collection of sales tax for any property sold using its facilities and must collect sales tax from the church based on the sales price of property sold or allow the church to collect the tax and remit it to the Department of Taxation.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-22.1; revised July 1984; amended, eff. January 1, 1985; Volume 25, Issue 22, eff. September 19, 2009.

23VAC10-210-320. Clubs.

Golf, country and other clubs are required to register as dealers and collect and pay the tax on all sales and rentals of tangible personal property. For example, if a club rents golf carts, golf clubs, etc. to its members and others, the tax applies to such rentals. Purchases of items exclusively for rental purchases, such as clubs and carts, may be made exempt from the tax under resale certificates of exemption. "Green fees" and similar charges for the use of club facilities which do not involve the leasing or furnishing of any tangible personal property are not subject to the tax.

The tax applies to the club's purchases of tangible personal property for use or consumption, including, but not limited to, equipment, seeds, plants, fertilizers, etc. for improvement and beautification.

For miniature golf and driving ranges, see 23VAC10-210-940; accommodations, 23VAC10-210-730; meals, 23VAC10-210-930.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-23; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-330. (Repealed.)

Historical Notes

Derived from VR630-10-23.1; added January 1979; amended, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-340. Collection of tax by dealers.

A. Generally. The tax must be paid to the state by the dealer, but the dealer must separately state the amount of the tax and add the tax to the sales price or charge. Thereafter, the tax is a debt from the purchaser, consumer or lessee to the dealer until paid and is recoverable at law in the same manner as other debts.

Identification of the tax by a separate writing or symbol is not required provided the amount of the tax is shown as a separate item on the record of the transaction. For special rules relating to vending machines sales, see 23VAC10-210-6040 through 23VAC10-210-6043.

B. Advertising absorption of tax by dealers. It is a misdemeanor for a dealer to advertise or hold out to the public in any manner, directly or indirectly, that he will absorb all or any part of the sales or use tax, or that he will relieve the purchaser, consumer or lessee of the payment of all or any part of the tax, except as may be authorized under the bracket system or the special provisions relating to vending machine sales. This prohibition does not apply during the sales tax holiday provided under §§ 58.1-609.1, 58.1-611.2, and 58.1-611.3 of the Code of Virginia, nor for the 14 days immediately preceding the commencement of the sales tax holiday. During this 17-day period, dealers may advertise that they will absorb the tax on any or all nonqualifying items. The dealer may not absorb the tax prior to or following the sales tax holiday period and may not advertise that he will do so.

C. Erroneous collection of tax on nontaxable transactions. All sales and use tax collected by a dealer is held in trust for the state. Therefore, any dealer collecting the sales or use tax on nontaxable transactions must remit to the Department of Taxation such erroneously or illegally collected tax unless he can show that the tax has been refunded to the purchaser or credited to the purchaser's account.

D. Overcollection of the tax. Any dealer who collects tax in excess of a 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) rate or who otherwise overcollects the tax, except as may be authorized under the bracket system or the special provisions relating to vending machine sales, must remit any amount overcollected to the state on a timely basis. Failure to do so will result in a penalty of 25% of the amount of the overcollection. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-24; revised January 1, 1979; amended, eff. January 1, 1985; Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-350. Commercial watermen; definitions; general provisions.

A. The following terms, when used in 23VAC10-210-350 through 23VAC10-210-353, shall have the following meanings, unless the context clearly indicates otherwise:

"Boat" means any vessel used for marine transportation other than a watercraft as defined in § 58.1-1401 of the Code of Virginia.

"Commercial fishing activity" means the business of extracting fish, bivalves, or crustaceans from waters for sale or resale.

"Commercial waterman" or "commercial watermen" means a person or persons who regularly engage in a commercial fishing activity.

"Directly used" means those items that are both indispensable to a commercial fishing activity and which are used immediately in the commercial fishing activity.

B. A commercial waterman's purchase of a boat, motor, machinery, tools, repair parts, fuel, or supplies, including, but not limited to, paint or other materials used to recondition a boat, for use in a commercial fishing activity is exempt from the tax.

Statutory Authority

§§ 58.1-203 and 58.1-609.2(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.1 §§ 1, 2; added January 1979; revised January 1985; amended, eff. July 1, 1994.

23VAC10-210-351. Commercial watermen; typical exempt items; direct use; dual use of equipment.

A. A commercial waterman's purchase of the following items will not be subject to the tax if directly used in the commercial fishing operation:

1. Anchors;

2. Bait;

3. Bilge pump;

4. Boat and boat motors;

5. Boat rudder and stock;

6. Boat steering gear;

7. Boat hook;

8. Boom and gaff on commercial fishing vessel;

9. Compass;

10. Crab-pot rope and wire;

11. Depth finder;

12. Dredge and equipment including all deck and components and repairs thereof;

13. Drive shaft and propeller;

14. Engines and other equipment;

15. Floats for net or crab-pot;

16. Foul-weather clothing worn while extracting seafood from waters;

17. Fuel;

18. Gas tanks;

19. Gill net and all types of nets for extracting seafood;

20. Hand tools used in extracting seafood;

21. Ice for preserving seafood or bait;

22. Inboard and outboard motors;

23. Nails, screws and bolts used on any seafood extracting equipment except the boat itself;

24. Oyster tubs and baskets;

25. Nets and twine;

26. Paint for boats;

27. Poles and stakes used in setting nets and marking ground for seafood;

28. Power block and accessories;

29. Pulley for deck rig or net rigs;

30. Repair parts for exempt equipment;

31. Rope or twine, including wire cable, or chain for boat, net or dredge rig used to extract seafood;

32. Rudder and shaft zincs;

33. Running lights and deck lights;

34. Shovels for handling seafood in the catching process;

35. Sonar equipment to locate fish, bivalves, or crustaceans;

36. Ship-to-shore radios, radar equipment, and other related accessories which are permanently affixed to a boat and become an integral part thereof;

37. Tools such as knives, shovels, etc., used directly in a commercial fishing activity;

38. Trawl doors; and

39. Any other tangible personal property purchased for exclusive use in extracting seafood from waters for commercial purposes.

B. A commercial waterman must directly use a boat, motor, machinery, tools, repair parts, fuel, or supplies in a commercial fishing activity, otherwise the purchase is taxable.

Example. A commercial waterman purchases a boat which he will use to transport both himself and his crew to his fishing vessel which is anchored in the harbor. The commercial waterman uses the boat for transportation purposes only and not for commercial fishing. Since the commercial waterman does not use the boat directly in his commercial fishing operation, the boat will be taxable.

C. A commercial waterman's purchase of an item, which is typically exempt from the tax since it is usually used directly in a commercial fishing operation, for use in a nonexempt manner, is taxable.

Example. A commercial waterman purchases paint to repaint a boat he uses for recreational purposes. Since the commercial waterman uses the boat in a taxable manner, the purchase of the paint is taxable. Had the commercial waterman purchased the paint to repaint the boat he uses in his commercial fishing operation, the purchase would have been exempt from the tax.

D. A commercial waterman's use of supplies or equipment in both an exempt activity and a taxable activity will result in such items being taxable unless he can accurately determine the percentage of use of such items in the commercial fishing activity as compared to his use of the items in a taxable activity. In such case, the commercial waterman can prorate the tax due on the supplies or equipment based upon his percentage of use of such items in the taxable activity.

Statutory Authority

§§ 58.1-203 and 58.1-609.2(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.1 § 3; added January 1979; revised January 1985; amended, eff. July 1, 1994.

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.

Statutory Authority

§§ 58.1-203 and 58.1-609.2(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.1 § 4; added January 1979; revised January 1985; amended, eff. July 1, 1994.

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.

Statutory Authority

§§ 58.1-203 and 58.1-609.2(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.1 § 5; added January 1979; revised January 1985; amended, eff. July 1, 1994.

23VAC10-210-360. Concrete mixer trucks.

A. Generally. A concrete mixing unit mounted on a truck is classified as machinery used directly in manufacturing and such mixing unit may be purchased free of the sales and use tax provided the concrete is produced for sale or resale and not for the manufacturer's own use. The truck itself is not subject to retail sales and use tax provided it is subject to the motor vehicle sales and use tax and this tax has been paid.

The term "mixing unit" is restricted to the rotating mixer and the accessories necessary for connecting it with the motor. Where a separate motor operates the rotating mixer exclusively, such motor is exempt from the sales tax, but where a motor operates the truck and also the rotating mixer, the motor is regarded as a part of the truck proper, and repair or replacement parts are not exempt. Repair or replacement parts for the mixing unit itself are exempt; but tires, tubes, batteries, oil, and all repair or replacement parts for the truck portion of the mixer-truck are taxable.

B. Sales. The tax applies to retail sales of concrete produced in concrete mixer trucks. The amount on which the tax must be computed includes the charge for the concrete as well as any other service charges connected with such sale. Examples of taxable service charges include "short load," "holding time" charges, and any other transportation charges, regardless of whether such charges are separately stated.

C. Applicability of this section. The foregoing does not apply to the status of concrete mixer-trucks under the Virginia Motor Vehicle Sales and Use Tax Act. Moreover, this section does not deal with the status of highway contractors or their mixer-trucks under the Virginia Retail Sales and Use Tax Act.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(2) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.2 §§ 1-3; revised January 1, 1985; amended, eff. July 1, 1993.

23VAC10-210-370. (Repealed.)

Historical Notes

Derived from VR630-10-24.3; added October 1982; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-380. Common carriers of property or passengers by railway.

A. The following words and terms, when used in 23VAC10-210-380 through 23VAC10-210-387, shall have the following meanings, unless the context clearly indicates otherwise:

"Common carrier" means a railway which holds itself out to carry goods by rail for hire for anyone who would employ it and/or which holds itself out to carry all proper persons who apply to be passengers. A private carrier by rail is not a common carrier within the meaning of this regulation and is not entitled to an exemption from the tax.

"Use or consumption directly" means those activities that are an integral part of the rendition of common carrier service by a railway. Items of tangible personal property that are used or consumed directly in the rendition of common carrier service by a railway are those that are both indispensable to the actual provision of the transportation service and use/or consumed immediately in the performance of such service. The fact that a particular item may be considered essential to the rendering of such transportation service because its use is required either by law or practical necessity does not, of itself, mean that the property is used directly in the rendition of the service. As described in 23VAC10-210-382, items of tangible personal property which are to be incorporated into and will become a part of a railway's owned or leased transportation system are deemed to be used directly in the rendition of its public service; however, tangible personal property used in general and administrative activities and activities not related to a railway's transportation system are deemed not to be used directly in the rendition of its public service. The term "use" or "consumption directly" includes tangible personal property used in the repair and maintenance of a railway's transportation system to keep it in operation.

B. Tangible personal property purchased or leased by a common carrier of property or passengers by railway for use or consumption directly in the rendition of its public service is exempt from the sales and use tax.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.4 §§ 1, 2, eff. February 1, 1987.

23VAC10-210-381. Railway common carrier activities.

A. The activities of a railway as defined in the Uniform System of Accounts for Railroad Companies prescribed by the Interstate Commerce Commission are (i) way and structures, (ii) equipment, (iii) transportation, and (iv) general and administrative. The following is a description of each activity:

1. Way and structures. This activity entails the repair, maintenance, and acquisition of right-of-way and track, structures, buildings, and facilities, including TOFC terminals, signals and interlockers, highway grade crossings, running tracks, passing tracks, crossovers, and switching tracks. Functions attributable to accounts 1-43 and 45 of the Uniform System of Accounts as of October 1, 1983, are included in this activity.

2. Equipment. This activity entails the repair, maintenance, and acquisition of transportation and other operating equipment, including locomotives, freight train cars, passenger train cars, highway revenue equipment, floating equipment, and work equipment. Functions attributable to accounts 44 and 52-58 of the Uniform System of Accounts as of October 1, 1983, are included in this activity.

3. Transportation. This activity entails the operation, servicing, inspecting, weighing, assembling, and switching of trains; operation of highway revenue services; operation of facilities in connection with transportation operations (coal and ore terminals, intermodal terminals, and terminal grain elevators for example); operation of floating equipment and related facilities; and the operation of communications systems which primarily support train operations.

4. General and administrative. This activity entails the provision of overall administrative and other general support for carrier operations. For the purposes of 23VAC10-210-380 through 23VAC10-210-387, this activity includes general and administrative functions relating to operating and nonoperating activities, including executive, legal, financial, treasury, accounting, budgeting, taxation, corporate planning, costing, marketing, advertising, traffic, corporate secretary, public relations, real estate, insurance administration, personnel administration, pension plan administration, general purchasing, labor relations, internal auditing, industrial engineering, and regulatory reporting.

B. As noted in the Uniform System of Accounts, certain general and administrative functions may be included within the way and structures, equipment, and transportation activities. Such functions include the payment of salaries and wages, fringe benefits, and other directly supportive administrative functions. Tangible personal property used in such functions is taxable.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.4 § 3, eff. February 1, 1987.

23VAC10-210-382. Railway common carriers; taxable status of property used in primary railway activities.

Following are descriptions and examples of taxable and exempt uses of tangible personal property attributable to the four primary railway activities. The listings of items for each activity are intended to be representative, but not exhaustive.

1. Way and structures (Accounts 1-43 and 45 of the Uniform System of Accounts). Tangible personal property used in this activity is generally subject to the tax to the extent it is not an integral part of a railway's roadbed. Taxable property includes materials used to construct or erect most structures (station and office buildings, roadway buildings, sidewalks, driveways, etc.); structures carrying public roads; railway tunnels (except rails and roadbed); and items used in administrative support of the activity. Exempt items used directly in the rendition of common carrier service include rails; ties; roadbed materials; materials used to construct or erect railway bridges and trestles (except foundations); materials used to construct or erect piers, wharves and docks (except foundations); and signals. Tangible personal property, i.e. machinery, tools, etc., used to produce exempt tangible personal property such as signals, track materials, etc., is considered to be used indirectly in the rendition of common carrier service and is taxable.

Taxable:

Expenses and supplies of the type listed in account 1, engineering, of the Uniform System of Accounts, including atlases and maps, books, furniture, stationery, etc.; surveying equipment, supplies, tripods, etc.;

Other supplies and equipment used in providing administrative support or for the personal comfort of employees;

All material used to repair general offices, shops, stations, roadway buildings, air conditioning, plumbing and heating, etc.;

Materials used in the construction, repair or maintenance of station and office building structures, roadway building structures, water station structures, fuel station structures, shop and enginehouse structures, storage warehouses, terminal building structures, dams and canals, power plant building structures, and employee and other parking lots;

Materials used in the construction, repair or maintenance of public improvements, including bridges and grade crossings used to carry public or private roads over, under, or across railway tracks;

Materials used in the construction, repair or maintenance of tunnels (except rails and roadbed);

Power plant machinery;

Telephones, switchboards, and other communications systems used for administrative purposes;

Tangible personal property used in work on roads, sidewalks, ditches, drains, right-of-way (other than track, roadbed, and signals), etc; and

Security fences around track, railyards, etc.

Exempt:

Ties, rails and spikes;

Ballast;

Switches and switch heaters;

Track panels, frogs, turnouts, cribbing, and similar track material;

Materials used to construct or erect railway bridges, trestles, piers, wharves, and docks, except that materials used in the foundations of such structures are taxable;

Signals and interlockers, including signals used for protection at grade crossings, crossing gates, and grade crossing warning bells;

Centralized traffic controls, visual and electronic train monitoring and control systems;

Tangible personal property used by a railway common carrier to clear and grade for roadway, and lay down roadway;

Equipment, tools, and supplies used by a railway common carrier to install, maintain, and repair track, ties, roadbed, signals; monitoring and control systems, and traffic control systems; however, tangible personal property used in the fabrication or production of exempt tangible personal property is deemed to be used indirectly in the rendition of common carrier service, for instance machinery used to produce exempt signal systems is taxable;

Repair and replacement parts, fuel, and supplies used to repair and maintain exempt revenue equipment and equipment used to service or repair exempt revenue equipment tract and communications systems; and

Coal pier and other bulk commodity loading, unloading, and thawing equipment.

2. Equipment (Accounts 44 and 52-58 of the Uniform System of Accounts). Tangible personal property, other than administrative supplies, employee comfort supplies, and equipment and structures of all types, used in this activity is exempt from the tax.

Taxable:

Arm rests and cab cushions (other than for passenger use);

Clocks;

Beds and bedding (other than for passenger use);

Furniture (other than for passenger use);

Kitchen equipment and supplies (other than for passenger use);

Instructional cars;

Ditching cars;

Officers' cars;

Business cars;

Painters' cars;

Pay cars;

Scale test cars; and

Supplies and equipment used to maintain or repair company automobiles and general purpose trucks;

Materials and supplies used for the upkeep of shop and repair facilities; and computer systems used for general administrative and financial accounting purposes.

Exempt:

Fire extinguishers used on revenue equipment;

Locomotives;

Freight cars;

Passenger cars;

Dynamometer cars;

Tool cars;

Ballast cars;

Rail test cars (rail test cars may be subject to the motor vehicle sales and use tax, however);

Wreck cranes;

Weed burners;

Snowplow equipment used to clear track to allow for passage of revenue equipment except snow removal equipment for general yard use;

Highway revenue equipment including chassis and containers;

Floating equipment used for the transportation of freight or passengers;

Computer systems used for guidance, monitoring or control of train movements;

Tangible personal property used in the repair and maintenance of revenue equipment, including wheel truing machines, electric testing equipment, cranes, locomotive and car rebuilding machinery, etc.

Tangible personal property used in cleaning and painting (including lettering) revenue equipment; and

Tangible personal property used in clearing wrecks.

3. Transportation. Tangible personal property used in this activity is generally exempt from the tax as this activity relates primarily to the direct operation of railways. Of course, administrative support activities and activities which are indirectly a part of rendition of common carrier service are taxable.

Taxable:

Crew meals and loading;

Tangible personal property used in supporting activities such as sorting and handling waybills, reporting car movement data, etc., except equipment for communication between monitoring and control personnel and revenue equipment; and

Tangible personal property used for general administrative purposes or for the comfort of employees.

Exempt:

Equipment used in switching trains;

Equipment used in fueling, lubricating, maintaining, and repairing revenue and service equipment;

Equipment used on revenue equipment to maintain commodities (freight) at constant temperatures;

Equipment used in and for communication between monitoring and control personnel and revenue equipment;

Tangible personal property used in receiving, sorting, and loading freight, containers, or trailers or in adjusting or transporting loads, including scales, forklifts, conveyer systems, piggybackers, racks, hand trucks, packing material, straps, blocking and bracing materials, chains, and waybills, freight bills or bills of lading carried with the freight being transported; and

Decals and lettering used on revenue equipment.

NOTE: In the case of the way and structures, equipment, and transportation activities, tangible personal property used in the servicing, maintenance or repair of tangible personal property is exempt from the tax only to the extent that the tangible personal property serviced, maintained or repaired is exempt from the tax.

4. General and administrative. Tangible personal property used in the general and administrative activity is taxable. Such property includes office supplies, office equipment, furniture, tariff rate schedules, billing supplies and equipment, payroll supplies and equipment, etc.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.4 § 4, eff. February 1, 1987.

23VAC10-210-383. Railway common carriers; METRO and AMTRAK.

Notwithstanding other provisions of 23VAC10-210-380 through 23VAC10-210-387, the commuter rail service operated by the Washington Metropolitan Area Transit Authority (METRO) enjoys a sales and use tax exemption under federal law on all tangible personal property and services purchased or leased by it. The same exemptions are enjoyed by the National Rail Passenger Corporation (AMTRAK).

The only requirement for exemption under this section is that a purchase must be paid for out of METRO or AMTRAK funds. This requirement is not met when an employee pays for tangible personal property or lodgings out of his own funds, even though he may later be reimbursed by METRO or AMTRAK, or when such charges are paid for out of a METRO or AMTRAK cash advance. The requirement is met when purchases are pursuant to METRO or AMTRAK purchase orders, billed directly to METRO or AMTRAK or paid for by METRO or AMTRAK credit card or check.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.4 § 5, eff. February 1, 1987.

23VAC10-210-384. Railway common carriers; contractors.

Generally, purchases of tangible personal property by contractors in connection with real property construction contracts with railway common carriers are taxable sales to such contractors for their own use or consumption. Only in instances where the credit of a railway common carrier is bound directly in a purchase by a contractor and the contractor has been officially designated as a purchasing agent for the railway will such purchases be deemed to be those of the railway and taxable or exempt as set forth in 23VAC10-210-380 through 23VAC10-210-383.

Contractors are not subject to the use tax when provided with tangible personal property by a railway common carrier in connection with a real property construction contract provided that the tangible personal property so furnished enjoyed a sales and use tax exemption when purchased by the railway common carrier.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.4 § 6, eff. February 1, 1987.

23VAC10-210-385. Railway common carriers; proration.

It is possible that an item of tangible personal property may be used in both a taxable and exempt manner. In such cases, the sales and use tax base should be computed by multiplying the sales price or cost price, whichever is applicable, of the item by the percentage of time that the item is used in a taxable manner.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.4 § 7, eff. February 1, 1987.

23VAC10-210-386. Railway common carriers; lost, damaged or unclaimed property.

The tax does not apply to compensation paid by a railway common carrier to a customer for tangible personal property lost or damaged while in the carrier's possession. If a railway common carrier sells damaged or unclaimed property, it must register as a dealer and collect and pay the tax.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.4 § 8, eff. February 1, 1987.

23VAC10-210-387. Railway common carriers; demurrage.

Charges to shippers or consignees for their failure to release a railway car within a specified period after placement, known as demurrage charges, are not subject to the sales and use tax. Such charges are not taxable as they are part of the total nontaxable charge for transporting property. This regulation addresses only those demurrage charges for the retention of railway cars and has no application to taxable demurrage charges for gas cylinders and other tangible personal property.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-24.4 § 9, eff. February 1, 1987.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-25; revised January 1, 1979; amended, eff. July 1, 1993.

23VAC10-210-400. Containers, packaging materials, and equipment.

A. Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise:

"Packaging materials" means items which are used to package products for sale and which become the property of the purchaser subsequent to the sale. Examples of such items are containers, labels, sacks, cans, boxes, drums, and other similar items.

"Transportation devices" means items which are used to transport and protect products for sale and to restrain product movement in a single plane of direction. Examples of such items are pallets, dunnage, strapping and similar materials used to brace or secure cargo for transport.

B. Exempt uses. Packaging materials may be purchased tax exempt if the items are marketed with the product being sold and become the property of the purchaser. Packaging materials which do not become the property of the purchaser are subject to the tax.

Packaging material may be purchased exempt by industrial manufacturers, processors or miners, regardless of whether they are returnable or nonreturnable (see 23VAC10-210-320).

Transportation devices are not packaging materials and may not be purchased tax exempt unless purchased for resale.

C. Taxable uses. Packaging materials and transportation devices, the ownership of which remains with the seller and does not pass to the customer are taxable. Persons who provide packaging and transportation services must pay the tax on all material used in providing such services unless the materials are resold to a customer and no transportation services are provided therewith.

D. Equipment. The tax applies to the purchase of equipment for use in the operation of a business even though such equipment may be used in connection with the shipment or sale of tangible personal property. Examples of property which is subject to the tax are truck bodies and trailers, tank and freight cars, containerized cargo, shopping carts and baskets, crates, dispensers, dishes, beverage glasses, and similar articles which are not resold and do not become the property of the purchaser.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(2)of the Code of Virginia.

Historical Notes

Derived from VR630-10-26 §§ 1-4; revised January 1, 1979; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-410. Contractors respecting real estate.

A. Basic rules. A contractor is defined as any person who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures thereon, including highways, and in connection therewith to furnish tangible personal property, whether such person be a prime contractor or subcontractor. Unless otherwise noted, the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts.

Tangible personal property incorporated in real property construction which loses its identity as tangible personal property and becomes real property is deemed to be tangible personal property used or consumed by the contractor. Any sale, distribution, or lease to or storage for such a contractor is deemed a sale, distribution, or lease to or storage for the ultimate consumer (the contractor), and not for resale by the contractor. The dealer (supplier) making the sale, distribution, or lease to or storage for such a contractor must collect the tax from him. No sale to a contractor is exempt on the ground that the other party to the contract is a governmental agency, a public service corporation, a nonprofit school, or nonprofit hospital, or on the ground that the contract is a cost-plus contract.

A contractor must remit the use tax on any tangible personal property purchased exclusive of the tax and furnished to him except when such property is purchased and furnished to a contractor by a governmental unit or agency. Property which is exempt from the tax when purchased by a manufacturer, processor, miner, public service corporation, commercial radio, television or cable television operation, farmer, or shipbuilding and repair business may also be furnished to a contractor without such contractor becoming subject to use tax. Contractors may also purchase machinery and tools to be used directly in industrial manufacturing or processing (see 23VAC10-210-920) exempt from the tax.

A contractor, whether he be a prime contractor or subcontractor, does not pass the sales or use tax on to anyone else as a tax. He will take the amount of the tax into consideration in submitting bids.

If a supplier of a contractor doing work in Virginia does not collect the Virginia tax from the contractor, the contractor will be liable for the use tax on his purchases from the supplier.

B. Person who is a using or consuming contractor and also a seller. A person who is a using or consuming contractor, as explained in subsection A, may also be engaged in the business of selling tangible personal property to customers, including contractors, for use or consumption by them. If so, the person is a dealer with respect to such sales, and is required to obtain a Certificate of Registration.

After obtaining a Certificate of Registration as a dealer because he is engaged in the business of selling tangible personal property to customers for use or consumption by them, a contractor may purchase the tangible personal property under a resale exemption certificate. He may not purchase under a resale exemption certificate any tangible personal property which he knows at the time of purchase will be furnished by him in connection with any specific contract. If such a person, as a using or consuming contractor, removes from his sales inventory for use in the performance of any contract any tangible personal property purchased under a resale certificate, he must include the cost to him of such tangible personal property on his dealer's return and pay the tax.

C. Fabricator (manufacturer, processor or miner) who fabricates tangible personal property and sells it to customers. A person who fabricates tangible personal property and sells it to customers, including contractors, for use or consumption by them, must add the sales tax to the sales price and collect it from the customer for payment to the state. Raw materials, component parts, and other tangible personal property to be fabricated for sale may be purchased under a resale certificate of exemption.

D. Fabricator (manufacturer, processor or miner) who fabricates tangible personal property exclusively for use and consumption in real property construction contracts. A fabricator who contracts to perform services with respect to real estate construction, and in connection therewith to furnish tangible personal property for incorporation in real estate construction thereby causing it to lose its identity as tangible personal property by becoming real property, is classified as a using or consuming contractor and must pay the tax on the cost price of the raw materials which make up such fabricated property. The tax must be paid at the time of purchase to all suppliers who are authorized to collect the tax. In instances where the supplier is not authorized to collect the tax or fails to collect the tax, the tax must be remitted directly to the Department of Taxation on Form ST-7, Consumer's Use Tax Return.

E. Fabricator (manufacturer, processor or miner) who operates in a dual capacity of fabricating tangible personal property for sale or resale and fabricating for its own use and consumption in the performance of real property construction contracts. A manufacturer, processor or miner who operates in a dual capacity of fabricating tangible personal property for sale or resale and fabricating for his own use and consumption in the performance of real property construction contracts shall follow a primary purpose rule based on gross receipts in determining sales and use tax application.

Any person who is principally fabricating tangible personal property for sale or resale shall apply the tax according to subsection C above. Such fabricators should collect and remit the tax based upon the total amount for which tangible personal property and services are sold, except that charges for labor and services rendered in installing, applying, remodeling or repairing property sold may be excluded from the tax when separately stated or charged. In addition, any person who withdraws tangible personal property from inventory for use and consumption in the performance of real property construction contracts is liable for the tax based on the fabricated cost price of the tangible personal property withdrawn. Fabricated cost price is computable by totaling the cost of materials, labor, and overhead charged to work in process. Freight inward at the plant is treated as an element of the cost of the materials.

Any person who is principally fabricating tangible personal property for his own use and consumption in real property construction contracts shall apply the tax according to subsection D above. In addition, persons who sell tangible personal property to consumers must register, collect, and pay the tax on the retail selling price of the tangible personal property. Such person is entitled to purchase exempt from the tax only that tangible personal property which can be identified at the time of purchase as purchases for resale. If the person is unable to identify at the time of purchase the tangible personal property which will be resold, such person is required to pay the tax to his supplier. If at a later date, the person sells the tangible personal property at retail, the tax is collected upon retail selling price. Such persons are not entitled to credit for the tax paid to suppliers since the transactions are separate and distinct taxable transactions.

A person who fabricates tangible personal property, both for sale or resale and for use in real property construction contracts, may apply to the Tax Commission to pay any tax directly to the state and avoid the collection of tax by suppliers, if his purchases are made under circumstances which normally make it impossible at the time of sale to determine the manner in which such property will be used. (See 23VAC10-210-510 on direct payment permits.)

F. Fabricator's production exemptions, when allowable. Fabricators of tangible personal property may take the status of industrial manufacturers, processors or miners under 23VAC10-210-920 or 23VAC10-210-960 and when they fabricate tangible personal property for sale or resale, they may enjoy the production exemptions set out in 23VAC10-210-920 or the mining exemptions set out in 23VAC10-210-960. The production and mining exemptions are not available to a fabricator of tangible personal property who fabricates for his own use or consumption (as a contractor or otherwise) and not for sale or resale. However, a fabricator whose principal or primary business is the fabrication of tangible personal property for sale or resale, and who, as a lesser or minor part of this business, fabricates for his own use and consumption, will not be deprived of the production exemptions set out in 23VAC10-210-920, or the mining exemptions set out in 23VAC10-210-960.

G. Contractor or retailer selling and installing tangible personal property that becomes real property after installation (including fences, venetian blinds, window shades, awnings, storm windows and doors, floor coverings, cabinets, kitchen equipment, window air conditioning units, and other like or comparable items).

A person selling and installing tangible personal property that becomes real property after installation is generally considered a contractor, except that a retailer selling and installing fences, venetian blinds, window shades, awnings, storm windows and doors, floor coverings (as distinguished from floors themselves), cabinets, kitchen equipment, window air conditioning units or other like or comparable items is not classified as a using or consuming contractor with respect to them.

For purposes of this subsection only, a "retailer" shall be deemed to be any person who maintains a retail or wholesale place of business, an inventory of the aforementioned items and/or materials which enter into or become a component part of the aforementioned items, and who performs installation as part of or incidental to the sale of the aforementioned items. As so defined, a retailer is not classified as a using or consuming contractor with respect to installations of the aforementioned items. A retailer must treat such transactions as taxable sales except that installation charges when separately stated on an invoice are exempt from tax.

Persons who are not classified as retailers within the definition set forth above and who sell and install fences, venetian blinds, etc., are deemed to be contractors and must pay the sales tax on such items at the time of purchase.

"Floor coverings" (as distinguished from the floors themselves) include rugs, mats, padding, wall-to-wall carpets when installed by the tack strip or stretch-in methods, and other floor coverings which are not glued, cemented, or otherwise permanently attached to the floor below. Persons selling and installing floor coverings which become permanently attached to floors are deemed to be using or consuming contractors with respect to such items. Such floor coverings include carpet, wood block, cork, tile, linoleum, and vinyl floor coverings when glued, cemented or otherwise permanently attached to floors or plywood and concrete subflooring.

Both retailers and contractors are deemed to be the users or consumers of supplies used in installing tangible personal property that becomes real property after installation. Therefore, retailers and contractors are subject to the tax on their purchases of tacks, stripping, glue, cement, and other supplies purchased.

Subsection B is applicable to persons engaged as contractors with respect to the installation of fences, venetian blinds, etc., and also as sellers of such items at retail to customers, including contractors, on an uninstalled basis for use or consumption by them.

H. Retailer selling and installing tangible personal property. Any person who sells tangible personal property at retail and installs such property as part of or incidental to the sale is a retailer and is required to add the sales tax to the sales price. The tax does not apply to installation charges when separately stated on a sales invoice. If the installation charge is not separately stated, the tax must be computed on the total charge.

Retailers are deemed to be the users or consumers of all supplies used in installing tangible personal property. Therefore, retailers are subject to the tax on all such supplies purchased.

I. Construction materials temporarily stored in Virginia. Construction contractors may purchase exempt from tax construction materials for temporary storage in Virginia to be used in exempt construction projects in other states or foreign countries. Contractors entitled to this exemption may obtain certificates of exemption upon written request to the Department of Taxation. The request should include information to show that the construction materials could be purchased by the contractor free from sales or use tax in the other state or foreign country.

This exemption is restricted to construction materials incorporated into exempt real property construction. The tax applies to equipment, tools, supplies, etc., used in performance of the construction contract. The tax applies to all other construction materials, temporarily stored in Virginia, that will be incorporated into real estate construction projects outside Virginia.

J. Government contracts. Generally, purchases of tangible personal property by contractors in connection with real property construction contracts with the governments of Virginia or the United States or political subdivisions thereof, are sales to such contractors for their own use or consumption and contractors are subject to the tax on such transactions. This applies regardless of whether title to such property passes directly to the governmental entity upon purchase by the contractor or if the contractor is reimbursed directly by the government entity for the cost of such property.

Only in instances where the credit of a governmental entity is bound directly and the contractor has been officially designated as the purchasing agent for such governmental entity will such purchases be deemed exempt from the tax.

Contractors are not subject to the use tax when provided with tangible personal property purchased by a governmental entity for use in real property construction contracts. For further information relating to the sales and use tax exemption for purchases by governments generally, see 23VAC10-210-690 on Governments.

For pollution control equipment and facilities, see 23VAC10-210-2070; use tax generally, see 23VAC10-210-6030; highway contractors specifically, see 23VAC10-210-410.

Statutory Authority

§§ 58.1-203, 58.1-609.3(1), 58.1-609.3(2), and 58.1-610 of the Code of Virginia.

Historical Notes

Derived from VR630-10-27; revised June 1, 1979; January 1, 1979; August 1, 1981; amended, eff. January 1, 1985.

23VAC10-210-420. [Reserved]. (Reserved)

23VAC10-210-430. Coupons (redeemable).

A. Manufacturer's coupons. The value of a manufacturer's coupon is included in the sales price of the advertised merchandise. For example, when a retailer accepts $.80 in cash and a manufacturer's coupon valued at $.20 for a product, the tax is computed on $1.00.

However, where a retailer redeems a manufacturer's coupon for an amount in excess of the coupon's value, e.g., "double coupon value" discounts, the excess is treated as a discount to the product's price and may be deducted in computing the tax. For example, a retailer advertises that he will give double value for all manufacturer's coupons. A customer purchases a $3.00 jar of coffee and gives the retailer a $.50 manufacturer's coupon, thus paying only $2.00 for the coffee. The tax is computed on $2.50 which is the sales price of the coffee less the extra $.50 retailer discount.

B. Retailer's coupons. The value of a retailer's coupon is not included in the sales price of the advertised merchandise. For example, when a retailer accepts $.80 in cash and a retailer's coupon valued at $.20 for a product, the tax is computed on $.80. This coupon has no value to the retailer and is an advertisement of a discount.

Statutory Authority

§§ 58.1-203 and 58.1-602 of the Code of Virginia.

Historical Notes

Derived from VR630-10-27.2 §§ 1, 2, eff. July 1, 1993.

23VAC10-210-440. [Reserved]. (Reserved)

23VAC10-210-450. Credit for taxes paid to other states or their political subdivisions.

A. Generally. Any person who purchases tangible personal property in another state and who has paid a sales or use tax to such state or its political subdivision or both on the property, is granted a credit against the use tax imposed by Virginia on its use within this state for the amount of tax paid in the state of purchase. This credit does not require that the state of purchase grant a similar credit for tax paid to Virginia. This credit does not apply to tax erroneously charged or incorrectly paid to another state. For example, if a person purchases and takes delivery in Virginia of tangible personal property purchased from an out-of-state dealer who incorrectly charges out-of-state tax, no credit is available. The purchaser must apply to the out-of-state seller for refund.

B. Amount of credit. The credit provided in this section is equal to the tax paid to the state or political subdivision or both in which the property was purchased, but cannot exceed the Virginia use tax imposed on the property. For example, if property is purchased in a state which imposes a 6.0% sales and use tax, the credit is limited to the 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) use tax imposed by Virginia. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

C. Claiming the credit. To obtain a credit for tax paid to another state or its political subdivision, a person must apply, by letter, to the department and include a copy of the appropriate invoice stating the amount of tax billed and the state or political subdivision or both to which it was paid. A person requesting credit may be required by the department to furnish an affidavit stating that the tax has been paid and has not been refunded.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-29 §§ 1-3; revised January 1, 1979; January 1, 1985; amended, eff. July 1, 1993; amended, Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-460. (Repealed.)

Historical Notes

Derived from VR630-10-29.1; added January 1, 1979; revised March 1983; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-470. Dealer's records.

Every person who is liable for collection of sales tax or remittance of use tax or both is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability. Such records must include:

a. A daily record of all cash and credit sales, including sales under any type of financing or installment plan in use;

b. A record of the amount of all merchandise purchased, including a bill of lading, invoice, purchase order or other evidence to substantiate each purchase;

c. A record of all deductions and exemptions claimed in filing sales or use tax returns, including exemption and resale certificates, returned or repossessed goods, and bad debts;

d. A record of all tangible property used or consumed in the conduct of the business;

e. A true and complete inventory of the stock on hand and its value, taken at least once each year.

Records must be open for inspection and examination at all reasonable hours of the business day by the Department of Taxation. The dealer may maintain such records on microfilm.

If an assessment has been made and an appeal to the Commissioner or to court is pending, all records relating to the period covered by such assessment must be preserved until the final disposition of the appeal.

Statutory Authority

§§ 58.1-203 and 58.1-633 of the Code of Virginia.

Historical Notes

Derived from VR630-10-30; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-480. Dealer's returns and payment of the tax.

A. Generally. Except as otherwise provided in this subsection, every dealer is required to file a return on or before the 20th day of the month following each reporting period even if no tax is due. Returns are prescribed and furnished by the Department of Taxation.

In the case of dealers regularly keeping books and accounts on the basis of an annual period that varies 52 to 53 weeks, reporting consistent with such accounting period is acceptable, provided a satisfactory explanatory statement is attached to the dealer's first return filed under such annual accounting period. Each return filed by these dealers must include all accounting periods which end during the period covered by the return.

B. Quarterly filing. A dealer may be notified by the Department of Taxation to file sales or use tax returns on a basis other than monthly. A new dealer will not be placed on a basis other than monthly until the dealer has been in business sufficient time to determine that he should fall into another reporting category. If a dealer is required to file other than monthly, returns will be due on or before the 20th day of the month following the close of the reporting period. The change of a dealer's filing status from monthly to quarterly will be made automatically by the department; dealers should not request a conversion of filing status.

C. Temporary filing. Any person who has been granted a temporary certificate of registration must file a return in accordance with the requirements set out in 23VAC10-210-290.

D. Seasonal filing. Any person whose business operates only during certain months during the year, may request that his registration be set up on a seasonal basis (see 23VAC10-210-290). Taxpayers who hold a seasonal registration must file returns in the manner set forth in subsection A of this section only for the months in which the business operates. However, the fact that a business is registered on a seasonal basis does not relieve such dealer from the filing of a return and the remittance of tax for any other period in which a retail sale may be made.

E. Consolidated returns. Any dealer who has been granted permission to file a consolidated sales and use tax return (see 23VAC10-210-290) must file such return in accordance with the provisions set forth when permission is granted. Both the return and the accompanying schedule of local taxes must be filed. Failure to comply with these requirements may result in a revocation of consolidated filing status.

F. Payment to accompany dealer's return. At the time of filing the return, the dealer must pay the amount of tax due after making appropriate adjustments for purchases returned, repossessions, and accounts uncollectible and charged off. Failure to pay the tax will cause it to become delinquent.

Statutory Authority

§§ 58.1-203 and 58.1-622 of the Code of Virginia.

Historical Notes

Derived from VR630-10-31 §§ 1-6; revised July 1969; January 1979; January 1985; January 1987; May 15, 1988; amended, Volume 07, Issue 02, eff. November 21, 1990, retroactive to July 1, 1989.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-31 § 7; revised July 1969; January 1979; January 1985; January 1987; May 15, 1988; amended, Volume 07, Issue 02, eff. November 21, 1990, retroactive to July 1, 1989; Volume 23, Issue 24, eff. September 6, 2007; Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-490. Dealers' withdrawals from inventory.

Any person who withdraws an item of tangible personal property for his own use from an inventory of property on which no tax has been paid must report tax on the cost price of all property withdrawn for purposes other than sale. For example, a retailer who purchases an inventory of clothing exempt from the tax for purposes of resale, and who withdraws an item from such inventory for personal use, gift or donation, must report tax on the cost price of the item unless such gift or donation is otherwise exempt. Similarly, an item withdrawn from inventory for a promotional give- away or other free distribution, is subject to the tax at the time of withdrawal.

Unless it is known at the time of purchase that an item is for use or consumption by the dealer, all inventory items intended to be resold or used in an exempt manner may be purchased under certificates of exemption.

For withdrawals from manufacturing inventory, see 23VAC10-210-410 and 23VAC10-210-920.

Statutory Authority

§§ 58.1-203 and 58.1-623 of the Code of Virginia.

Historical Notes

Derived from VR630-10-32; revised January 1, 1979; amended, eff. January 1, 1985.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-33; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-510. (Repealed.)

Historical Notes

Derived from VR630-10-34 or VR630-10-35; revised January 1, 1979; amended, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-530. Employers selling to employees.

An employer selling tangible personal property to employees for use or consumption must include the receipts from the sales in his gross taxable sales. This applies even if the employer makes sales only to his employees and not to the general public. Meals sold or furnished without charge to employees are addressed in 23VAC10-210-930.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-35.1, added July 1, 1969; revised January 1, 1979; amended, eff. July 1, 1993.

23VAC10-210-540. (Repealed.)

Historical Notes

Derived from VR630-10-35.2; added July 1969; revised January 1, 1979; amended, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-550. Extension of time for filing return and paying tax.

A dealer may apply in writing to the Department of Taxation for an extension of time for filing a return and paying the tax. The request must be made before the return becomes delinquent and must state the necessity for additional time.

Upon application to the Tax Commissioner, an extension may be granted to the end of the calendar month in which the return is due or for a period not exceeding 30 days.

No penalty will be charged during the period of the extension, and where an extension is granted to the end of the calendar month, no interest will accrue. Where an extension is granted beyond the end of the calendar month in which the return is due, interest will accrue on the tax at the rate prescribed in § 58.1-15 of the Code of Virginia from the original due date of the return.

Dealer's discount will be allowed on extended returns provided the return is filed and the tax paid before the expiration of the extension.

Any dealer who fails to file the return or pay the full amount of tax due before the expiration of the extension will be treated as if no extension had been granted.

Statutory Authority

§§ 58.1-203 and 58.1-617 of the Code of Virginia.

Historical Notes

Derived from VR630-10-36; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-560. Fabrication.

A. An operation which changes the form or state of tangible personal property is fabrication. Fabrication is distinguished from repair which is an operation that restores a used or worn piece of tangible personal property. Charges for repair are governed by 23VAC10-210-3050.

B. A person regularly engaged in the fabrication of tangible personal property for sale at retail must collect and pay the tax on the sales price of the property. If the fabricator converts some of the property to his own use, he must pay the tax based on the fabricated cost (i.e., the cost to him) computed by totaling the cost of materials, labor and overhead charged to work in process. Freight inward to the plant on the materials is treated as an element of the cost of materials.

A fabricator who fabricates tangible personal property principally or primarily for his own use or consumption and not principally or primarily for sale or resale (e.g., as a contractor) is not entitled to any of the production exemptions set out in 23VAC10-210-920.

The tax applies to the total charge for the fabrication of tangible personal property on a special order for a consideration, including labor, even if charges for labor are separately stated.

The tax applies to the charges for the fabrication of tangible personal property for users or consumers who furnish, either directly or indirectly, the materials used in the fabrication work. For example, a tailor who makes an article of wearing apparel from materials furnished by the customer must collect and pay the tax on the charge for making the apparel.

For fabricators who are industrial manufacturers, see 23VAC10-210-920; for fabricators who are also real estate construction contractors, see 23VAC10-210-410; for repairs, see 23VAC10-210-3050.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-37; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-570. Fairs, flea markets, circuses, carnivals, etc.

A. Any person selling tangible personal property at fairs, flea markets, carnivals, circuses, etc. must hold a certificate of registration to collect the sales tax and is required to collect and remit the tax on all such sales. For purposes of collection of the tax, no distinction is made between profit and nonprofit vendors. Persons selling at fairs, flea markets, carnivals and circuses do not qualify for the "occasional sale" exemption set forth in 23VAC10-210-1080. Any person selling at a fair, flea market, carnival or circus should contact the department to obtain a certificate of registration for purposes of making sales at the fair, flea market, etc. However, nothing contained in this section shall prohibit the department from authorizing sponsors or operators of fairs, carnivals, flea markets, circuses, etc. to remit the tax collected by persons selling at such events. Any operator or sponsor seeking authorization to remit tax on behalf of participants must apply in writing to the department.

B. Tangible personal property used or consumed in operating fairs, flea markets, circuses, amusement parks, etc. is subject to the tax at the time of purchase. If the property is purchased outside of Virginia, the purchaser is liable for the use tax. A credit against use tax liability may be allowed for sales or use tax paid to another state or its political subdivision. (See 23VAC10-210-450.)

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-38; revised July 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-580. (Repealed.)

Historical Notes

Derived from VR630-10-39; revised January 1, 1979; repealed, eff. July 1, 1994.

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.

Statutory Authority

§§ 58.1-203 and 58.1-607.2(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-39.1; added March 1983; amended, eff. July 1, 1993.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from Volume 25, Issue 04, eff. November 26, 2008.

23VAC10-210-600. (Repealed.)

Historical Notes

Derived from VR630-10-39.2; added March 1983; repealed, July 1, 1994.

23VAC10-210-610. Florists and nurserymen.

A. Generally. The tax applies to retail sales of flowers, potted plants, shrubbery, nursery stock, sod, wreaths, bouquets, and similar items.

B. Transplanting. When a nurseryman, florist or other person makes retail sales of shrubbery and similar items, and as a part of the transaction agrees to transplant them on the land of the purchaser for a lump sum, the tax applies to the total charge. The tax does not apply to the charge for transplanting if the charge is separately stated on the invoice.

C. Landscape contractors. Any landscaper, nurseryman, or contractor who goes beyond the sale and planting of shrubbery, sod, etc. and contracts to grade, seed and fertilize lawns or to provide periodic fertilizing or weed killing treatments is deemed to be a consumer of all tangible personal property used in performing such service and must pay the tax on such property at the time of purchase. The charge to the customer for providing the service is not subject to the tax.

D. Telephone orders. For florists conducting transactions through a florist's telegraphic or telephonic delivery association, the following rules apply in the computation of tax liability:

1. On an order taken by a Virginia florist and telegraphed or telephoned to a second florist in Virginia for delivery in the state, the first florist is liable for the tax. Any service, telephone or other charges for the order are a part of the selling price subject to the sales tax.

2. On an order taken by a Virginia florist and telegraphed or telephoned to a second florist outside Virginia for delivery outside Virginia, the Virginia florist is liable for the tax. Any service, telephone or other charges for the order are a part of the selling price subject to the sales tax.

3. On an order a Virginia florist receives by telephone or telegraph from another florist located either inside or outside Virginia, the receiving florist is not liable for the tax. If the order originated in Virginia, the tax is due and payable by the first Virginia florist who took the original order and relayed the instructions to the second florist.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-40; revised January 1, 1979; January 1, 1985.

23VAC10-210-620. [Reserved]. (Reserved)

23VAC10-210-630. Fuels for domestic consumption.

A. Generally. The state sales and use tax does not apply to purchases of artificial or propane gas, firewood, coal or heating oil for domestic consumption.

B. Domestic consumption defined. "Domestic consumption" is the use of artificial or propane gas, firewood, coal, or home heating oil by an individual for other than business, commercial, or industrial purposes. The renting or leasing of residential units is considered commercial usage.

Domestic consumption is restricted to fuels used by individuals; purchases of fuel by groups or organizations will be subject to the tax unless the fuel purchased is for domestic consumption by an individual. For example, an organization may purchase firewood to be given away to indigent persons for use in heating their own homes; this transaction would be deemed a purchase for domestic consumption. Purchases by groups or organizations for use in their own facilities are not purchases for domestic consumption.

Domestic consumption usage is not restricted to heating purposes, but may also include cooking or heating water.

The term "domestic consumption" includes purchases of fuel by: (i) an owner or lessee for use in a single-family dwelling in which he resides; (ii) individual residents for use in apartments, townhouses, trailer courts, condominiums or other multi-family dwellings in which they reside; and (iii) a condominium or similar owner cooperative association provided such association is comprised solely of the owners of the dwelling and more than 50% of the fuel purchased is for use in owner-occupied units.

The term "domestic consumption" does not include purchases by: (i) nonprofit churches, civic or other charitable groups, except as set forth above; (ii) businesses operated by nonprofit groups; (iii) profit hospitals, nursing homes or homes for adults; (iv) profit schools or institutions of learning; (v) lessors of apartments, trailer courts, condominiums, rooming houses or other multi-family dwellings; fraternities or sororities; (vi) hotels, motels, inns, cabins or lodges; and (vii) any commercial, business or industrial operations.

Purchases of heating fuels for their own use or consumption by persons or entities who are entitled to a general sales tax exemption (for example: (i) nonprofit schools and institutions of learning; (ii) licensed nonprofit hospitals, nursing homes, and homes for adults; (iii) nonprofit volunteer fire and rescue squads; and (iv) federal, state, or local governments) are not subject to sales and use tax (state or local).

C. 1. Classifying purchases as domestic or nondomestic. In determining when tax is to be collected by the dealer on a purchase used for both domestic and nondomestic purposes, a principal usage test shall apply. A purchase shall be classified as exempt if more than 50% of the fuel purchased is for domestic consumption. However, if 50% or less of the fuel purchased is for domestic consumption, the entire purchase shall be taxable and the tax shall be collected by the dealer at the time of the sale.

2. Subdivision 1 of this subsection establishes when a fuel dealer must collect tax at the time of sale, and it does not establish any rule of exemption for consumers. The ultimate taxability of a fuel purchase depends on its actual usage. The purchaser will be liable for payment to the department of use tax on any portion of a domestic purchase (i.e., a purchase on which no sales tax was paid to the dealer) subsequently used for nondomestic purposes. A purchaser who has paid tax under the rules in subdivision 1 of this subsection, however, may apply to the department for a refund of tax paid on that portion which is actually used for domestic consumption. Refund claims must be filed on forms prescribed by the department between January 1 and April 15 of the year following the year of purchase. Refund applications pursuant to this exemption will be denied if post-marked after April 15 of the year following the year of purchase.

D. Exemption certificates. Sales and Use Tax Certificate of Exemption, Form ST-15, is available for use by dealers to substantiate sales of heating fuel for domestic consumption. A purchaser need file only one such certificate with a dealer to qualify for exemption. However, the certificate will be valid only for purchases of fuel made by the person named on the certificate and for use at his residence, the address of which is also listed on the certificate. Any change of address of purchaser will require completion of a new certificate of exemption.

A dealer is not required to obtain a certificate of exemption for each transaction if the record of the sale is clearly identifiable as a sale of fuel for domestic consumption. However, this should not be construed as altering the fact that the burden of proof is on the dealer to demonstrate that each untaxed transaction is legitimately exempt from the tax.

Dealers will not be required to obtain a certificate of exemption on sales of small quantities of kerosene, firewood, or other fuels, provided sales receipts or daily sales records are available which clearly indicate the number of gallons (or other measure) of the specific type of fuel sold and the number of purchasers.

E. Local sales and use tax. The local 1.0% sales and use tax will continue to apply to all purchases for domestic consumption of artificial or propane gas, firewood, coal and home heating oil unless the locality adopts an ordinance specifically exempting such fuels.

1. Sales tax. The local 1.0% sales tax will be allocated to the locality in which the place of business from which the sale is made is located. Place of business is defined as an established business location at which orders are regularly received. Therefore the situs of sale shall be the business location that first takes the purchaser's order, either in person, by purchase order, or by letter or telephone, regardless of the location of the merchandise or the point of acceptance of the order or shipment.

2. Use tax. The local use tax on sales made to Virginia residents by out-of-state dealers and the local use tax remitted by consumers on any portion of a domestic purchase used for nondomestic consumption will be allocated to the locality in which the fuel is delivered. The following examples will clarify this.

Example 1: A resident of a city or county which imposes the 1.0% local sales and use tax on fuels for domestic consumption purchases fuel from an out-of-state dealer who delivers it to the purchaser's residence in Virginia. The 1.0% local tax will apply to the transaction.

Example 2: A resident of a city or county which imposes the 1.0% local tax purchases fuel for domestic consumption from a dealer located in a city or county which does not impose the 1.0% local tax. The purchaser uses a portion of the fuel for nondomestic purposes and is therefore liable for payment of the use tax on that portion. The purchaser will therefore be required to remit the 5.3% use tax (4.3% state; 1.0% local) or 6.0% use tax in the Hampton Roads and Northern Virginia 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.

Example 3: A resident purchases fuel for domestic consumption from a dealer located in a locality which imposes the 1.0% local tax and therefore pays the 1.0% on the purchase of the fuel. The purchaser uses a portion of the fuel for nondomestic purposes and is consequently liable for payment of the use tax on that portion. The purchaser will be required to remit only 4.3% (5.0% in the Hampton Roads and Northern Virginia Regions) state tax; the 1.0% local tax was paid on the original fuel purchase. This applies regardless of whether the purchaser's city or county of residence does or does not impose the 1.0% local tax on fuels.

3. Local exemption. As of 2014, the department is aware that the following cities and counties have adopted ordinances exempting fuel for domestic consumption from the local 1.0% sales and use tax. Additional localities may adopt ordinances at any time and localities having exemption ordinances in effect may rescind such ordinances at any time.

Cities

Alexandria

Chesapeake

Covington

Danville

Fairfax

Fredericksburg

Hampton

Harrisonburg

Lexington

Manassas

Martinsville

Newport News

Norfolk

Norton

Poquoson

Portsmouth

Roanoke

Salem

Staunton

Virginia Beach

Waynesboro

Winchester

Counties

Alleghany

Arlington

Augusta

Bath

Bedford

Campbell

Caroline

Clarke

Fairfax

Fauquier

Floyd

Franklin

Frederick

Giles

Gloucester

Goochland

Hanover

Henry

James City

King William

Lee

Louisa

Madison

Mathews

Middlesex

Page

Patrick

Pittsylvania

Prince George

Prince William

Pulaski

Roanoke

Shenandoah

Smyth

Spotsylvania

Stafford

Warren

Washington

Wise

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-40.2; added March 1983; amended, Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-640. (Repealed.)

Historical Notes

Derived from VR630-10-41; revised January 1, 1979; amended, eff. March 3, 1983; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-42; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-660. Gas, electricity and water.

The tax does not apply to gas, electricity or water when delivered to consumers through mains, lines or pipes.

The tax applies to sales of oxygen, acetylene, hydrogen and liquefied petroleum gases to consumers unless the sales are exempt under 23VAC10-210-920 (manufacturers, processors, etc.), 23VAC10-210-50 (agricultural producers for market) or some other specific ground. The tax does not apply to sales of such gases for resale.

Retail sales of bottled water are taxable.

Statutory Authority

§§ 58.1-203 and 58.1-609.1(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-43, eff. January 1, 1985.

23VAC10-210-670. Gift certificates.

The sale of a gift certificate is not taxable. When the owner of a gift certificate redeems it, in whole or in part, for tangible personal property, the transaction is a taxable sale. For example, if the owner of a gift certificate valued at $25 purchases a $15 pair of shoes, the tax on the $15 sale must be collected by the dealer and paid to the department. When the owner redeems the remaining $10 value of the certificate, the tax on the sale must be collected at that time by the dealer.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-44; revised January 1979; amended, eff. July 1, 1993.

23VAC10-210-680. Gifts purchased in Virginia.

If a resident or nonresident buys a gift in Virginia and requests the seller to ship or mail such gift to another person, the purchaser is deemed to receive title to the gift at the time of purchase and the transaction is therefore taxable in Virginia. The location of the recipient of the gift has no bearing upon the taxability of the transaction; therefore, even if the recipient is located outside Virginia the sale is not a sale in interstate commerce. The following example illustrates this concept.

Example: A purchases a watch for $200 from a Virginia merchant, M, and tells M to send the watch to B who lives in Maryland. A must pay the sales tax of $10.60 to M at the time of purchase.

The recipient of the gift ultimately receives title to the gift from the purchaser and not the merchant and there is no relationship between the merchant and the recipient.

The total rate of the state and local sales and use tax in localities that fall within the Hampton Roads and Northern Virginia Regions is 6.0% (4.3% state, 0.7% regional, and 1.0% local). The provisions of this section apply to transactions sourced to the Hampton Roads Region and the Northern Virginia Region, mutatis mutandis. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-44.1; revised January 1, 1979; amended, eff. January 1, 1985; amended, Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-690. Governments; sales to.

A. Generally. Sales to the United States, or to the Commonwealth of Virginia or its political subdivisions, are exempt from the tax if the purchases are pursuant to required official purchase orders to be paid out of public funds. Sales made without the required purchase orders and not paid for out of public funds are taxable. Sales to governmental employees for their own consumption or use in carrying out official government business are taxable.

B. Meals, lodging and other accommodations. Charges for meals, catered events, lodging, and other accommodations, such as meeting or conference rooms, are subject to the tax when paid for by the state or local government or public institutions of learning, or employees of such, regardless of whether the purchases are made pursuant to required official purchase orders. Room setup charges in connection with the rental of rooms or conference rooms are also taxable. Setup charges not in connection with room rentals are not subject to the tax.

Purchases of meals, lodging, and other accommodations, by the federal government or its employees traveling on government business are exempt from the tax provided payment for the meals, lodging, or other accommodations is made directly by the federal government pursuant to an official purchase order (e.g., by direct billing to government or use of government credit card). Only credit card purchases for which the credit of the federal government is bound and billings are sent directly to and paid by the government, are exempt from the tax. For example, I.M.P.A.C. cards which have been identified as a United States government credit card and which can be used only for making purchases for official government purposes may be used to make exempt purchases, provided the credit card bill will be paid directly by the federal government.

If an employee pays for meals and lodgings with personal funds, a personal credit card or a credit card provided by the government, the bill for which is sent directly to the employee, and will be reimbursed by the government or utilizes a travel advance, no exemption is available even though the employee may be traveling pursuant to official government orders or the credit card used has the governmental agency's name embossed thereon.

C. Federal credit unions. Sales to federally chartered credit unions are exempt from the tax (12 USC 1768).

D. Privately owned financial and other similar corporations chartered by the United States. Privately owned financial and similar corporations chartered by the United States, such as commercial banks and federal savings banks, are not instrumentalities of the United States and do not qualify for an exemption. Thus, sales and leases to these corporations are subject to the tax.

Statutory Authority

§§ 58.1-203 and 58.1-609.1(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-45 §§ 1.1-1.4; revised January 1, 1979; August 1, 1982; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-691. Governments; sales by.

A. Generally. Except as provided in this section, sales by the Commonwealth, its agencies and political subdivisions generally are taxable.

Since the obligation to collect the tax cannot be imposed upon the federal government, purchases of tangible personal property from the federal government or its agencies, are subject to the use tax, except as provided in this section and 23VAC10-210-692 A or unless the items are otherwise exempt. Purchases from the state and local governments are subject to the use tax where the state agency or locality does not collect the sales tax from the purchaser. See 23VAC10-210-6000 for a further explanation of the use tax.

Any state agency or locality making sales of tangible personal property not otherwise exempt shall register as a dealer with the department and collect and remit the sales tax on its sales. Any agency or locality collecting the tax shall be entitled to the dealer's discount. See 23VAC10-210-480.

B. Exempt sales. Sales by the state, its agencies, or political subdivisions of the following are exempt from the tax:

1. School lunches served to pupils and employees of schools and subsidized by any level of government;

2. School textbooks by a local school board or authorized agency, or by state educational institutions at any level for use of students attending such educational institutions.

3. Copies of official documents or records such as:

a. A Certificate in Good Standing;

b. Corporate charters;

c. Birth and death certificates;

d. Executor qualification certificates;

e. Jury lists, proceedings and debates, calendars of events, transcripts, and

wills;

f. Driving records and accident reports; and

g. Photos, summonses, and offense reports.

The above list is intended to be exemplary and not all inclusive.

Materials provided by the State Board of Elections pursuant to §§ 24.2-404 and 24.2-405 of the Code of Virginia are exempt from the tax.

Official flags of the United States, the state or any county, city or town in Virginia sold by a governmental agency are exempt from the tax.

C. Taxable sales. Sales of the following items of tangible personal property by the state, its agencies and political subdivisions, and the United States, are taxable:

1. Books, publications, and similar documents including, but not limited to:

a. Copies or excerpts from any portion of the Code of Virginia;

b. Copies of building codes or similar rules;

c. Copies of books, monographs, or similar publications; and

d. Copies of regulations.

2. Sales of surplus furniture, office equipment, and other items.

3. Sales by sheriffs and other law-enforcement officials of confiscated and other items.

4. Bankruptcy liquidation sales which do not constitute exempt occasional sales as explained in 23VAC10-210-1080.

Statutory Authority

§§ 58.1-203, 58.1-609.1(7) and (8) and 58.1-609.4(1) of the Code of Virginia.

Historical Notes

Derived from VR630-10-45 §§ 2.1-2.3; revised January 1, 1979; August 1, 1982; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-692. Government areas; sales within.

A. Officers' clubs and similar entities. Sales to or by officers' clubs, noncommissioned officers' clubs, officers' messes, noncommissioned officers' messes, and post exchanges organized, operated and controlled under Department of Defense regulations are not subject to the tax. The use tax does not apply to persons who make purchases for their personal use from such entities.

B. Private concessionaires. All retail sales made by private concessionaires within a federal area are subject to the tax to the same extent it applies to retail sales elsewhere in the state.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-45 §§ 3.1, 3.2; revised January 1, 1979; August 1, 1982; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-693. Government contractors.

A. Definitions. The following words and terms when used in this regulation shall have the following meanings, unless the context clearly indicates otherwise:

"Add-ons" mean additional obligations subsequent to the execution of the original contract or order, including modifications to contracts or orders.

"Classified contract" means a contract in which the contractor or its employees must have access to classified information during contract performance.

"Classified contract agent" means an auditor employed by the department who has been authorized to review secure or classified contracts.

"Contractor" means an entity that contracts to perform all or a portion of a contract for a government entity. For purposes of this section, the term contractor shall include a prime contractor, contractor, subcontractor, or any other term conveying the same obligation, whether incurred by contracting directly with the government entity or with another contractor, to perform the work under the contract.

"Department" means the Virginia Department of Taxation.

"Government" or "government entity" means the United States government, the Commonwealth of Virginia, and any agency, board, commission, political subdivision or instrumentality of the Commonwealth of Virginia. The terms "government" and "government entity" do not include any foreign governments, other state governments of the United States, or any political subdivisions of such other state governments.

"Indeterminate purpose contract" means a contract in which the sale of the tangible personal property or the provision of services is dependent upon some future action of the purchaser for which the exact amount of time and quantity cannot be determined at the time the contract is entered into.

"Mixed contract" means a contract between a government entity and a contractor that involves the contractor both rendering a service and providing tangible personal property to the government entity under that contract.

"Order" means a specific task assigned to a contractor pursuant to a contract with a government entity. For purposes of this regulation, the term "order" shall include, but not be limited to, task orders, delivery orders, work orders, contract line item numbers (CLINs), and shall also include orders issued under a subcontract for fulfillment of work or products required under a general contractor's prime contract with the government and add-ons to existing contracts or orders. The term "order" shall not include a vendor order issued by a contractor to a vendor.

"Purchase for resale" means any tangible personal property or taxable service purchased by a government contractor with the intent of resale to a government agency and that is not used by the contractor for any purpose that is inconsistent with holding the property for resale to the government. "Purchase for resale" also includes tangible personal property to be incorporated into a manufactured product, that will be sold to the government entity.

"Real property contract" means a contract between a contractor and a government entity in which the contractor contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate, or fixtures thereon, including highways, and in connection therewith, to furnish tangible personal property.

"Statement of work" means a description of work that must be completed in order to fulfill a contractual obligation. A "statement of work" may be for the provision of a service or the transfer of tangible personal property, or both. A "statement of work" may be associated with the overall purpose of a government contract, or may be a separate and distinct subordinate activity under the overall purpose of a contract. A statement of work may be included in a contract, or in an order, as defined herein.

"Subcontractor" means a contractor who contracts to perform all or a portion of a general or prime contractor's contract with a government entity. For purposes of this regulation, a subcontractor shall be deemed as such regardless of how far removed the contractor is from the general or prime contractor. A subcontractor may be referred to by any other term that conveys the relationship at any tier between the contractor and the entity to perform the work under the subcontract.

"True object test" means the method of determining whether a particular transaction that involves both the rendering of a service and the provision of tangible personal property constitutes the sale of a service or the sale of tangible personal property.

"Vendor" means a person who is not a contractor or subcontractor, and who transfers tangible personal property by sale.

"Vendor order" means a commercial document or form completed by a contractor and issued to a vendor requesting that the vendor provide certain tangible personal property only. For examples of vendor orders, see subsection E of this section.

B. Treatment of mixed government contracts, contracts solely for the provision of services or solely for the provision of tangible personal property, and real property contracts. Where a transaction between a government entity and a contractor involves both the rendering of a service and the provision of tangible personal property, the transaction is deemed a mixed transaction, and the true object of the transaction must be examined to determine the taxability of the transaction.

However, where a transaction between a government entity and a contractor is solely for the provision of tangible personal property, solely for the provision of services, or constitutes a real property contract, application of the true object test is not necessary.

Example 1: Contractor A enters into a transaction with the federal government under which it must furnish personnel to staff a federal government agency's human resources department. Under the terms of the contract, Contractor A is not required to provide any equipment or supplies to the government. Because the transaction is purely for the provision of services, application of the true object test is not necessary. Contractor A will be deemed the taxable user and consumer of all tangible personal property used in performing its services.

Example 2: Contractor B enters into a transaction to purchase a computer system for the federal government. The terms of the contract also require that the contractor develop and oversee training, such that outside assistance will not be required to assist government personnel in the operation and maintenance of the computer system. Because the transaction is a mixed transaction requiring Contractor B to provide services (training) as well as tangible personal property (the computer system), application of the true object test is necessary. The true object of the transaction is the provision of a computer system, thus tangible personal property purchased or leased pursuant to this contract can be purchased for resale exempt of the retail sales and use tax.

C. True object test; generally. In order to determine whether a particular transaction that involves both the rendering of a service and the provision of tangible personal property constitutes a sale of a service or of tangible personal property, the true object of the transaction must be examined. The appropriate tax treatment of purchases of tangible personal property by persons who contract with the government or its political subdivisions is based upon whether the transaction is for the sale of tangible personal property (e.g., a computerized data retrieval system) or for the provision of an exempt service (e.g., real property facilities management). If a transaction is for the sale of tangible personal property, a contractor may purchase the tangible personal property exempt of the tax using a resale exemption certificate, Form ST-10. The tangible personal property may be resold to the government exempt of the tax.

However, if a transaction is for the provision of services, the contractor is deemed to be the taxable user and consumer of all tangible personal property used in performing its services, even though title to the property provided may pass to the government or the contractor may be fully and directly reimbursed by the government or both.

D. Tax treatment of government contracts executed prior to July 1, 2006. With respect to mixed contracts between government entities and contractors executed prior to July 1, 2006, the true object test shall be applied to the underlying contract without regard to the individual orders issued prior to July 1, 2006, in furtherance of the overall contract.

Example 3: Contractor A enters into an agreement with the federal government to modernize a signal acquisition system to address advances in signal interception and collection technology through the modification and customization of existing software. The contract is executed on January 1, 2004. Pursuant to the contract, the federal government issues orders specifying particular jobs under the umbrella of the contract. One order executed on January 10, 2004, requires Contractor A to provide support for the modification of government-owned software once it is customized. Using technical information that describes target signals, the contractor is required to deliver code modification, test the modification, and to make further modifications as required. A second order executed on January 15, 2004, requires Contractor A to acquire a computer workstation on which the modified software will be installed. Because both the contract and orders were executed prior to July 1, 2006, the true object test is applied to the underlying contract, without regard to the individual orders issued by the federal government in furtherance of the underlying contract. The true object of the contract is the provision of services related to a signal acquisition system, as the overall objective of the federal government is for Contractor A to use its expertise to address advances in signal interception and collection technology through the modification and customization of existing software. Contractor A is deemed the taxable user and consumer of all tangible personal property used in fulfilling the terms of the contract.

Example 4: Contractor B enters into a contract with the Commonwealth of Virginia on January 5, 2000, to implement a complete computer-based Traffic Signal Management System, consisting of a digital, computer based, networked, central system providing direct communications with all intersections in the project area. A separate order executed on March 1, 2000, and issued pursuant to the contract requires Contractor B to furnish and integrate the complete computerized system, including all necessary communications equipment not provided by the local telephone company, central computers and peripherals, software, and other incidentals required to properly operate the system. An order executed on March 1, 2000, requires Contractor B to provide systems documentation and end-user training and support. Because the contracts and orders were entered into prior to July 1, 2006, the true object test is applied to the underlying contract, without regard to the individual orders issued in furtherance of the contract. Although Contractor B is contractually required to perform systems integration, end-user training, and support services, the true object of the contract is for the provision of a fully operational and automated Traffic Signal Management system. The required services are provided as part of the sale of the system. Therefore, the true object of the contract is the provision of tangible personal property to the Commonwealth of Virginia. Tangible personal property purchased or leased by Contractor B, the title to which passes to the Commonwealth, may be purchased exempt from the Virginia sales tax using resale exemption certificates.

Example 5: Contractor C enters into a contract with the federal government on June 30, 2005, to replace two antennas on a combat tank. A separate order issued on July 5, 2006, pursuant to the contract calls for integration and calibration of the two antennas. Although the contract was executed prior to July 1, 2006, the true object test will be applied to the separate order issued on July 5, 2006, as that order was issued on or after July 1, 2006, and therefore, falls under the new true object test policy effective July 1, 2006. The true object of the separate order is the provision of a service and Contractor C is deemed the taxable user and consumer of all tangible personal property used in providing those services.

With respect to indeterminate purpose contracts and basic ordering agreements executed prior to July 1, 2006, the true object test shall be applied to each individual order. If the true object of the individual order constitutes a sale of tangible personal property, the sale is treated as an exempt sale for resale to a government entity. The contractor may purchase tangible personal property exempt of tax as a sale for resale using a resale exemption certificate. If the true object of the individual order is the provision of a tax-exempt service, the contractor is the user and consumer of all tangible personal property used in providing the service as well as all tangible personal property that is transferred to the government entity.

Example 6: Contractor D enters into an indeterminate purpose contract with a government entity on January 1, 2005. The contract includes hourly rates for various labor categories and specifies that all supplies and services will be ordered by individual orders. On March 1, 2005, the government entity issues a task order requiring Contractor D to provide 40 hours of system evaluation services. On April 1, 2005, the government entity issues a task order requiring Contractor D to provide 20 licenses for a Commercial Off the Shelf (COTS) software package. The true object test would be applied to the March 1 and April 1 task orders independently. Thus, the March 1 order is an order for services, and the April 1 order is an order for tangible personal property.

E. Tax treatment of orders executed on and after July 1, 2006. As of July 1, 2006, the application of the sales and use tax to all mixed contracts and indeterminate purpose contracts shall be based on application of the true object test to each individual order and not the original contract. If the true object of an order is the provision of a service, the government contractor is deemed the user and consumer of all tangible personal property used in providing the service. If the true object of the order is the sale of tangible personal property, tangible personal property purchased by the contractor to fulfill that order, even if not expressly identified by the terms of the order itself, may be purchased exempt of the tax, provided the property can be tied back to the order for resale. For add-ons to government contracts executed on or after July 1, 2006, the true object test will be applied to each separate add-on without regard to the true object of the original contract. This amended treatment of orders executed on and after July 1, 2006, shall not apply to vendor orders as defined in subsection A of this section.

Example 7: Contractor A enters into a ship outfitting contract with the U.S. Navy. A task order is issued to Subcontractor B to obtain safety equipment. Subcontractor B submits an order to Vendor C for the provision of unmodified lifejackets. The order submitted to Vendor C constitutes a vendor order, as defined in subsection A of this section. As such, the true object test does not apply to the vendor order. Instead, Subcontractor B must apply the true object test at the task order level to determine whether items purchased in furtherance of fulfilling that task order are subject to the retail sales and use tax.

Example 8: Contractor A enters into a facilities management contract with a state agency to include the provision of trash bags. Contractor A issues a task order to Subcontractor B to provide trash removal services. Subcontractor B submits an order to Vendor C for a large quantity of trash bags to fulfill the order. The order submitted to Vendor C constitutes a vendor order, as defined in subsection A of this section. As such, the true object test should be applied at the task order level, rather than to the vendor order. Because the task order constitutes an order for the provision of services, Subcontractor B must pay retail sales tax on the purchase of the trash bags.

Example 9: Contractor A enters into a contract with the federal government on January 1, 2007, to design and provide a turn-key integrated computer hardware and software system. The contract is divided into separate orders. Order 1 requires that Contractor A design the integrated system. Order 2 requires Contractor A to test and evaluate potential hardware and software components of the integrated system. Order 3 requires that Contractor A provide and deliver the integrated system. Order 4 requires that Contractor A maintain the system, including performing all necessary functions to keep the computerized system up and running, for a period of five years following delivery. The true object of Order 1 is the provision of services, as it requires Contractor A to design the integrated supply system. The true object of Order 2 is the provision of services, as it requires Contractor A to perform the functions of testing and evaluation. As such, Contractor A is deemed the taxable user and consumer of all tangible personal property used in fulfilling Orders 1 and 2. The true object of Order 3 is the provision of tangible personal property. The true object of Order 4 is the provision of tangible personal property. As such, Contractor A may purchase items to fulfill Orders 3 and 4 exempt of the tax as purchases for resale. Contractor A purchases servers, routers, disk arrays processors and software to fulfill Order 3. Contractor A's cost accounting records clearly differentiate purchases among the four separate orders. Although the terms of Order 3 only discuss a "turn-key computerized system" generally and do not identify the specific parts constituting that system, Contractor A's purchases of the servers, routers, disk arrays, processors, and software can be tied back to Order 3.

Example 10: Contractor A enters into a contract with an agency of the Commonwealth of Virginia on March 1, 2006, for the purchase and installation of a telecommunications system in Virginia. The government entity issues a separate order on August 1, 2006, requiring that Contractor A provide installation services. Because the separate order is issued after July 1, 2006, the true object test is applied to the separate order, rather than the underlying contract. The true object of the order is the provision of services. Contractor A is deemed the taxable user and consumer of all tangible personal property used in performing these services.

Example 11: Contractor D executes a contract with the federal government on March 1, 2010, for the construction of a ship. The provisions of the contract contain a separate order (Order 1) that calls for engineering studies and design. An additional order (Order 2) mandates that Contractor D obtain steel and components, which will later become affixed to the ship. The true object of Order 1 is the provision of services, including engineering studies and design. As such, Contractor D is deemed the taxable user and consumer of all tangible personal property purchased in fulfilling Order 1. The true object of Order 2 is the provision of tangible personal property to be incorporated into a manufactured product sold to the government. As such, Contractor D can purchase the steel and components exempt of the tax for resale.

F. Transitional provisions for orders entered into prior to July 1, 2006. The true object test shall be applied to all orders issued under all mixed government contracts if executed on and after July 1, 2006, regardless of the date on which the original contract, add-on, or order was executed.

Example 12: Contractor B enters into a contract with a government entity on January 1, 2004. The contract requires Contractor B to sell and install a computer system to the government entity; therefore, the underlying true object of the contract is the sale of tangible personal property to the government entity. The contract is to be fulfilled by Contractor B over a five-year period with the final phase of the contract completed on or before December 31, 2008. From January 1, 2004, through June 30, 2006, all aspects of the contract will be treated as exempt sales of the tangible personal property to the government entity. Beginning July 1, 2006, the tax will be applied based on the true object of each individual order and taxed accordingly. Therefore, on and after July 1, 2006, if the true object of an order is the provision of a service, Contractor B will be liable for sales and use tax on all tangible personal property used in providing the service, even if the tangible personal property is eventually transferred to the government entity.

Example 13: Contractor C enters into a contract with a government entity on June 1, 2005. The underlying true object of the contract is the provision of janitorial services for a five-year period ending May 31, 2010. From June 1, 2005, through June 30, 2006, Contractor C will be the taxable user and consumer of all tangible personal property purchased for use in fulfilling the service contract. For all orders executed on and after July 1, 2006, the contractor will apply the true object test to each separate order. In orders for the sale of tangible personal property to the government, purchases under the order will be exempt, provided there is not a taxable interim use of the tangible personal property by the contractor prior to its sale to the government. In orders for the provision of a service, the contractor will be liable for the tax as user and consumer for purchases made pursuant to the order.

G. Interim use. If a contractor makes an interim use of tangible personal property held for resale to a government entity pursuant to an order for the purchase of tangible personal property, the use will constitute taxable interim use provided that the terms of the order in question call for the operation of the tangible personal property by the contractor and that operation is inconsistent with the holding of that property for resale.

However, if a contractor makes an interim use of tangible personal property held for resale to a government entity pursuant to an order, the use will constitute an exempt interim use if the terms of the order in question call for the operation of the tangible personal property and that operation is consistent with the holding of that property for resale.

In most instances, the testing and approval of tangible personal property prior to its transfer to the government entity will constitute exempt interim use. Likewise, a sale that is contingent upon the demonstrated successful operation of tangible personal property purchased under the order will be exempt of the retail sales and use tax.

Example 14: Contractor A enters into a contract with a state government agency after July 1, 2006, to provide and maintain computer systems, including hardware and software to that agency. A task order issued pursuant to the contract requires Contractor A to design a software package to be distributed to the state government agency. Under the terms of the order, Contractor A must provide a training session for the duration of one week to government agency employees on the use of this computer software package. Employees of the government agency visit Contractor A's facilities for a "hands-on" training session, at which Contractor A uses the actual software it will send to the government agency. After training is completed, Contractor A repackages the software and ships it by common carrier to the government agency. Because Contractor A's use of the computers is integral to the sale of computer systems to the state government and because the use is consistent with the resale, the use is insufficient to destroy the resale status of the transaction. Contractor A has made an exempt "interim use" of the software, prior to shipping it to the government agency. Contractor A's purchase of the software is exempt.

Example 15: Contractor B enters into a contract with a state agency on January 1, 2007, to acquire and furnish equipment and materials that are elements and parts of a computerized Traffic Management System. The system would provide computerized highway surveillance and control for highways in the state of Virginia. Under the provisions of the contract, Contractor B is required to provide documentation and training services on the new system to the state agency's employees. A separate order requires that Contractor B provide computers as components of the system, and contains a provision providing that the sale of such computers to the state agency is contingent upon Contractor B's ability to demonstrate the successful operation of the computers for a two-year period. Because the sale is contingent upon the successful operation of the computers for a two-year period, such use constitutes exempt interim use, and the computers can be purchased exempt of the retail sales and use tax.

Example 16: Contractor C enters into a mixed contract with a state agency on January 1, 2007. Order 1 under the contract requires Contractor C to operate and maintain the state's Hazardous Waste Accumulation Facility. Order 2 of the contract requires Contractor C to provide containers to the state agency. Contractor C uses the containers to fulfill another contract before passing the containers over to the state government. Contractor C's use of the containers to fulfill an outside contract, prior to passing these containers on to the state agency constitutes use that is inconsistent with the holding of that property for resale. This use is sufficient to destroy the resale status of the containers. Contractor C will be subject to tax on the purchase of these containers.

Example 17: Contractor D enters into a contract with a government entity to provide floor-cleaning services. The government entity issues an order to Contractor C for the purchase of mops and a separate task order for the provision of floor-cleaning services. Although Contractor C will use these mops to fulfill the service contract with the government entity, Contractor C's purchase of the mops under the individual order will be exempt from tax as a sale for resale. Contractor D's use of the mops does not constitute "taxable interim use" because this use was not directed under the individual order for the purchase of mops. Thus, Contractor D may purchase these mops exempt of the retail sales and use tax.

H. Real property contracts with government entities. If a contractor contracts with a governmental entity to perform construction or reconstruction with respect to real property, and in connection with this real property contract, agrees to furnish tangible personal property for use in real estate construction, the contractor shall be deemed to have purchased this tangible personal property for use and consumption and shall be liable for the sales and use tax on this tangible personal property.

Nothing in this regulation shall be construed to authorize the application of the true object test to real property contracts with government entities. A real property contractor is taxed on the cost price of any construction or installation supplies used or consumed in the performance of real property construction, installation or repair, regardless of whether the true object of the contract or order is for services or the sale of tangible personal property. Construction and installation supplies shall include, but not be limited to, structural steel, concrete, conduit, wiring, cabling, nuts, bolts, anchors, screws, nails, glue and other materials used or consumed by a government contractor in fulfilling a contract with any government entity. Nothing in this regulation shall be construed to exempt from the retail sales and use tax materials, equipment, or other tangible personal property purchased by a contractor for use in real property construction contracts with a government entity, regardless of whether title to such property passes directly to the government entity upon purchase by the contractor or if the contractor is reimbursed directly by the government entity for the cost of such property.

The modified application of the true object test to individual orders will not apply to contracts with a government entity to perform construction or reconstruction with respect to real property. For more information on real property construction contracts with government entities, see 23VAC10-210-410.

I. Subcontractor activities.

1. Generally. For purposes of this section, a subcontractor to a prime contractor with a government entity shall be granted the same tax treatment as the prime contractor when fulfilling its contractual obligations to the prime contractor. Thus, a subcontractor shall apply the true object test to the overall purpose of the subcontract, unless it contains individual orders that were executed on or after July 1, 2006, in which case the subcontractor must apply the true object test to each separate order to determine the tax application.

Example 18: General Contractor A enters into a contract with the federal government, under which General Contractor A will furnish, install and maintain a telecommunications system. General Contractor A furnishes the system and subcontracts with Subcontractor 1 to install the system and Subcontractor 2 to provide maintenance and repair services. Order 1 is issued to General Contractor A for the provision of the telecommunications system, Order 2 is issued to Subcontractor 1 to install the system and Orders 3 and 4 are issued to Subcontractor 2 to provide the maintenance and repair services. General Contractor A, Subcontractor 1 and Subcontractor 2 may apply the true object test to each separate order to determine the tax application of each separate order.

2. Subcontractor recordkeeping requirements. Every subcontractor under a subcontract that is in furtherance of a government contract will be required to maintain suitable records and documentation in order to accurately determine the true object of an order entered into in furtherance of a contract between a prime contractor and a government entity. If the subcontractor determines that the true object of an order is the provision of tangible personal property, the subcontractor must present an ST-10 resale exemption certificate in order to purchase the property exempt of the retail sales and use tax. Every subcontractor will be required to present an ST-10 resale exemption certificate for all such exempt transactions, regardless of how far removed the contractor is from the general contractor. If a prime contractor issues an order to a subcontractor in furtherance of a government contract, the prime contractor shall provide the subcontractor a task order number, a copy of the task order and the name of the government agency or other such documentation that would allow the subcontractor to prove that the order is in furtherance of a government contract.

Example 19: Contractor A enters into a contract with a state agency for the development of a computer system, which requires Contractor A to furnish computers to the state agency. The state agency issues a task order for the provision of computers. The prime contractor issues a task order to Subcontractor 1, who issues a task order to Subcontractor 2 to provide the computers. Subcontractor 2 will be required to present the vendor with an ST-10 resale exemption certificate. Subcontractor 1 will be required to present an ST-10 resale exemption certificate to Subcontractor 2. The general contractor will be required to present Subcontractor 1 with an ST-10 resale exemption certificate. The state agency will be required to present to the prime contractor an ST-12 government exemption certificate.

J. Mixed invoices. In cases where a single vendor order or invoice for tangible personal property purchased by a government contractor includes items used in fulfilling two or more separate orders issued under a government contract, the government contractor shall determine the sales and use tax application based upon the true object of each of the two or more separate orders. Those items that will be used to fulfill the order for tangible personal property shall be deemed purchased pursuant to an order for tangible personal property and shall be exempt of the tax for resale. Those items that will be used to fulfill the order determined to be for the provision of services shall be deemed purchased pursuant to an order for the provision of services and shall be subject to the tax. Tax shall be paid on the cost price of items classified as items that are consumed in providing the services.

Example 20: Contractor E is under contract with a government entity that includes an order to supply 50 computer monitors to the government entity. The same contract contains a separate order requiring Contractor E to provide services to the government entity that require an additional 50 computer monitors for use by Contractor E. Contractor E purchases all 100 computer monitors from the same supplier under the same vendor order. The cost for the 50 monitors that will be supplied to the government will be exempt from the tax because the monitors are purchased pursuant to an order for which the true object is the provision of tangible personal property for resale. The remaining 50 computer monitors, to be used in providing services to the government entity under the contract will be fully taxable because they are purchased pursuant to an order for which the true object is the provision of a service. Contractor E should determine the total cost price of the 50 computer monitors based on the cost price of the monitors actually provided to the government entity in fulfillment of the service order.

K. Classified contracts. In cases where the true object of an order requires the review of a classified government contract, the department's authorized Classified Contract Agent will review the order to determine if the order is for the sale of tangible personal property or for the provision of services. In situations where it is impossible or infeasible to obtain a classified contract, the department may review other sources of information in determining the true object of the order; however, the ultimate burden of proving that the true object of the transaction is the provision of tangible personal property or services rests with the contractor. Other sources of information may include, but are not limited to unclassified statements of work, redacted versions of classified contracts, or other source documents furnished by the government entity and the government contractor in determining the true object of the contract or orders.

L. Consumable goods. A contractor is taxed on the cost price of all office, cleaning, clothing and other supplies used or consumed by the contractor in the performance of any type of government contract, or after June 30, 2006, in the performance of any type of order with a government entity.

Example 21: Contractor A enters into a contract with the federal government to provide chemical analysis of certain water samples. Pencils, paper, and other office supplies to be used in performing the contract will constitute consumable goods and will be subject to sales tax.

M. Recordkeeping requirements of the contractor. Generally, the department will rely on the language used in each individual order to determine the true object of the transaction. In cases where the department is unable to determine the true object of an individual order, the department may consider other source documents to make its determination. Other documents may include, but are not limited to, the government agency's request for proposal, basic ordering agreements, chart of accounts, individual transactions performed under a separate order, and confirmation of either goods or services delivered. Despite the change in policy, the underlying contract should also be made available for review. It is the contractor's duty to retain suitable records and documentation in order to accurately determine the true object of an order entered into with government entities.

To determine whether a particular purchase was made to fulfill a particular order, the department shall rely on the normal books and records kept by the contractor in the ordinary course of its business. For example, if a contractor's books and records show that a purchase of property was charged to an account that identifies a specific order, those purchases should be deemed to be made to fulfill that order. The contractor may provide other information or documentation to identify the purchases that were made to fulfill that order, but shall not be required to produce any documentation not already kept by the contractor in the ordinary course of business. A particular purchase made by a contractor may be for resale even if the corresponding order does not expressly reference that specific purchase. The contractor is required to abide by the recordkeeping requirements set forth in 23VAC10-210-470.

N. Audit methodology. All government contractor audits will be conducted in accordance with audit procedures as established by the department, including but not limited to, those procedures outlined in the department's Field Audit Procedure Manual.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-45 § 4.1; revised January 1, 1979; August 1, 1982; January 1, 1985; amended, eff. July 1, 1994; Volume 24, Issue 23, eff. October 6, 2008.

23VAC10-210-694. Diplomatic exemption.

Pursuant to the provisions of the Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations, no sales or use tax is applicable to sales to or purchases by certain foreign diplomats or missions. Exemption cards are issued by the United States Department of State and bear a photograph and name of the diplomat eligible for exemption in the case of individual diplomat cards, and, in the case of mission cards, the person entitled to make official purchases for the mission. The extent to which an individual or mission is exempt from the tax is illustrated on the face of the card. In order to qualify for exemption, the purchase must be made by the person to whom the card is issued. No exemption certificate is required; however, the record of the sale must indicate the exemption card number of the purchaser.

Statutory Authority

§§ 58.1-203 and 58.1-609.1(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-45 § 5.1; revised January 1, 1979; August 1, 1982; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-700. Harvesting of forest products.

A. Definitions. The following terms, when used in this regulation, shall have the following meanings, unless the context clearly indicates otherwise:

"Direct use" or "directly used" means those items that are both indispensable to the harvesting of forest products and which are used immediately in the harvesting of forest products.

"Harvester" means a person who engages in the business of harvesting forest products.

"Harvesting of forest products" means the business of severing products from forests for sale or for use as a component part of a product to be sold.

B. Exempt items. A harvester's purchase of machinery and tools and their repair parts, fuel, power, energy, or supplies used directly in the harvesting of forest products for sale or for use as a component part of a product to be sold is exempt from the tax.

C. Direct use. A harvester's direct use of machinery and tools, fuel, power, energy, or supplies in the harvesting of the forest products is exempt from the tax. A harvester's use of machinery and tools, fuel, power, energy, or supplies indirectly in the harvesting of forest products or in any other activity is subject to the tax.

Repair or replacement parts used to repair, restore, or refurbish machinery and tools which are directly used in the harvesting of forest products are also exempt from the tax.

D. Clearing activities. Machinery and tools, etc., used in the clearing of land or construction of roads to open up a logging site, the clearing of trash from the harvesting site, or the transportation of the severed product from the harvesting site are not exempt from the tax since such items are not used directly in harvesting forest products.

E. Typical exempt items. A harvester may purchase the following items exempt of the tax if he uses such items directly in his harvesting activities:

1. Axe;

2. Bulldozer (Crawler tractor with a rear mounted winch with cables) - if used to pull logs out of the woods;

3. Cables - if used to pull logs out of the woods;

4. Chain saw;

5. Fork lift or lift truck used to move logs at harvesting site;

6. Hydraulic slasher;

7. Log cart;

8. Oil - if used in tractor or other log handling equipment;

9. Repair parts for machinery and tools used directly in the harvesting of forest products;

10. Saw blades;

11. Saws;

12. Shearers;

13. Skidders;

14. Tires - if used on bulldozer or tractor to pull logs out of the woods;

15. Tractor; and

16. Wedges.

F. Typical taxable items. The following items are subject to the tax even when used by a harvester of forest products:

1. Bulldozer (Crawler tractor with a front mounted blade) when used to open roads into woods for trucks or to clear mill site of trash;

2. Cables - used to secure logs to a truck for transportation;

3. Fuel tanks;

4. Grading machine;

5. Gravel, culverts and similar items used in opening and constructing roads;

6. Oil - if used in trucks that transport the logs from forest to mill or in equipment used to open roads or remove trash;

7. Repair parts for licensed and unlicensed trucks;

8. Repair tools;

9. Tires - if used on vehicles for transporting lumber to mill site;

10. Trucks (other than licensed vehicles); and

11. Welders, and related gases.

G. Dual use of equipment. A harvester's use of supplies or equipment in both an exempt activity and a taxable activity will result in such items being subject to the tax unless he can accurately determine the percentage of use of such items or equipment in the harvesting of forest products as compared to his use of the supplies or equipment in a taxable activity. In such case the harvester can prorate the tax due on the supplies or equipment based upon his percentage of use of such items in a taxable activity.

Statutory Authority

§§ 58.1-203 and 58.1-609.2(6) of the Code of Virginia.

Historical Notes

Derived from VR630-10-45.1 §§ 1.1-2.6; added January 1979; revised January 1985; amended, eff. July 1, 1994.

23VAC10-210-710. (Repealed.)

Historical Notes

Derived from VR630-10-46; revised January 1, 1979; amended, eff. March 1, 1983; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

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.

Statutory Authority

§§ 58.1-203, 58.1-609.7(4), 58.1-609.7(12) and 58.1-609.8(10) of the Code of Virginia.

Historical Notes

Derived from VR630-10-47; revised July 1, 1979; January 1, 1979; amended, eff. March 1983.

23VAC10-210-730. Hotels, motels, tourist camps, etc.

A. Generally. The tax applies to the sale or charge for any room or rooms, lodgings or accommodations furnished to transients by any hotel, motel, inn, tourist camp, tourist cabin, camping grounds, club, or other similar place. The tax applies to all sales of tangible personal property by such businesses. For meals, see 23VAC10-210-930.

B. Accommodations furnished for 90 continuous days. The tax does not apply, however, to rooms, lodgings or accommodations supplied to a guest for a period of 90 continuous days or more. After a transient has occupied a room or received other accommodations for 90 continuous days or more, the dealer furnishing the room or other accommodations may refund any sales tax actually collected from the person. In filing a subsequent return with the Department of Taxation, the dealer may deduct from gross sales in the place provided the amount of the charges for which the tax was refunded.

C. Charges in connection with accommodations. Any additional charges made in connection with the rental of a room or other lodging or accommodations are deemed to be a part of the charge for the room and are subject to the tax. For example, additional charges for movies, local telephone calls and similar services are subject to the tax. Toll charges for long-distance telephone calls are not subject to the tax.

D. Purchases. Purchases of furniture, linens, carpeting, drapes, and other tangible personal property by such businesses are taxable at the time of purchase.

E. Computerized reservation systems. The charge to a hotel, motel or similar business for a computerized reservation system which includes, within a single contract, the provision of a printer or similar hardware and a charge for the use of the system based upon frequency of usage or number of rooms is deemed to be a service transaction and no tax is applicable to charges for such service. The entity providing the service must pay tax on any tangible personal property used in the provision of the service.

Statutory Authority

§§ 58.1-203 and 58.1-609.5(8) of the Code of Virginia.

Historical Notes

Derived from VR630-10-48; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-740. (Repealed.)

Historical Notes

Derived from VR630-10-49; revised January 1, 1979; amended, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-750. Indians.

The tax does not apply to sales made by Indians to Indians on their reservation. Sales by outsiders to Indians, sales by Indians to outsiders, and all sales made off the reservation are subject to the sales tax. Indians selling to outsiders on the reservation are required to register as dealers and collect the tax from their purchasers.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-49.1; added January 1985; amended, eff. July 1, 1993.

23VAC10-210-760. Innovative high technology industries and research; generally.

Generally, any person producing a "high technology" or technologically innovative product, including systems, for sale or resale is entitled to the industrial manufacturing exemptions set forth in 23VAC10-210-920. In addition, a person engaged in basic research or research and development activities in the experimental or laboratory sense which have as their ultimate goal the advancement of technology, the development of new products or processes, or the improvement of existing products or processes is generally entitled to the research exemption set forth in 23VAC10-210-3070 through 23VAC10-210-3074. Sales of tangible personal property by a high technology business are generally subject to the sales tax unless the seller takes from the purchaser a valid certificate of exemption. As set forth in 23VAC10-160-4040, some transactions which involve both the provision of personal services and the sale of tangible personal property are not subject to the tax. Purely service transactions which do not involve a transfer of tangible personal property are also not subject to the tax.

High technology businesses already located or planning to locate in Virginia are encouraged to request rulings from the Tax Commissioner in order to clarify the exemptions available to them under the Virginia Retail Sales and Use Tax Act.

Statutory Authority

§§ 58.1-203, 58.1-609.5(6) and 58.1-609.5(7) of the Code of Virginia.

Historical Notes

Derived from VR630-10-49.2 § 1, eff. March 15, 1987, retroactive to December 1, 1986.

23VAC10-210-761. Innovative high technology industries; application of industrial manufacturing exemptions.

The industrial manufacturing exemptions are explained in detail at 23VAC10-210-920. Generally, those items exempted from the tax include materials that become a component part of finished products, machinery and tools (including computer hardware and software) that are used directly in production, power used to run exempt machinery, tangible personal property used directly in production line testing and quality control, and the materials, containers, labels, etc., used for the packaging of finished products. As stated in 23VAC10-210-920, the exemption applies only to the manufacture of products for sale or resale; thus, items used primarily in the production of products for ones' own use are not entitled to the industrial manufacturing exemption. The preponderance of use test, which is applicable to tangible personal property used both in a taxable and exempt manner by an industrial manufacturer, is explained in 23VAC10-210-920.

Statutory Authority

§§ 58.1-203, 58.1-609.5(6) and 58.1-609.5(7) of the Code of Virginia.

Historical Notes

Derived from VR630-10-49.2 § 2, eff. March 15, 1987, retroactive to December 1, 1986.

23VAC10-210-762. Innovative high technology industries; application of research and development exemptions generally.

The exemption available for research activities is explained in detail at 23VAC10-210-3070 through 23VAC10-210-3074. To qualify for the exemption, tangible personal property must be used directly and exclusively in basic research or research and developmental activities in the experimental or laboratory sense. Generally, a research activity which has as its goal the advancement of existing knowledge or technology, the development of new uses for existing products, technology or processes, or the improvement of existing products, technology or processes will be entitled to the exemption. Thus, most research into innovative technologies or fields will qualify for the research exemption. However, the production of management studies and similar projects does not constitute exempt research under 23VAC10-210-3070 through 23VAC10-210-3074 as such projects do not involve experimental or laboratory research.

Statutory Authority

§§ 58.1-203, 58.1-609.5(6) and 58.1-609.5(7) of the Code of Virginia.

Historical Notes

Derived from VR630-10-49.2 § 3, eff. March 15, 1987, retroactive to December 1, 1986.

23VAC10-210-763. Innovative high technology industries; sales.

The sale, lease or rental of tangible personal property by a high technology business is generally subject to the sales tax unless the purchaser or lessee furnishes the seller or lessor with a valid certificate of exemption as explained in 23VAC10-210-320. Pursuant to § 58.1-602 of the Code of Virginia, a "sale" is "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of "tangible personal property'." The term "lease or rental" is defined in § 58.1-602 of the Code of Virginia as "the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter for a consideration, without transfer of the title to such property."

"Custom programs"(custom computer software) are specifically excluded from the definition of "tangible personal property" found at § 58.1-602 of the Code of Virginia; therefore, the sale, lease or rental of such programs is not subject to the sales and use tax. "Custom program" is defined in § 58.1-602 of the Code of Virginia as "a computer program which is specifically designed and developed only for one customer. The combining of two or more prewritten programs does not constitute a custom computer program. A prewritten program that is modified to any degree remains a prewritten program and does not become custom."

As provided in 23VAC10-210-840 and 23VAC10-210-4000, the tax is applicable to the total charge made to the purchaser or lessee by the vendor, including charges made for any services in connection with the sale, rental or lease. Service and labor charges in connection with a sale, rental or lease are taxable because they are specifically included in the statutory definitions of "sales price" (§ 58.1-602 of the Code of Virginia) and "gross proceeds" (§ 58.1-602 of the Code of Virginia), upon which the tax is computed. Those statutes permit, however, the deduction of separately stated installation and repair labor charges from the base used for computing the tax. Effective July 1, 1986, those statutes also permit the deduction of "an amount separately charged for labor or services rendered in connection with the modification of prewritten programs." "Prewritten program" is defined in § 58.1-602 of the Code of Virginia as a "computer program that is prepared, held or existing for general or repeated sale or lease, including a computer program developed for in-house use and subsequently sold or leased to unrelated third parties."

Purely service transactions in which no tangible personal property passes to the customer are not subject to the tax. Tangible personal property used or consumed in the provision of such services is subject to the tax at the time of purchase.

As explained in 23VAC10-210-764, certain transactions which involve the sale of tangible personal property as an inconsequential element of a personal service transaction are not subject to the tax.

Statutory Authority

§§ 58.1-203, 58.1-609.5(6) and 58.1-609.5(7) of the Code of Virginia.

Historical Notes

Derived from VR630-10-49.2 § 4, eff. March 15, 1987, retroactive to December 1, 1986.

23VAC10-210-764. Innovative high technology industries; true object test.

Certain "mixed" transactions that involve both the sale of tangible personal property and the provision of personal services by the vendor are not taxable. Those transactions deemed exempt are ones in which the sale of tangible personal property is inconsequential to the services provided by the vendor and for which a lump sum charge is made by the vendor.

The procedure for determining whether a mixed transaction is nontaxable is set forth in 23VAC10-210-4040. Liability for the tax depends on whether the true object of the transaction is to obtain a nontaxable service or taxable tangible personal property. If the true object is to obtain tangible personal property, a taxable sale occurs.

Statutory Authority

§§ 58.1-203, 58.1-609.5(6) and 58.1-609.5(7) of the Code of Virginia.

Historical Notes

Derived from VR630-10-49.2 § 5, eff. March 15, 1987, retroactive to December 1, 1986.

23VAC10-210-765. Innovative high technology industries; specific activities.

A. Computer software. The production of computer software in tangible form for sale or resale generally constitutes industrial manufacturing. Therefore, the industrial manufacturing exemptions set forth in 23VAC10-210-920 are generally applicable to such production. However, the exemptions are not available for persons who produce computer software for purposes other than for sale or resale or computer software that does not constitute tangible personal property. However, as explained in 23VAC10-210-920, the industrial manufacturing exemptions do not apply when the tangible personal property produced is not for sale or resale, such as the production of computer software for in-house use. The industrial manufacturing exemptions also do not apply to the production of computer software that does not constitute tangible personal property, i.e., custom computer programs.

Examples of exempt tangible personal property used directly in the production of computer software for sale or resale include, but are not limited to, computer hardware and software used to encode magnetic tapes or other storage medium or to otherwise produce finished software products. Also exempt is the tangible medium that the finished products will take (tapes, disks, etc.).

Tangible personal property used directly and exclusively in computer software research and development activities is generally exempt from the tax. Exempt research and development activities are those that have as their ultimate goal the advancement of computer software technology, the development of new computer software products, the improvement of existing computer software products, or the development of new uses for existing computer software products. An example of exempt tangible personal property used in a research and development activity is computer hardware and software used in programming and other developmental activities with respect to new computer software products, including the testing of such new products.

B. Information technology. Persons engaged in research and development in the fields of computer hardware and software engineering, operations research and decision sciences, systems engineering and analysis, and human-computer interface with the ultimate goal of advancing information technology or developing new products, technology or processes or improving or finding new uses for existing products, technology or processes are generally entitled to the exemption explained in 23VAC10-210-3070 through 23VAC10-210-3074.

Research and development activities entitled to the research exemption include, but are not limited to, (i) developing the theory and design of digital or analog computer hardware along with the integrated design of software and firmware, (ii) developing the theory, modeling, and design of management information systems, (iii) the design and analysis of information systems as physical entities with a focus on the system life-cycle, and (iv) human factors engineering for the design, testing, and evaluation of the human-computer interface.

Persons engaged in the production of products for sale or resale resulting from research and development in the information technology fields are generally deemed to be industrial manufacturers entitled to the exemptions set forth in 23VAC10-210-920.

C. Biotechnology. Persons engaged in research and development in the fields of biotechnology and genetic engineering with the ultimate goal of advancing knowledge or technology in those fields, developing new products, technology or processes, developing new uses for existing products, technology or processes, or improving existing products, technology or processes are generally entitled to the research exemption set forth in 23VAC10-210-3070 through 23VAC10-210-3074.

Research and development activities entitled to the exemption include, but are not limited to, the application of recombinant DNA techniques to the development and improvement of agricultural and biomedical products, technology or processes, the development of monoclonal antibodies using hybridoma technology, and the development of instrumentation for use in scientific research.

Generally, persons engaged in the production of products resulting from biotechnological research are industrial manufacturers entitled to the exemptions set forth in 23VAC10-210-920.

D. Computer aided engineering. Persons engaged in research and development in the field of computer aided engineering are generally entitled to the research exemptions set forth in 23VAC10-210-3070 through 23VAC10-210-3074 when such research has as its goal the advancement of technology, the development of new products, technology or processes, the development of new uses for existing products, technology or processes, or the improvement of existing products, technology or processes.

Exempt research activities include, but are not limited to, research and development into advanced automation (including artificial intelligence and computer vision), integrated manufacturing systems (robotics and computer vision), and structural dynamics.

Generally, persons engaged in the production of products resulting from research and development into computer aided engineering are industrial manufacturers entitled to the exemptions set forth in 23VAC10-210-920.

E. Materials science. Persons engaged in research and development in the field of materials science with the ultimate goal of advancing technology, developing new products, technology or processes, or new uses for existing products, technology or processes, or improving existing products, technology or processes are generally entitled to the research exemption found at 23VAC10-210-3070 through 23VAC10-210-3074.

Examples of exempt research activities include, but are not limited to, research and development into the making and use of composite materials, high performance alloys, and semiconductor materials.

Persons engaged in the production of products resulting from materials science research are generally entitled to the industrial manufacturing exemptions set forth in 23VAC10-210-920.

F. Other high technology activities. To determine the correct application of the tax to high technology activities other than the five set forth above, a request for a ruling should be addressed to the Tax Commissioner as suggested in 23VAC10-210-760.

Statutory Authority

§§ 58.1-203, 58.1-609.5(6) and 58.1-609.5(7) of the Code of Virginia.

Historical Notes

Derived from VR630-10-49.2 § 6, eff. March 15, 1987, retroactive to December 1, 1986.

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.

Statutory Authority

§§ 58.1-203, 58.1-609.5(6) and 58.1-609.5(7) of the Code of Virginia.

Historical Notes

Derived from VR630-10-49.2 § 7, eff. March 15, 1987, retroactive to December 1, 1986.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-50; revised January 1, 1979.

23VAC10-210-780. Interstate and foreign commerce.

A. Generally. The tax does not apply to sales of tangible personal property in interstate or foreign commerce. A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia. The following examples illustrate transactions in interstate and foreign commerce to which the tax does not apply:

1. The sale of tangible personal property delivered to the purchaser outside of the state in the seller's vehicle;

2. The sale of tangible personal property delivered to the purchaser outside of the state by an independent trucker or contract carrier hired by the seller;

3. The sale of tangible personal property delivered by the seller to a common carrier or to the U.S. Post Office for delivery to the purchaser outside of the state;

4. The purchase of tangible personal property for resale and immediate transportation out of the state by a dealer properly registered in another state provided a valid certificate of exemption is secured by the Virginia seller.

As used in this regulation, the term "foreign commerce" includes the delivery to a factor or agent of tangible personal property for foreign export, provided the property is delivered by the seller to the factor or export agent in the seller's vehicle, by common carrier, by licensed contract carrier or independent trucker hired by the seller or by U.S. mail.

B. Transactions taxable in Virginia. The tax applies to the first use in Virginia of tangible personal property purchased elsewhere in a transaction which would have been taxed had the transaction occurred in Virginia, regardless of the fact that such property may have been, or may be used in interstate commerce, except for foreign export agents or factors as described in subsection A of this section. Any tax due because of first use in Virginia may be subject to credit for like taxes paid elsewhere.

Statutory Authority

§§ 58.1-203 and 58.1-609.10(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-51; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-52; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-800. Labels, tags and nameplates.

The tax does not apply to purchases of labels, tags or nameplates when used solely for packaging tangible personal property for sale. These purchases become part of the product for sale or resale.

The tax does not apply to purchases of such items when they provide information about the nature, quality, maker, price, size, operation, maintenance or destination of the tangible personal property packaged for sale.

The tax does apply to purchases of inserts and invoices, etc. For manufacturers, see 23VAC10-210-920.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-53; revised January 1, 1979.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-54; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-820. Lay-away and will-call sales.

A sale where delivery is conditional on payment of the amount due on the price of the sale is not completed until the amount due is received by the seller and is taxable when the property is delivered to the customer. For credit and installment sales, see 23VAC10-210-440.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-55; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-830. Leased departments.

When a dealer leases certain of its departments to other persons selling tangible personal property and the lessees keep their own collections on retail sales from the leased department, each lessee must obtain a Certificate of Registration and make separate monthly returns and payments. If the lessor of such departments has custody of the records for the leased departments and makes collections of their accounts, the lessor may, as agent for the lessees, make a return for the retail sales and taxable purchases for each department and pay the taxes due. With the written authorization of the Department of Taxation, the lessor may file a combined return reporting the sales of both the lessor and the lessees. A lessee is not relieved of his liability if the lessor fails to make the proper returns or pay the taxes due.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-56; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-840. Leases or rentals.

A. Generally. Any person engaged in the business of leasing or renting tangible personal property to others is required to register as a dealer and collect and pay the tax on gross proceeds. A lessor of tangible personal property whose place of business is outside this state and who leases or rents tangible personal property to Virginia customers is required to register as a dealer and to collect and pay the tax on the gross proceeds. Generally, the tax applies to leases or rentals of machinery and equipment which is leased or rented without an operator.

B. Gross proceeds, defined. "Gross proceeds" means the charges made or voluntary contributions received for the lease or rental of tangible personal property computed with the same deductions, where applicable, as for sales price in 23VAC10-210-4000. The term "gross proceeds" includes any finance or interest charges, insurance charges, charges for property tax on the property being leased, and other similar charges.

Gross proceeds also includes any service charges in connection with the lease of property. For example, if a dealer leases a gas cylinder and in connection with such lease also imposes a $10 "demurrage" charge because the customer fails to return the cylinder within the allotted time, the $10 charge will also be subject to the tax.

C. Property for use in taxable lease or rental. Tangible personal property for future use by a person for taxable lease or rental as an established business may be purchased tax exempt under a certificate of exemption.

D. Exclusions for "lease" or "rental." The term "lease" or "rental" does not include the leasing, renting or licensing of copyright audio or video tapes and films for public exhibition at motion picture theatres or by licensed radio and television stations. Receipts from such "leases" or "rentals" are not subject to the tax.

Statutory Authority

§§ 58.1-203, 58.1-602, 58.1-603 and 58.1-609.10(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-57; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-850. Liability of corporate and partnership officers; penalty.

A. Generally. Any corporate officer or partnership officer who willfully evades, or who fails to pay, collect or truthfully account for and remit sales and use tax is liable for a penalty equal to the amount of tax evaded, not collected, not paid or not accounted for and paid and shall also be guilty of a Class 1 misdemeanor.

Any corporate or partnership officer who willfully fails to file sales and use tax returns, maintain records or supply information is guilty of a Class 1 misdemeanor.

B. "Corporate or partnership officer," defined. A "corporate or partnership officer," as used in this regulation, means an officer or employee of a corporation or a member or employee of a partnership who has a duty to collect, pay, account for and remit, file returns, or retain and supply records relative to the sales and use tax and who:

1. Had knowledge of evasion of the tax or failure to collect, pay, account for and remit the tax or failure to file returns or retain and supply records; and

2. Had the authority to prevent such evasion or failure.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-57.1; added, eff. January 1, 1985.

23VAC10-210-860. Linen supply.

A person engaged in the business of maintaining and preparing textile products for rental or lease is a lessor of tangible personal property and must collect and pay the tax on gross rental receipts. This includes the rental of coats, caps, aprons, dresses, uniforms, smocks, towels, linens, diapers and similar articles to individuals, barber shops, beauty parlors, work shops, and other establishments. Items used exclusively for rental purposes can be purchased tax exempt.

Tangible personal property including machinery, tools, repair parts or replacements thereof and supplies and materials used directly by an industrial processor engaged in maintaining and preparing textile products for rental or lease is not subject to tax. For laundry and dry cleaning establishments, see 23VAC10-210-810.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-58; revised January 1, 1979; amended, eff. March 1983.

23VAC10-210-870. (Repealed.)

Historical Notes

Derived from VR630-10-59; revised July 1969; January 1, 1979; repealed, Volume 25, Issue 04, eff. November 26, 2008.

23VAC10-210-880. Local sales and use taxes.

Every county and city imposes a 1% local sales and use tax. The 1% local tax is administered and collected by the Department of Taxation in the same manner as the state sales and use tax and is subject to all of the provisions governing the state tax, including the application of penalties and interest. Therefore, exemptions from the state sales and use tax are also applicable to the local sales and use tax. (For exception relating to local tax on fuels for domestic consumption, see 23VAC10-210-630).

Out-of-state dealers who hold Certificates of Registration to collect the use tax from their customers for payment to the state must, to the extent reasonably practicable in filing their use tax returns, break down shipments into Virginia according to the city or county of destination. Where this is not reasonably practicable, the dealer may pay the local use tax on such shipments to the state without attempting to assign those particular shipments to a specific city or county.

Statutory Authority

§§ 58.1-203 and 58.1-605 of the Code of Virginia.

Historical Notes

Derived from VR630-10-60; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-890. (Repealed.)

Historical Notes

Derived from VR630-10-61; revised January 1, 1979; amended, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

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.)

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-62; revised July 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-910. Maintenance contracts and warranty plans.

A. Definitions. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise:

"Maintenance contract" means an agreement whereby a person agrees to maintain or repair an item of tangible personal property over a specified period of time for a fee that is determined when the agreement is made. A maintenance contract may provide for labor only, parts only, or labor and parts.

B. Maintenance contracts, generally.

1. Labor only contracts. Maintenance contracts that provide solely for the furnishing of repair labor are contracts for services and charges for such contracts are not taxable. This includes software maintenance contracts that provide services, i.e., updates, revisions, replacements and programming, by electronic means such as online downloads or online remote access. Persons providing repair services under such contracts are liable for the tax on all items used and consumed in the provision of their services.

2. Parts only contracts. Maintenance contracts that provide solely for the furnishing or replacement of parts, rather than labor, represent a sale of tangible personal property. The total charge to the customer for parts only contracts is taxable. Persons providing replacement parts may purchase such parts under a resale certificate of exemption.

Example: Buyer A purchases a maintenance contract from Seller B that provides for repair and replacement parts only. It is stipulated in the contract that all repair labor will be billed separately to the buyer based on an hourly rate. This contract constitutes a parts only contract and is 100% taxable.

3. Parts and labor contracts. Maintenance contracts that provide for the furnishing of both repair or replacement parts and repair labor are a combination of taxable sales and nontaxable services. As it is impossible to determine in advance the percentages of labor and parts that will be provided under the contract, the contract will be deemed to be a contract for one-half labor and one-half parts, regardless of the percentages of labor and parts actually provided under the contract. Thus, one-half of the total charge for such a contract is subject to the tax. Persons providing maintenance pursuant to such contracts may purchase repair or replacement parts under a resale certificate of exemption, but are liable for the tax on all items purchased for their own personal use and consumption in performing repairs or maintenance.

Example 1: A maintenance contract provides that if Purchaser C's refrigerator breaks down, Seller D will come out and fix it (repair labor) and replace any parts that are defective (replacement parts) for one year. The contract is a parts and labor contract and subject to tax on one-half of the total contract price.

Example 2: Buyer E purchases a maintenance contract for computer hardware and software from Seller F. Under the terms of the contract, Seller F provides 24-hour telephone hotline support, parts replacement for hardware, new releases, updates, revisions, and replacements of licensed software in tangible form, and services to correct programming errors. This maintenance contract constitutes a parts and labor contract and would be subject to the tax based on one-half the total contract price.

4. After hours maintenance charges. Any additional charges for extended or after hours maintenance that are based upon a percentage of or addition to the standard maintenance contract are taxable in the same manner as the contract upon which the additional charges are based.

Example: A maintenance contract that is part labor and part replacement parts will continue to be taxed at one-half of the total charge whether or not the buyer decides to add additional after hours protection to the contract.

5. Extended warranty plans. With the exception of extended warranty plans issued by licensed insurance companies, the tax applies to charges for extended warranty plans that provide for the provision of repair parts and labor. The application of the tax to extended warranty plans is calculated in the same manner as maintenance contracts in this subsection. Extended warranty plans issued by an insurance company regulated by the Bureau of Insurance of the State Corporation Commission are insurance transactions and are not subject to the tax. For repairs generally, see 23VAC10-210-3050.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-62.1; added, eff. January 1, 1985; amended, Volume 26, Issue 02, eff. October 28, 2009.

23VAC10-210-920. Manufacturing and processing.

A. Generally. The retail sales and use tax does not apply to the following types of tangible personal property when used or consumed by an industrial manufacturer or processor of products for sale or resale: (As used in this section, the terms "manufacturing and processing" include "converting.")

1. Industrial materials for future manufacturing or processing into articles of tangible personal property for resale where such industrial materials either enter into the production of or become a component part of the finished product;

2. Industrial materials that are coated upon or impregnated into the product at any stage of its manufacture or processing;

3. Machinery, tools or repair parts, fuel, power, energy, or supplies used directly in manufacturing or processing.

4. Materials, containers, labels, sacks, cans, boxes, drums or bags for future use for packaging tangible personal property for shipment or sale (whether returnable or nonreturnable);

5. Tangible personal property purchased for use or consumption directly and exclusively in basic research in the experimental or laboratory sense or research and development in the experimental or laboratory sense (see also 23VAC10-210-3070 through 23VAC10-210-3074);

6. Gas, electricity or water received through mains, lines, or pipes;

7. Tangible personal property used directly in those necessary ancillary activities of newspaper and magazine printing when such activities are performed by the publisher of any newspaper or magazine for sale daily or regularly at average intervals not exceeding three months and any newspaper or magazine for distribution at no cost published daily or regularly at average intervals not exceeding three months.

Unless otherwise specified, only the types of tangible personal property listed above may be purchased exclusive of the tax by an industrial manufacturer or processor for direct use in producing products for sale or resale. Other production items and items of tangible personal property used indirectly in production activities are deemed subject to the tax.

Based upon the foregoing, for a business to obtain the exemption, it first must be manufacturing or processing products for sale or resale and secondly, such production must be industrial in nature. The determination of whether an operation is industrial in nature shall be made without regard to plant, size, finished product inventory size, degree of mechanization, amount of capital investment, number of employees or other factors relating principally to size. Third, the types of tangible personal property which may be purchased exclusive of the tax by an industrial producer are machinery and tools, raw materials or one of the other types specifically set forth above, and fourth, such types of tangible personal property must be used directly in the manufacturing or processing operation. In addition, the statutory definitions of "manufacturing" and "processing" under the Retail Sales and Use Tax Act limit the industrial exemption to activities conducted at a single plant site (see also subdivision B 2 of this section).

B. Definitions.

1. Industrial manufacturer and industrial processor. Industrial manufacturers include establishments engaged in the mechanical or chemical transformation of materials or substances into new products.

Industrial processors include establishments engaged in the treatment of materials, substances, or other products in such a manner as to render such products more useful or marketable. Products need not undergo a change in state or form in order for an establishment to be classified as an industrial processor.

These establishments (hereinafter referred to as "industrial manufacturers") are usually described as plants, factories or mills and characteristically use power driven machines and materials handling equipment. The production activities of such establishments are usually carried on for the wholesale market or to order for industrial users, rather than for direct sale to domestic consumers. The term "industrial manufacturer" as used herein shall include but not be limited to businesses classified or substantially similar to other businesses classified in codes 20 through 39 of the Standard Industrial Classification (hereinafter "SIC") Manual published by the U.S. Department of Commerce.

Establishments which manufacture or process tangible personal property as an incidental part of a retail or service business are generally deemed to be engaged in nonindustrial activities. Establishments of this type include retailers such as restaurants, caterers, meat and fish markets, and candy, nut, and confectionery stores which process food products primarily for direct sale on the premises to consumers. Such non-industrial establishments also include individuals engaged primarily in providing personal services such as photographers, artists, tailors, and seamstresses.

2. Used directly. The term "used directly" refers to those activities that are an integral part of the production of a product, including all steps of an integrated manufacturing process, but not including incidental activities such as general maintenance, management, and administration.

The integrated manufacturing process noted above includes the production line of a plant, factory, mill, etc., starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where products are finished or completed for sale and conveyed to a warehouse at the same plant site, and also includes production line testing and quality control. Tangible personal property used in activities conducted away from the plant site or used to convey products or materials between two plant sites is deemed not to be used directly in manufacturing or processing.

The concept of the integrated manufacturing process includes within the scope of the manufacturing and processing exemption machinery, tools, repair parts, fuel, power, energy and supplies used directly to manufacture or process fuel, power or energy used to run exempt production machinery or to manufacture exempt production machinery, tools or supplies. In essence, an exemption is available for subprocessing activities which produce tangible personal property used directly in the main manufacturing or processing activity.

Items of tangible personal property which are used directly in manufacturing and processing are machinery, tools and repair parts therefor, fuel, power, energy, or supplies which are indispensable to the actual production of products for sale and which are used as an immediate part of such production process. Convenient or facilitative items, such as fuel storage tanks, platforms, structural steel, grating, equipment supports, special flooring, etc., or items which are essential to the operation of a business but not an immediate part of actual production, are not used directly in manufacturing or processing even though such items may be directly attached to exempt production machinery. Furthermore, the fact that the use of a particular item, such as firefighting and safety equipment, may be required by federal, state or local law is not, by itself, dispositive of direct usage in manufacturing or processing.

C. Manufacturing and processing activities. The activities involved in manufacturing and processing are divided into "administration," "production," and "distribution." Descriptions of these activities and examples of taxable and exempt tangible personal property used in each are listed below:

1. "Administration" is the managerial, sales, and nonoperational aspects of manufacturing and processing operations and includes management, selling and marketing, employee comfort and convenience, and record keeping. Tangible personal property used in administration is subject to the tax. Such property includes:

Office furniture, supplies and equipment, textbooks and other educational materials, books, and records, and all other items used in record keeping and other administrative or managerial activities, whether on or off the assembly line. Also included are computer hardware and canned software, calculators, and other such items used to record the quality and quantity of work in production or goods in storage, the flow of work, and the results of inspections;

Tangible personal property used for the personal comfort, convenience or use of employees, including items used in employee lounges, restrooms, etc.; and

Tangible personal property used for employee payroll and customer billing, purchasing records, etc.

2. "Production" includes the production line of the plant starting with the handling and storage of raw materials at the plant site and continuing through the last step of production where the product is finished or completed for sale and conveyed to a warehouse at the production site.

Ancillary activities such as plant construction are not a part of production and are taxable. Accordingly, construction materials such as concrete, structural steel, and roofing which becomes permanently incorporated into the production plant and machinery and tools used in the construction of the plant are taxable.

Steel or similar supports which are a component part of exempt production machinery and which do not become permanently affixed to realty are not subject to the tax. However, concrete floors or foundations on which such supports rest or to which machinery is bolted, and structures housing machinery are not used directly in manufacturing and processing and are subject to tax.

Equipment used for production line testing or quality control is classified as exempt production equipment. Testing for the purpose of improving administrative efficiency or any other testing not relating to quality control is taxable.

Replacement and repair parts which are used to replace worn or damaged parts on exempt machinery and equipment, as well as operating supplies which are actively and continually consumed in the operation of exempt machinery and equipment, are deemed used directly in manufacturing or processing and are not subject to the tax.

Machinery and tools used by the person engaged in manufacturing or processing to manufacture exempt machinery, equipment, or supplies are exempt from the tax only to the extent that they are used in such manufacture. For information on the application of the tax to items used in both a taxable and exempt manner, see subsection D of this section.

Examples of taxable and exempt production items are listed below:

Taxable:

Tangible personal property used to transport raw materials to a plant site;

Tangible personal property used to prevent or fight fires, and equipment and supplies used for such programs as safety, accident prevention, and first aid;

Tanks used to store exempt fuel and other tangible personal property except that tanks and other devices which constitute machinery are exempt;

Tangible personal property used for general plant lighting, heating, air conditioning, ventilation, etc., unless such property is specifically designed to protect the integrity of products;

Demurrage charges for the use of cylinders in which exempt gases are stored;

Tangible personal property used to dispose of plant wastes and pollutants other than equipment designated as certified pollution control equipment under the provisions of § 58.1-3660 of the Code of Virginia;

Materials and apparatus used to support exempt production machinery, including flooring, concrete and metal platforms, etc., except supports or legs which are a component part of exempt production machinery and do not become affixed to realty;

Tangible personal property used in the repair, servicing, and maintenance of production machinery; however, replacement parts for exempt production machinery are exempt from the tax;

Catwalks, walkways, etc., regardless of whether used to provide access to production machinery for the operation, maintenance or repair of such machinery;

Materials used in constructing, paving or maintaining roadways on the plant site on which exempt production vehicles travel.

Exempt:

Tangible personal property used to test and inspect products on the production line for quality control purposes;

Computer hardware and software used to direct or control production line and/or quality control operations (as contrasted to computer hardware and software used merely to monitor production operations, e.g., computers used to produce production reports, make production information available to plant personnel, monitor the efficiency of production machinery, etc., which are deemed to be taxable administrative items);

Wrapping or packaging equipment and supplies used at the plant site in packaging products for sale or resale;

Tangible personal property, used on the plant site, to unload raw materials or to convey raw materials to storage or from storage to the production line, to convey products from one step of production to another, or to convey finished products to packaging or warehouse areas; and

Safety apparel furnished gratuitously by manufacturer to production line employees; however, safety apparel furnished to non-production line employees is taxable as are sales of such items to employees.

3. "Distribution" is the transport or conveyance of products after the completion of production and is not part of manufacturing or processing. Distribution includes the storage of a product subsequent to its production (other than storage at the plant site) and the actual transport of the product for sale. All tangible personal property used to convey, transport, handle, store, market or display finished products is taxable. Such property includes:

Tangible personal property used to remove or load finished (packaged) goods from storage at the plant site;

Tangible personal property used to transport manufactured products to market or customers;

Tangible personal property used in advertising or marketing manufactured products for sale; including salesmen's samples withdrawn from a manufacturer's inventory;

Tangible personal property used in the exhibition of manufactured products; and

Tangible personal property (other than containers) used to protect manufactured products from damage during shipment to market or customers.

D. Machinery, tools, etc., used both in taxable and exempt production activities. When a single item of tangible personal property is put to use in two different activities, one of which is an immediate part of the industrial production process (exempt) and the other of which is not (taxable), the sales and use tax shall apply in full when the preponderance of the item's use (fifty percent or more) is in non-exempt activities. Likewise, the item will be totally exempt from tax if the preponderance of its use is in exempt production activities.

E. Correct use of exemption certificates. In making purchases for use in production, an industrial manufacturer should furnish his vendors with the applicable certificate of exemption. However, these certificates should not be utilized in making purchases for use in administration, maintenance of plant or building, or distribution. The tax must be paid on purchases for these purposes even when the vendor is holding blanket certificates of exemption filed by the vendee. If an industrial manufacturer gives a certificate of exemption and then consumes some of the property purchased for purposes other than production, he must report as taxable receipts the cost to him of the property consumed in administration, maintenance of building or plant, or distribution.

F. Direct payment permits. An industrial manufacturer may apply for a direct payment permit (see 23VAC10-210-510) when it is not possible at the time tangible personal property is purchased to know how it will be used. When such a permit is issued by the Department of Taxation, a manufacturer may file copies of the permit with vendors and pay directly to the department any tax that is due based on the use made of the purchases. No such permit, however, can be issued unless it is conditioned upon an arrangement under which no county or city will suffer the loss of any local sales or use tax revenue by reason of the issuance of the permit.

For manufacturers and processors who produce tangible personal property both for sale or resale and for their own use in performing real property construction contracts, see 23VAC10-210-410 E. For purchases of exempt machinery by contractors, see 23VAC10-210-410.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(2) of the Code of Virginia.

Historical Notes

Derived from VR630-10-63; revised, eff. January 1, 1985.

23VAC10-210-930. Meals.

A. Generally. Retail sales of meals by restaurants, hotels, motels, clubs, caterers, cafes and others are taxable. Cover, minimum and room service charges in connection with the provision of meals are a part of the sales price and are taxable.

If a boarding house serves meals only to regular boarders, the operator of the boarding house is the consumer of the purchased food items and pays the tax to the supplier.

The tax applies to the sale of meals and other tangible personal property by railroad, Pullman car, steamship, airline, or other transportation companies while operating in Virginia. The tax applies to meals delivered to carriers in this state to be furnished without a specific charge to passengers regardless of where served.

Fraternities, sororities and other student societies, with members residing at a common location and jointly sharing household expenses, including meals, are not considered to be selling at retail, so meals furnished to members are not taxable. Sales of food, beverages and other tangible personal property to these organizations are sales at retail and subject to the tax. Caterers and other persons selling meals to fraternities and sororities are required to collect and pay the tax on the sales price.

B. Meals sold to employees. Any employer who sells meals to employees must add the tax to the charge and pay the tax on gross sales.

C. Meals furnished to employees. Meals and drinks that restaurants and food service operators furnish to their employees without charge are not subject to the tax.

D. Tips and service charges. If a customer tips a dealer's employee, and the amount is wholly at the discretion or judgment of the customer, the tip is not subject to the sales tax. This applies whether the customer gives the tip directly to the employee in cash or adds the tips to his bill (provided the dealer turns over the full amount of the tip to the employee).

If the dealer adds an amount or flat percentage to the meal price, whether the amount is designated as a tip or as a service charge, the addition is a part of the sales price and is subject to the tax even if the amount or flat percentage is paid over in part or in whole by the dealer to employees.

For example, if Restaurant A automatically adds a 15% gratuity or service charge to the charge for the meal, such charge represents an increment to the sales price of the meal. Similarly, if Restaurant B automatically adds a 20% gratuity or service charge unless the customer specifically specifies otherwise, such charge will be subject to the tax unless the customer exercises his option and specifies a different amount.

E. Free meal tickets. A dealer who has collected the tax from a customer but subsequently issues a ticket which is redeemable for a free meal will not be liable for any additional tax on the free meal provided the redeemable ticket was issued to the customer as the result of poor quality food. When a redeemable free meal ticket is issued to a customer as the result of poor service, for public relations purposes (such as for civic groups) or for any reason other than poor quality food, the dealer must report use tax on the cost price of all tangible personal property furnished in providing the free meal at the time the ticket is redeemed.

F. Peanuts, popcorn, paper doilies, paper placemats, silverware, bags and similar items. Peanuts, popcorn and similar food items served to customers who are waiting for a meal or drink are considered a part of the sale of the meal or drink and can be purchased exempt under a Resale Certificate of Exemption. Paper doilies, paper placemats, plastic silverware, bags and similar items furnished with meals and which are disposed of after use by only one customer are also considered a part of a meal and can be purchased exempt under a Resale Certificate of Exemption. Other items purchased by a restaurant for its own use in preparing and serving meals, such as kitchen equipment, plates, glasses, silverware, tablecloths, and similar items are taxable and may not be purchased under a Certificate of Exemption.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-64; revised January 1, 1979; August 1, 1982; amended, eff. January 1, 1985.

23VAC10-210-940. Medicines, drugs, eyeglasses, and related items.

A. Definitions. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise:

"Controlled drugs" means medicines or drugs for which the manufacture, distribution, and dispensation are strictly regulated by both state and federal laws due to the potential for abuse and physical and psychological dependence. Controlled drugs are separated into six schedules and itemized under et seq. Article 5 (§ 54.1-3443 et seq.) of Title 54.1 of the Code of Virginia. For purposes of this definition, "controlled drugs" does not include devices.

"Cosmetics" means articles applied to the body for cleansing, beautifying, promoting attractiveness, or altering the appearance including makeup, body lotions, cold creams, and hair restoration products.

"Devices" means instruments, apparatuses, and contrivances, including their components, parts, and accessories, intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in human beings or to affect the structure or any function of the human body. A partial list of devices that the federal Food and Drug Administration recognizes is provided at 21 CFR Part 862.

"Drug" means (i) articles or substances recognized in the official United States Pharmacopoeia National Formulary or official Homeopathic Pharmacopoeia of the United States, or any supplement to any of them; (ii) articles or substances intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or animals; (iii) articles or substances, other than food, intended to affect the structure or any function of the body of man or animals; (iv) articles or substances intended for use as a component of any article specified in clause (i), (ii), or (iii) of this definition; or (v) a biological product. For purposes of this definition, "drug" includes oxygen and other medical gases, but does not include devices or their components, parts, or accessories.

"Durable medical equipment" means medical equipment that meets all of the following requirements: (i) can withstand repeated use; (ii) is primarily and customarily used to serve a medical purpose; (iii) generally is not useful to a person in the absence of illness or injury; and (iv) is appropriate for use in the home.

"Glycolic acid products" means cosmetic items used to smooth or lighten skin or to remove age spots and wrinkles for the purpose of promoting attractiveness or altering the appearance.

"Hemodialysis" means a renal replacement therapy method of removing waste products as well as free water from the blood when the kidneys are incapable of removing these wastes.

"Homeopathic product" means a product derived from the system of medical practice that treats a disease by the administration of minute doses of a remedy that would, in larger amounts, produce in healthy persons, symptoms similar to those of the disease.

"Licensed physician" means a person licensed as a medical doctor. For purposes of this definition, a "licensed physician" does not include a veterinarian, chiropractor, optician, optometrist, or similar person.

"Nonprescription drug" means a substance or mixture of substances containing medicines or drugs for which no prescription is required and that is generally sold for internal or topical use in the cure, mitigation, treatment, or prevention of disease in human beings.

"Peritoneal dialysis" means a renal replacement therapy method of removing waste from the blood, as well as excess fluid, when the kidneys are incapable of removing these wastes, by instilling a specially formulated dialysis fluid around the peritoneal membrane that surrounds the intestine.

"Prescription" means an order for drugs or medical supplies written or signed or transmitted by word of mouth, telephone, telegraph, Internet, or other means of communication to a pharmacist by a duly licensed physician, dentist, veterinarian, or other practitioner authorized by law to prescribe and administer drugs or medical supplies.

"Proprietary medicine" means any nonprescription drug that is sold to the general public under the brand name or trade name of the manufacturer and that does not contain any controlled substance or marijuana.

"Prosthetic device" means any device that replaces a missing part or function of the body. For purposes of this section, a prosthetic device includes any supplies physically connected to the device.

"Toilet articles" means articles advertised or held out for sale for grooming purposes including toothpastes, hairsprays, shaving products, colognes, and deodorants.

B. Generally. Purchases of the following items are exempt from the retail sales and use tax:

1. Controlled drugs that a licensed physician, licensed optometrist, licensed nurse practitioner, or licensed physician assistant purchases for use in his professional practice;

2. Medicines, drugs, hypodermic syringes, artificial eyes, contact lenses, eyeglasses, and hearing aids that a licensed physician, dentist, optometrist, ophthalmologist, optician, audiologist, hearing aid dealer or fitter, nurse practitioner, physician assistant, or veterinarian dispenses or sells on prescriptions or work orders;

3. Medicines and drugs that a licensed hospital, nursing home, clinic, or similar corporation purchases for its use and consumption;

4. Medicines and drugs that a retailer purchases in order to fill a prescription, provided the purchase is made under a certificate of exemption, Form ST-10;

5. Nonprescription medicines or drugs and proprietary medicines or drugs regardless of the nature of the purchaser;

6. Samples of nonprescription drugs and proprietary medicines that a manufacturer distributes free of charge;

7. Eyeglass cases, contact lens storage containers, all solutions or sterilization kits, or other devices applicable to the wearing or maintenance of contact lenses or eyeglasses, provided these items are purchased by optometrists, ophthalmologists, and opticians and distributed free of charge to their patients;

8. Eyeglasses that a consumer purchases on prescription of a licensed physician, ophthalmologist, or optometrist;

9. Eyeglass frames sold in connection with the repair or replacement of prescription eyeglasses;

10. Durable medical equipment, devices, and related parts and supplies, provided the equipment, parts, and supplies are purchased by or on behalf of an individual for use by that individual. Purchases of durable medical equipment, parts, and supplies made by a licensed hospital or nursing home conducted for profit or by a licensed physician for use in his professional practice remain subject to tax;

11. Hemodialysis and peritoneal dialysis equipment, supplies, and drugs used in dialysis regardless of the nature of the purchaser;

12. Samples of prescription drugs that a pharmaceutical manufacturer distributes to licensed physicians, hospitals, pharmacies, and other health care facilities pursuant to a written request;

13. Medicines and drugs that a veterinarian purchases for use in caring for, medicating, or treating agricultural production animals; and

14. Medical products and supplies that a Medicaid recipient purchases through a Department of Medical Assistance Services provider agreement.

C. Medicines and drugs, specifically.

1. Medicines and drugs sold on prescriptions. Consumers may purchase medicines or drugs on prescriptions issued by licensed physicians, dentists, optometrists, ophthalmologists, opticians, audiologists, hearing aid dealers and fitters, nurse practitioners, physician assistants, and veterinarians exempt from the sales and use tax. Medicines and drugs purchased pursuant to an oral prescription made by any of these licensed professionals are exempt from the tax, provided the prescription is reduced to writing, signed by the pharmacist, and filed in the same manner as an original written prescription. Medicines or drugs sold pursuant to the refilling of a prescription by any of these licensed professionals are also exempt from the tax. Sellers making sales of medicines or drugs pursuant to these prescriptions or refills must keep sales records segregating the prescription sales. All original prescriptions must be filed and kept available for the Department of Taxation's inspection. When a pharmacist refills a prescription, the seller's records of the refill must carry the number of the original prescription for reference.

2. Controlled drugs sold to certain health care providers. A licensed physician, licensed optometrist, licensed nurse practitioner, or licensed physician assistant may purchase controlled drugs for use in his professional practice exempt from the retail sales and use tax. The Department of Taxation will look to the purchasers on the invoice that supports the transaction to determine whether the controlled drug exemption applies. When an invoice includes any of the licensed practitioners as the purchaser, this is sufficient to demonstrate that the purchase was made by the qualifying party for use in his professional practice. The use of a Drug Enforcement Agency number is also sufficient.

3. Medicines and drugs sold to licensed hospitals and similar facilities. Licensed hospitals, nursing homes, clinics, and similar facilities may purchase medicines and drugs for their use and consumption exempt from the retail sales and use tax. For more information concerning hospitals and nursing homes, see 23VAC10-210-720.

4. Medicines and drugs purchased for resale. A retailer may purchase drugs that will be used to fill or refill prescriptions exempt of the retail sales and use tax, provided the retailer presents the supplier with a certificate of exemption, Form ST-10, at the time of purchase.

D. Nonprescription drugs and proprietary drugs.

1. Nonprescription medicines or drugs and proprietary medicines and drugs purchased for the cure, mitigation, treatment, or prevention of disease in human beings may be purchased exempt of the retail sales and use tax regardless of the nature of the purchaser. No certificate of exemption is necessary to utilize the exemption.

2. In order to be deemed an exempt nonprescription drug, the item at issue must (i) contain a nonprescription drug or proprietary medicine; (ii) be sold for internal or topical use; (iii) be sold for the cure, mitigation, treatment, or prevention of disease in human beings; and (iv) fall outside of the excluded categories set forth in subdivision 3 of this subsection. Products that require over-the-counter registration are deemed exempt nonprescription drugs or medicines if they meet these requirements.

3. The exemption for nonprescription drugs and proprietary medicines does not apply to the following categories of items:

a. Cosmetics;

b. Toilet articles;

c. Food products and supplements classified as such by the federal Food and Drug Administration;

d. Vitamins and mineral concentrates sold as dietary supplements or adjuncts, except when sold pursuant to a written prescription by a licensed physician, nurse practitioner, or physician's assistant;

e. Devices, including contraceptive items, birth control preparations, and testing kits. However, a separate exemption is available for diabetic testing kits under subsection F of this section;

f. Products listing natural or herbal ingredients as the active components unless the items contain a nonprescription drug or proprietary medicine and treat, cure, or prevent disease in human beings;

g. Items containing nonprescription drugs or other medicinal ingredients that serve a secondary function to the intended use of the product, such as toothpaste with nonprescription drugs added to prevent gingivitis.

4. Following is a list of nonprescription drugs and proprietary medicines that qualify for exemption based on their status as nonprescription drugs or proprietary medicines. This list is intended as a guide and is not intended to be all inclusive.

Acne products

Headache relief aid products

Alcohol, rubbing

Hemorrhoidal treatments

Alcohol swabs

Hydrogen peroxide

Allergy relief products

Ibuprofen

Analgesics

Insect bite and sting preparations

Anesthetics

Iodine

Antacids

Itch and rash relievers

Antibiotic ointments

Laxatives

Antifungals

Lice products used to kill lice that infect humans

Antihistamines

Liniments

Antimalarials

Lip balms, ice and salves, medicated

Antinauseants

Lotions, medicated

Antiseptics

Menstrual cramp relievers

Aspirin

Mercurochrome

Asthma preparations

Milk of Magnesia

Baby powder, medicated

Mineral oil

Bandages, gauze, or swabs, provided these items contain antiseptic or bacterial control products in the pad

Motion sickness remedies

Bee sting relievers

Mouthwashes containing antiseptic

Benzoin

Muscle ache relievers

Boric acid ointment

Nasal drops and sprays

Burn remedies

Nicotine supplements that treat nicotine withdrawal symptoms

Calamine lotion

Oil of wintergreen

Camphor

Pain relievers, oral or topical

Castor oil

Parasiticides for humans

Cathartics

Peroxide, medicinal

Cold or canker sore preparations

Poison ivy and oak preparations

Cold capsules and remedies

Powder, medicated

Contact lens lubricating and wetting solutions for insertion directly into the eye

Rectal preparations

Contraceptive creams containing nonprescription drugs and intended to treat a disease

Shampoos, medicated

Cough and cold items, cough drops, cough syrups

Sinus relievers

Dandruff and seborrhea preparations

Sitz bath solutions

Decongestants

Skin irritation relievers

Diarrhea remedies

Sleep aids and sleep inducers

Digestive aids

Soap, including germicidal, surgical, therapeutic, or other soaps used for medical treatment

Disinfectant for use on or about the human body

Styptic pencils

Diuretics

Sunburn lotions

Earache and earwax removal preparations

Sunscreen containing SPF protection

Eczema preparations

Suppositories, excluding contraceptives

Epsom salts

Teething preparations

Expectorants

Throat lozenges, medicated

Eye drops, lotions, ointments, and washes for healing, treatment, or therapeutic use

Tooth desensitizers

Fever blister aids

Toothache relievers

First aid healing agents, cleaners

Upset stomach relievers

Fluoride rinses and antiseptic dental washes

Vaginal infection remedies

Foot care products for treatments of infections, medicated callous or corn removers, ingrown toenail preparations, and athlete's foot treatments

Wart removers

Fungicides for human use

Witch hazel

Glucose tablets

Worming treatments for human use humans

Glycerine products intended for medical use

Zinc oxide ointments

Hay fever aid products

5. Following is a list of items that do not qualify as nonprescription drugs or proprietary medicines. These items may qualify for another retail sales and use tax exemption. This list is intended as a guide and is not intended to be all inclusive.

Adhesive bandages, dressings, and cotton

Household disinfectants and insecticides

Adhesive removers

Infant formula

Adhesive tape

Insect repellant

Ammonia

Mouthwashes, excluding antiseptic mouthwashes

Appetite suppressants

Nutraceutical products

Bath crystals, milks, oils and powder

Oral electrolyte mixtures for rehydration

Birth control preparations

Pet medical supplies

Breath fresheners and sweeteners

Pet medicines

Bubble bath

Petroleum jelly

Bunions or corn pads, unless medicated

Powders, nonmedicated

Cleaning creams and lotions

Prophylactics

Cod liver oil

Pumice powder

Contact lens cleaning solutions and disinfectants, unless designed to be applied directly in the eye

Saline solution

Cosmetics, whether or not containing medicinal properties or acne treatments

Sanitary napkins, tampons, and similar items

Cotton applicators, rolls, balls, and swabs

Shampoos, nonmedicated

Cuticle softener

Shaving products

Denture adhesives, cleaners, and preparations

Skin bleaches

Deodorants and antiperspirants

Soaps for general use

Depilatories

Stimulants

Dental floss and threaders

Suntan lotion without SPF protection

Diet aids

Talcum powder

Dietary foods, supplements, and substitutes

Testing kits

Distilled water

Thermometers

Exfoliants

Toothpastes, polishes, powders, and whiteners, including products containing fluoride or peroxide

Glycolic acid products

Vitamins and mineral supplements

Hair restoration products

Wax

Hand sanitizers, sprays, foams, gels, soaps or wipes, including antibacterial items

Weight control preparations

Herbal teas, drinks, pills, or powder supplements

Wrinkle removing and concealing preparations

6. If a homeopathic product is classified as a drug by the federal Food and Drug Administration, is used internally or topically, and is used for the cure, treatment, mitigation, or prevention of disease in human beings, the product is exempt from the retail sales and use tax.

7. Nonprescription items packaged with items that would not qualify for exemption as nonprescription drugs, such as items found in a first-aid kit, are subject to the retail sales and use tax. The tax is computed on the total sales price.

8. Items identified as "sensitive care products" range from lotions and soap-free cleaners to medicated products that treat a number of medical conditions. The taxability of these items must be determined on a case-by-case basis, based on the ingredients the item contains and the intended purpose of the product.

9. Retailers making sales of nonprescription drugs must include exempt nonprescription drugs with all other exempt sales on the retailer's regular sales tax return, Form ST-9. Retail dealers making sales of such items must keep records segregating purchases and sales of exempt items.

E. Eyeglasses and other ophthalmic aids and supplies.

1. Optometrists, ophthalmologists, and opticians are engaged in the provision of professional services and must pay the tax to their suppliers at the time they purchase instruments, supplies, equipment, and other tangible personal property used in performing their professional services or remit the use tax directly to the Department of Taxation on these items. However, when optometrists, ophthalmologists, and opticians provide eyeglass cases, contact lens storage containers, solutions, sterilization kits, or other similar devices related to wearing or maintaining contact lenses or eyeglasses to their patients free of charge, the practitioners may purchase these specified items exempt of the tax.

2. Eyeglasses ground on prescription of physicians, ophthalmologists, or optometrists as well as frames that are an integral part of the glasses are exempt from the retail sales and use tax. Eyeglass frames sold in connection with the repair or replacement of prescription eyeglasses are also exempt from the tax, provided the prescription for the glasses is on file with the person replacing or repairing the eyeglass frames.

3. Dealers, including ophthalmologists and optometrists, are not subject to the retail sales and use tax on purchases of eyeglass frames, optical merchandise, and optical supplies that are purchased for resale and may present the optical supplier with an exemption certificate, Form ST-10, at the time of purchase.

4. Eyeglass frames, nonprescription sunglasses, cases, solutions for cleaning eyeglasses, barometers, telescopes, binoculars, opera glasses, and similar items are subject to the tax when sold to users or consumers. All persons making sales of these items, including opticians, optometrists, and ophthalmologists, are required to register as dealers and collect and pay the tax due.

5. The exemptions outlined in this subsection have no application to the retail sales of eyeglasses or other optical goods not prescribed by licensed optometrists or ophthalmologists. All of these sales are subject to the tax.

F. Durable medical equipment, devices, and certain products for diabetics.

1. Generally. The tax does not apply to wheelchairs and their repair parts, braces, crutches, prosthetic devices, orthopedic appliances, catheters, urinary accessories, other durable medical equipment and devices, insulin and insulin syringes, and equipment devices and chemical reagents that may be used by a diabetic to test or monitor blood or urine when these items are purchased by or on behalf of an individual for the individual's exclusive use. The fact that an item is purchased from a medical equipment supplier or on a physician's prescription is not dispositive of its exempt status.

In addition, parts or supplies that are specifically designed for use with the items outlined in this subdivision are exempt from retail sales and use tax. For example, because hearing aids qualify as durable medical equipment, hearing aid batteries also are exempt durable medical equipment because these items are a part or supply specifically designed for use with hearing aids. General purpose medical supplies such as tape, gauze, dressings, alcohol swabs, and sharps containers for disposal of used needles and waste bags are not designed for use with durable medical equipment; therefore, they do not qualify for the exemption.

2. Prosthetic devices. Generally, implants satisfy the definition of prosthetic devices and may be purchased exempt of the tax when purchased by or on behalf of specific individuals. However, implants used for cosmetic purposes are not used to replace missing body parts or functions and, as such, do not qualify for exemption from the tax, regardless of whether they are purchased by or on behalf of an individual. For dentures and other prosthetic devices relating to the practice of dentistry, see 23VAC10-210-500.

3. Following is a list of the types of items that are deemed durable medical equipment or other qualifying equipment or devices under this subsection. This is a listing of general categories of products; specific items must meet all of the requirements for durable medical equipment or other qualifying items, as outlined in subdivision 1 of this subsection. The listing is intended to be exemplary and not all inclusive.

Aerosol compressors, stationary and portable

Oxygen concentrators

Air oxygen mixers

Oxygen conserving devices

Alternating pressure pads

Oxygen cylinders

Alternating pressure pumps, if used with alternate pressure pads

Oxygen equipment

Apnea monitors and accessories

Oxygen fittings and accessories

Aspirators

Oxygen humidifiers

Bed rails

Oxygen tubing

Bedside commodes

Oxygen

Bone fracture therapy devices

Paraffin baths

Catheter devices and supplies

Patient care equipment for physical and occupational therapy

Colostomy supplies and devices

Patient lifts

Communication aids for physically impaired

Patient lift slings

Continuous passive motion devices

Patient transport devices and boards

Continuous positive airway pressure (CPAP) and CPAP accessories

Percussors and vibrators

Crawlers

Physical therapy items such as wrist and ankle weights, shoulder braces, supports and braces when rehabilitative related

Crutches, crutch pads, and tips

Phototherapy lights, provided they are used to serve a medical purpose and not for sun tanning purposes

Cylinder stands and support devices

Pneumatic compression units and accessories

Cylinder transport devices, sheaths and carts

Posture back supports, including back supports for seating

Decubitus seating pads and bed pads

Raised toilet seats

Dressing aids, button loops, zipper aids, etc.

Reaching aids

Eating and drinking aids

Regulators and flowmeters

Emergency oxygen delivery units

Respiratory accessories, such as PFLEX or Peak Flow items

Enteral and parenteral feeding equipment and supplies, including tubes, pumps, and containers

Respiratory therapy equipment

Face masks

Restraints

Fitted stroller

Room humidifiers with script

Foam seating pads

Shampoo trays

Foam wedges

Shower seating and bath benches

Gas oxygen refills and tanks

Shower grip bars

Geriatric chairs

Sitting and sleeping cushions

Glucose monitors and supplies, except batteries

Specialized seating, desks, and work stations

Grooming aids and dental aids

Specially designed hand utensils

Hand exercise equipment putty

Splints and holders

Heating pads

Stairglides and lifts in home

Hospital beds

Standing frames, devices, and accessories

Hospital bed mattresses and egg crates

Stethoscope

Household aids for the impaired

Tank wrench

Hydro-collators

Transcutaneous electrical nerve stimulator (TENS) unit and muscle stimulators

Hydro-therm heating pads

TENS accessories (electrodes, wiring specifically for use with TENS units)

Ice bags

Toilet safety frames

Intermittent positive pressure breathing (IPPB) circuits, devices and supplies

Tracheotomy and suction supplies

Intravenous (IV) stands

Traction stands, pulleys, etc.

IV supplies such as catheters and tubing

Trapeze bars and bar stands

Leg weights, related to rehabilitation

Ultrasonic nebulizers

Lift recliners

Vaporizer

Liquid and gas oxygen systems, stationary and portable

Volume ventilators, respirators, and related device supplies

Manual resuscitators

Walker accessories

Muscle stimulators

Walkers

Nasal cannulas

Walking canes, quad canes, accessories

Nebulizers and tubing

Wheelchairs

Overbed tables

Wheel walkers

Oximeters

Writing and speech aids for the impaired

4. Following are examples that demonstrate whether the definition for durable medical equipment is met:

Example 1: A physician purchases a disposable capsule for a specific patient that must be ingested to capture internal images of the body. Because the capsule is disposable, it is not able to withstand repeated use. Therefore, the capsule does not qualify as durable medical equipment.

Example 2: A physician offering gynecological services purchases intrauterine copper contraceptive devices for a specific patient. Because the contraceptive devices are not useful in the absence of illness or injury, they are not durable medical equipment. Although there are instances of pregnancy that may threaten the health of a patient, and in which the patient may not be able to use other forms of contraceptive, the devices are designed for contraceptive use. Therefore, they are not exempt durable medical equipment.

5. The exemption in this subsection is available only for items purchased by or on behalf of an individual for his use. In order to be deemed a purchase on behalf of an individual, the item must be specifically purchased for the individual. If items are purchased in bulk and then dispensed to individual patients, the exemption does not apply, even if the items are modified or fitted for a specific individual.

Example 1: A physician maintains an inventory of crutches or ace bandages that are dispensed to individual patients as needed. The physician must pay sales or use tax on these items because the original purchase was not made on behalf of a specific patient.

Example 2: A physician determines that a patient needs a brace and purchases a brace specifically designed for that patient. The purchase is made on behalf of the individual and is exempt from the tax.

The Department of Taxation has not prescribed a certificate of exemption to use when durable medical equipment and other exempt items under subdivision 1 of this subsection are purchased on behalf of a specific person. When the purchaser has no blanket exemption for its purchases and no certificate of exemption or other exemption notice from the Department of Taxation applies, the dealer must get a signed statement from the medical service provider making the purchase, such as the hospital, nursing home, licensed physician, or infusion service business, certifying that the durable medical equipment is purchased on behalf of a specific patient through a doctor's prescription or hospital's work order and is for sole use by that patient. The purchaser is also responsible for retaining a copy of the doctor's prescription or hospital work order as part of the record of the transaction for tax auditing purposes. The fact that a purchaser can trace durable medical equipment back to a specific patient after the fact is not sufficient to establish that the durable medical equipment was purchased for a specific individual; therefore, the purchaser's documentation must have included patient identification information at the time of purchase in order for the purchase to be deemed made on behalf of an individual. For purposes of proving that the sale was for a specific individual in the event of a sales and use tax audit, the purchaser may redact any identifying information in order to comply with federal and state privacy laws.

G. Hemodialysis and peritoneal dialysis equipment, supplies, and drugs. Hemodialysis and peritoneal dialysis equipment, supplies, and drugs used in dialysis are not subject to the tax. This exemption is applicable regardless of the nature of the purchaser. Therefore, hemodialysis and peritoneal dialysis equipment, supplies, and drugs may be purchased exempt by physicians, individuals, for-profit and nonprofit hospitals, and other entities.

H. Samples distributed to authorized recipients. Pharmaceutical manufacturers are not subject to sales and use tax for samples of prescription drugs and medicines or the packaging when distributed free of charge to licensed physicians, hospitals, pharmacies, and other health care facilities upon the written request of these medical providers in accordance with the federal Food, Drug, and Cosmetic Act (21 USC § 301 et seq.).

I. Purchases of medicines and drugs by veterinarians. Veterinarians who dispense medicines or drugs on prescription are deemed the users or consumers of all such medicines and drugs and must pay the retail sales and use tax on these purchases; however, veterinarians may purchase exempt of the sales and use tax all medicines and drugs that will be used in caring for, medicating, or treating agricultural production animals. For additional information on the taxability of drugs dispensed by veterinarians, see 23VAC10-210-6050.

J. Purchases of medical products and supplies by certain Medicaid recipients. Medicaid recipients are authorized to purchase medical products and supplies that are otherwise taxable, such as bandages, gauze dressings, incontinence products, and wound care products exempt from the retail sales and use tax, provided the purchase is made through a Department of Medical Assistance Services (DMAS) provider agreement. This exemption applies to any type of medical product or supply, incontinence, or wound care product, provided DMAS pays for the product or supply. Sellers must maintain sufficient documentation to verify that the purchase transaction meets the criteria of the exemption. The documentation must (i) identify the item sold; (ii) identify that the purchaser is a Medicaid recipient; and (iii) verify that the transaction is billed in accordance with a DMAS provider agreement.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-65; revised July 1969; January 1, 1979; amended, eff. January 1, 1985; amended, Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-950. (Repealed.)

Historical Notes

Derived from VR630-10-65.1; added January 1, 1979; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-960. Mining and mineral processing.

A. Mining and mineral processing generally. Section 58.1-609.3(2)(v) of the Code of Virginia exempts tangible personal property used directly in mining and processing. Used directly refers to those activities which are an integral part of the production of a product including all steps of an integrated process, but not including ancillary activities such as general maintenance and administration and includes reclamation activities required by state or federal law when performed by the mining company on land which it has mined previously.

Direct use in mining begins with the drilling of the shaft in deep mining or the removal of the overburden in strip mining, auger mining or quarrying and ends with the conveyance of the mined product to storage or stockpile at the mine site. Direct use in mining processing begins with the handling of the raw material at the processing plant site and ends with the conveyance of the processed product to storage at a stockpile at the plant site. The fact that particular property may be considered essential to the conduct of the business of mining or mineral processing because its use is required either by law or practical necessity does not, of itself, mean that the property is used directly in mining or mineral processing operations.

1. Mining defined. "Mining" means both deep and strip mining, quarrying, gas and oil drilling and other industrial removal of natural resources, minerals, or mineral aggregates from the earth. Mining does not include the extraction from tailing piles which because of technological advances in processing have become economic mineral deposits. Mining does not include water well drilling.

2. Mineral processing defined. "Processing," as the term is used in this section, is the preparation, refining or concentrating of the ore, resource or mineral subsequent to extraction and prior to distribution for sale and includes those activities commonly occurring at a coal preparation plant as well as the cleaning, grading, washing, cracking, crushing and similar processing of other ores, minerals, or natural resources. Processing also includes those activities commonly associated with the refining of crude oil.

Mining and processing are separate and distinct activities. The mine site and the processing site constitute separate plant sites unless both are owned and operated by the same person and connected by a private transportation system, such as a conveyor or private roadway. If the mine and the processing plant are owned by different entities, private transportation systems, including hauling vehicles, between the two sites will be exempt only if owned by the processing plant operator. In this instance the processing plant site will be deemed to begin at the point the mineral product leaves the mine site via a private transportation system and such transportation will be deemed to be handling of the raw material at the processing plant site. If the transportation system is owned by the mine operator, transportation including hauling vehicles to the processing plant site will constitute distribution subsequent to the end of the mining function.

Where public roadways or public transportation systems are used between the mine site and the processing plant site, each will be deemed to be a separate plant site, and tangible personal property used to transport the product between the two separate plane sites will be taxable. For an illustration of the taxability of transportation systems, see Figure 1.

V0180001.JPG, SIZE-21 PICAS, TYPE-DPI

For Mining and mineral processing, see Virginia Administrative Code print product.

Transportation of a waste product from the processing plant to a waste dump at the plant site is a part of production line quality control and is included in mineral processing. Systems used to transport the waste product from the production line at the processing plant to the dump will not be subject to tax provided both of the following conditions are met: (1) the transportation to the dump is continuous and without interruption, i.e., the waste is not stored or stockpiled prior to conveyance; and, (2) the dump is located at the processing plant site. In order for a dump to be deemed located at the processing plant site, such dump must be connected to the processing plant via private transportation system entirely owned or leased by the processor. If public roadways or transportation systems are used between the processing plant and the dump, each will be deemed separate sites and no exemption will be available for property used to convey the waste between the two sites.

In all instances, the construction of private transportation systems, such as hauling roads and railroad tracks, which upon their completion constitute a fixture upon or improvement to realty is a taxable activity. All materials incorporated into such systems, as well as machinery and tools used in their construction, are subject to the tax.

3. Functions characteristic of the mining and mineral processing industry. The following functions are generally characteristic of those performed in the mining and mineral processing industry: exploration; site preparation; mineral extraction; product inspection and testing; repair and maintenance; refining; distribution; reclamation; and administration. Each of these activities is discussed below.

a. Exploration. Exploration is the search for economic deposits of minerals, ore, gas, oil or coal by geological surveys, geophysical processing, boreholes and trial pits, or surface or underground headings, drifts or tunnels, and includes the mapping and design of the mine site. All tangible personal property used in the exploration function is subject to the tax, including drilling equipment used to test the earth and surveying equipment.

b. Site preparation. Site preparation is the preparation of the mine site or well location to facilitate the extraction of the mineral or other resource and includes the removal of the overburden, the clearing of the land at the mine site, construction of access roads, and the construction of tunnels, shafts, and passageways in underground mines.

Removal of the overburden in surface mining operations, removal of the overburden at the opening of a deep mine tunnel or shaft and grading the area of the well location are part of the mining process, and tangible personal property used in these removal processes is not subject to the tax. Construction of tunnels, shafts, and passageways in underground mines is an exempt activity.

Other land clearing activities at the mine site, well location, or the mineral processing plant site, such as for the construction of a processing plant or office buildings, and the construction and maintenance of roads or other private transportation systems, are not a part of mining and property used in such activities is subject to the tax.

c. Extraction. Extraction is the actual removal of the mineral, ore or natural resource from the earth. Extraction includes severing of the mineral, hauling the mine product from the mine face to a stockpile at the mine site for storage, and reconstruction of tunnels, shafts, and passageways in deep mines, as well as the drilling, completion, and equipping of an oil or gas well. Tangible personal property used directly in extraction is not subject to the tax.

d. Product inspection and testing. Product inspection and testing is the testing and analysis of the product performed during mine production or mineral processing at the mine or plant site. Inspection and testing to determine the quality of the product and to determine if the product meets industry standard is deemed to be a part of mining and mineral processing and is an exempt activity.

Research for the purpose of improving administrative efficiency or any other testing not related to product quality control are not part of mining or mineral processing and are taxable activities. Examples of taxable research are efficiency surveys, management studies, consumer surveys, economic surveys, advertising, or promotions.

e. Repair and maintenance. Repair and maintenance is the repair of machinery and tools and equipment, routine maintenance in order to insure that machinery and equipment are in good working order, and the repair and maintenance of offices, outbuildings, and other real or tangible personal property connected with the operation of the mine.

Repair and maintenance is not mining. Therefore, repair and maintenance facilities, either within the mine or elsewhere, including tools, supplies, machinery and equipment used in performing repair and maintenance work are subject to the tax.

Replacement and repair parts which are used to replace worn or damaged parts on exempt machinery and equipment, as well as operating supplies which are actively and continually consumed in the operation of exempt machinery and equipment are deemed used directly in mining and/or mineral processing and are not subject to the tax.

Machinery and tools used by the person engaged in mining or mineral processing to fabricate exempt machinery or equipment are exempt from the tax only if the preponderance of their use is in an exempt manner. For information on the taxability on items used in both a taxable and exempt manner, see subsection C of this section.

f. Mineral processing. Mineral processing as defined in subdivision A 2 of this section includes the active cleaning, grading, washing, cracking, crushing, refining and similar processing of the mineral or resource. Tangible personal property used directly in these processes is not subject to the tax.

Ancillary activities such as plant construction and administration are not a part of mineral processing and are taxable activities. Construction materials such as concrete, structural steel, and roofing which become permanently incorporated into the processing plant, and machinery and tools used in the construction of the plant are subject to the tax.

Steel or similar supports which are a component part of exempt processing equipment or machinery and which do not become permanently affixed to realty are not subject to tax. The concrete foundations onto which such supports are bolted, floors on which machinery rests, and structures housing equipment and machinery are not used directly in processing and are subject to the tax.

g. Distribution. Distribution is the transport or conveyance after the completion of mining or processing of the product and is not a part of mining or mineral processing. Distribution includes the storage of the product subsequent to its extraction (other than for further processing at the mine site) or processing, and the actual transport of the product for sale. All tangible personal property used to convey, transport, handle or store the product is taxable.

h. Reclamation. Reclamation is the restoration or conversion of mined land to a stable condition and the ongoing restoration or conversion of land currently being mined prior to total site reclamation. The process includes recontouring, reseeding, and reforesting the land. Reclamation activities required by state or federal law are a part of the mining process when performed by a mining company on land which it has previously mined. Reclamation activities which are not required by federal or state law are not a part of mining and tangible personal property used in such activities is subject to the tax.

i. Administration. Administration is the managerial, sales and nonoperational aspects of the mining or mineral processing operation and includes management, selling and marketing, employee comfort and convenience, and recordkeeping. Tangible personal property used in administration is subject to the tax.

B. Examples of property used in mining and mineral processing. The following are examples of both taxable and exempt tangible personal property used in each of the above referenced activities. These lists are exemplary and are not intended to be all inclusive.

1. Exploration.

Taxable:

Blueprints and blueprinting equipment

Explosives, blasting, and dislodging equipment and test drilling equipment and supplies

Engineering equipment

Surveying equipment

Pneumatic rock drills, jackhammers and air compressors

Seismic equipment

Maps

Sight rods

Spades

All other property used in exploration

2. Site Preparation

Taxable:

Bulldozers, scrapers, and similar equipment, except when used in removing overburden or grading well site

Logging and timbering equipment used for land clearance, except when used in removing overburden

Exempt:

Explosives, blasting, and dislodging equipment and supplies

Shaft drilling equipment

Bulldozers and scrapers used in removing overburden or grading well location

Pneumatic rock drills, jackhammers, and air compressors

Fuel and supplies used to operate exempt equipment

3. Extraction

Taxable:

Light fixtures, bulbs, and other illumination equipment, except when integral part of extraction equipment

Containers for fuel and supplies

Concrete

Exempt:

Digging and extracting equipment, machinery and tools including continuous miners, bulldozers, augers, backhoes, drag lines, cranes, power shovels, picks, and other cutting machines and hand tools

Mine support materials, including timber and tools used in mine roof installation

Oil and gas drills and accessories thereto

Drainage pumps, pipes, and valves used within the mine

Blasting and dislodging equipment and supplies, including explosives

Roof bolting machines, roof bolts, compressors, timbers, wedges, cribbing, collars, roof supports, and accessories thereto

Rock dust and other dust allaying materials, rock dusting equipment, and dust collectors

Ventilation equipment including brattice cloth, lumber, blocks, fans, and air blowers

Transportation devices and equipment used to haul extracted product from mine face or pit to a stockpile located outside the mine or pit, including shuttle cars, conveyor belts and accessories thereto, front end loaders, mine car handling equipment, and ballast

Lubricants and similar supplies used in exempt equipment, including oils, starting fluids, antifreeze, and brake fluid

Personnel cars, trolley locomotives, battery locomotives, mine cars, and supply cars

Cable and trolley wire, steel rail, track bolts, spikes, and braces used within the mine or pit

Trolley telephones and mine telephones used within the mine for purposes such as dispatching on mine railways within the mine or work coordination

Protective apparel, including goggles, miner's lamps, self rescuers and methanometers furnished to production personnel

Chemicals used in oil or gas well "completion"

Fuel and supplies used to operate exempt machinery and equipment including transformers and rectifiers, battery chargers, air compressors, and generators

Repair or replacement parts and accessories which become a component part of exempt machinery and equipment

First aid equipment and supplies

4. Product inspection and testing.

Taxable:

Clerical supplies

Reports

Tangible personal property used in marketing or other administrative research

Exempt:

Testing scoops or shovels

Coal ash fusion furnace, portable ovens, calorimeter, centrifuge, and similar laboratory equipment

Sample containers such as crucibles and sacks and labels therefor

Laboratory computers

Chemicals used in research and testing

Protective apparel furnished to laboratory personnel

5. Repair and maintenance.

Taxable:

Welding equipment and supplies

Drills, cranes, and similar equipment used in repair

Hand tools used in repair

Soaps and cleaning compounds, rags, and similar cleaning accessories

Solvents, brooms, mops, brushes, rags and similar cleaning accessories

Paint, except used on exempt machinery and equipment

Electrical testing equipment and test panels

Repair or replacement parts, fuel, and supplies used in repair or maintenance equipment

Exempt:

Repair or replacement parts for exempt machinery, tools, and equipment including wire rope and chain, welding rods, wire, and electrodes and paint used on exempt machinery and repair or replacement parts

6. Mineral processing.

Taxable:

Structural construction materials, such as fabricated steel products, angle irons and beams, concrete, and roofing, and machinery and tools used in the construction of tipples, screening plants, preparation plants, and refining plants

Administrative items used in the refining plant, such as forms, labels, reports, furniture, and office supplies

Light bulbs and light fixtures

Fuel or other supplies used for heating or cooling

Exempt:

Coal cleaning equipment, vibrating screens, dewatering devices, washing tables, separation devices, dust treating devices, weighing devices and controls therefor, used in processing plant

Rock crushers, grinders, and similar equipment and parts therefor

7. Distribution.

Taxable:

Repair or replacement parts, fuel, and supplies for vehicles used to transport or convey the product from storage at the mine or processing plant site

Railroad sidings at preparation plants, rails, ties, spikes, track bolts, bars, and switches therefor

Road construction and maintenance equipment and supplies, culvert pipe, stone, concrete, and asphalt used in road construction

Bulldozers, graders, front-end loaders, drag lines, cranes, and parts and supplies therefor used in road construction and maintenance

Bulldozers, front-end loaders and similar equipment used to load product from storage into vehicles for distribution

Storage bins and facilities

Chemicals used to preserve or protect product in storage

Scales and similar weighing devices

Oil or gas pipelines and accessories thereto

Exempt: (See subdivision A 2 of this section.)

Conveyor systems, vehicles and repair parts, fuel, and supplies therefor used to transport product for further processing at a mineral processing plant site or to remove product from production line to storage in storage pile, silo or rail car at plant site.

8. Reclamation.

Exempt:

Bulldozers, graders, front-end loaders, hydroseeders, and other equipment used in land recontouring

Fertilizers, seeds, seedlings and trees

Fuel, supplies, repair and replacement parts for machinery and equipment used in reclamation

9. Administration.

Taxable:

Office supplies and equipment

Light bulbs and lighting fixtures used in offices, shops, bath-houses, storage, and similar facilities

Fuel used for heating, cooling, or lighting purposes

Billing supplies

Tangible personal property used in supply houses, stores, bath-houses, and eating facilities

Mine maps and surveys

Personnel records and supplies, including safety records and miner identification tags

Textbooks, educational, and reference materials

Property used in the exhibition of mine products

Property used to prevent and control fires

Janitorial supplies

Eating facilities, such as picnic tables, even when located in mine or processing plant

C. Preponderance of use. When a single item of tangible personal property is used in two different activities, one of which constitutes direct use in mining or mineral processing (exempt) and the other of which constitutes a taxable activity, the sales and use tax shall apply in full when the preponderance of the item's use (fifty percent or more) is in taxable activities. Likewise, the item will be totally exempt from the tax if the preponderance of its use is in exempt activities.

D. Certified pollution control property. Any property or facility which has been certified by either the State Water Control Board or the State Air Pollution Control Board as used primarily for the purpose of preventing or abating air or water pollution is not subject to the tax. This is applicable to both real and tangible personal property. Only certified property or facilities qualify for exemption.

E. Contracted activities. The mining and mineral processing exemption extends to persons engaged in any phase of mining or mineral processing, provided such activities qualify for exemption as set forth in subsections A and B of this section. This requires that activities be performed at the mine or mineral processing plant site. For example, persons who construct a mine under contract with an industrial mining operation would not be subject to the tax on items used directly in an activity exempt under subsection B of this section. Contractors engaged in mine construction must apply to this department for exemption.

F. Applicability of this section. This section is intended to illustrate the application of the sales and use tax to mining and mineral processing and is based upon the usual methods of doing business used in the industry generally. Persons whose methods of doing business differ or who have specific factual questions should contact this department for a ruling on the taxability of the specific situation.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(2) of the Code of Virginia.

Historical Notes

Derived from VR630-10-65.2; added March 1983; amended, eff. January 1, 1985.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-65.3; added, eff. January 1, 1985.

23VAC10-210-980. Monuments and memorial stones.

The tax applies to retail sales of memorial stones, monuments and markers without deduction for labor used in cutting and marking them. The installation or erection charge, if separately stated, is not taxable. However, the person making the installation must pay the tax on the materials purchased for use in the installation at the time of purchase. If the installation or erection charge is not separately stated, the tax applies to the entire sales price.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-66; revised January 1, 1979.

23VAC10-210-990. Motor vehicle sales, leases, and rentals, repair and replacement parts, and maintenance materials; taxicabs.

A. Generally. Sales, leases, and rentals of motor vehicles are not subject to the retail sales and use tax provided they are subject to the Virginia motor vehicle sales and use tax administered by the Department of Motor Vehicles and further provided that such tax has been paid. Any type of motor vehicle which is not subject to the motor vehicle sales and use tax shall be subject to the retail sales and use tax when sold, leased or rented.

B. Motor vehicles subject to the motor vehicle sales and use tax. Motor vehicles subject to the motor vehicle sales and use tax shall mean every vehicle or device described in § 58.1-2401 of the Code of Virginia, which includes vehicles that are self-propelled or designed for self-propulsion and every vehicle drawn by or designed to be drawn by a motor vehicle, including mobile homes and every device in, upon or by which, any person or property is, or can be, transported or drawn upon a highway, but excepting devices moved by human or animal power, devices used exclusively upon stationary rails or tracks and vehicles, other than mobile homes used in Virginia but not required to be licensed by the state.

C. Repair and replacement parts installed in motor vehicle sold, leased or rented. The retail sales and use tax does not apply to repair and replacement parts and accessories and oil and grease installed on a motor vehicle before or at the time of sale, lease or rental that are included in the sales price for measuring the motor vehicle sales and use tax or the retail sales and use tax. Such items may be purchased exempt from the tax by a dealer, lessor or renter of motor vehicles under a Resale Exemption Certificate, Form ST-10. Repair and replacement parts purchased for installation on motor vehicles not held for sale, lease, or rental are subject to the tax. Parts installed on vehicles not used exclusively for demonstrations are similarly subject to the tax. (For repairs of customer-owned vehicles, see 23VAC10-210-3050.)

D. Maintenance materials used to prepare motor vehicles for sale, lease or rental. Maintenance materials such as soaps, cleaners, etc., used on motor vehicles prior to or in preparation for sale, lease or rental are subject to the retail sales and use tax.

E. Taxicab operations. Repair parts and tires for use on taxicabs may be purchased exclusive of the retail sales and use tax by taxicab operators. Accessories, maintenance materials, and all other tangible personal property purchased by a taxicab operator are subject to the retail sales and use tax.

Statutory Authority

§§ 58.1-203 and 58.1-609.1(2) of the Code of Virginia.

Historical Notes

Derived from VR630-10-67; revised July 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-1000. (Repealed.)

Historical Notes

Derived from VR630-10-68 or VR630-10-69; revised January 1, 1979; amended, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8 eff. March 10, 2007.

23VAC10-210-1020. Motor vehicle refinishers, painters and car washers.

A. Generally. Motor vehicle refinishers, painters, and washers are generally engaged in rendering personal services, and their gross receipts are not subject to tax. As personal service providers, motor vehicle refinishers, painters, and washers are the users and consumers of the materials used in their business and are required to pay tax on their purchases. When motor vehicle refinishers, painters, and washers go beyond the rendition of services and sell tangible personal property such as accessories, parts, seatcovers, paint, etc., they are required to register and collect and remit the tax on those retail sales.

B. Optional tax treatment for motor vehicle refinishers and painters. Effective July 1, 2005, the definition of "retail sale" and "sale at retail" was amended to include separately stated charges made for automotive refinish repair materials that are permanently applied to or affixed to a motor vehicle during its repair. This definitional change affords motor vehicle refinishers and painters the option of either continuing to be treated as a personal service provider with respect to paint, clearcoat, sealants, and other similar items that become a component part of a motor vehicle during the refinishing or repair of the motor vehicle, or to be treated as a retailer with respect to such items. The election to be treated as a retailer is solely at the discretion of the motor vehicle refinisher or painter.

C. Motor vehicle refinishers and painters electing to operate as a retailer. A motor vehicle refinisher or painter electing to operate as a retailer is required to register with the Department of Taxation as a licensed dealer and collect and remit to the Department of Taxation the retail sales tax on all sales of tangible personal property made, including separately stated charges for automotive refinish repair materials. As a licensed dealer, a motor vehicle refinisher or painter may purchase all tangible personal property that becomes a component part of a motor vehicle during the refinishing, painting, or repair of the motor vehicle exempt of the tax for resale. Once a motor vehicle refinisher or painter elects to treat himself as a retailer, such election and tax application must be uniformly applied to all motor vehicle refinishing and repair work performed by such dealer.

D. Consumables and equipment. Regardless of whether the optional tax treatment is elected or not, motor vehicle refinishers, painters, and washers are liable for the tax on purchases of all tangible personal property used or consumed in the performance of their work, and that does not transfer to the customer.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-69; revised January 1, 1979; amended, Volume 26, Issue 09, eff. February 3, 2010.

23VAC10-210-1030. [Reserved]. (Reserved)

23VAC10-210-1040. (Repealed.)

Historical Notes

Derived from VR630-10-72 or VR630-10-72.1; added, eff. January 1, 1985; revised January 1, 1979; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-1060. Newspapers, magazines, periodicals and other publications.

A. Generally. The tax does not apply to the retail sale of any newspaper, magazine or other publication issued daily, or regularly at average intervals not exceeding three months, except that newsstand sales of the publications are taxable.

B. Definitions.

1. Publications. As used herein the term "publication" shall mean any written compilation of information available to the general public. Publication does not include general reference materials and their periodic updates.

2. Newsstand. As used herein the term "newsstand" means a definite place of business at which newspapers or magazines are sold, but does not include coin-operated newspaper boxes.

C. Advertising inserts. Advertising inserts or supplements and other printed matter distributed with or as a part of a nontaxable publication are not subject to the tax. However, materials printed as inserts or supplements which are not distributed with a nontaxable publication, for example those distributed in stores or through the mails, are subject to the tax, unless otherwise specifically exempted by law (for example, see 23VAC10-210-260).

D. Other printed matter. The purchase of printed material other than newspapers, magazines, and other publications and material distributed with or as a part of such items is subject to the tax unless otherwise specifically exempted. For example, see 23VAC10-210-260. For custom printing, see 23VAC10-210-3010.

Statutory Authority

§§ 58.1-203 and 58.1-609.6(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-73; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-74 § 1; revised July 1969; January 1979; August 1982; November 1983; August 1984; amended, eff. July 28, 1993.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-74 § 2; revised July 1969; January 1979; August 1982; November 1983; August 1984; amended, eff. July 28, 1993.

23VAC10-210-1072. Nonprofit organizations; purchases for resale; intercompany sales and transfers; occasional sale; change of organization or operations; misuse of ....

A. Purchases for resale. A purchase of tangible personal property for sale or resale is not subject to the tax. Therefore, a nonprofit organization that is regularly engaged in selling tangible personal property and required to register as a dealer may purchase this tangible personal property exempt from the tax using a resale exemption certificate, Form ST-10.

B. Intercompany sales and transfers. There is no exemption for sales or transfers between separately organized chapters of an organization, including sales to or from a chapter of an organization and its parent organization unless the sale or transfer involves interstate commerce or other transaction which is specifically exempt by statute.

C. Occasional sale. Notwithstanding any other provision of this regulation, a nonprofit organization that is not regularly engaged in selling tangible personal property is not required to register as a dealer and collect the tax on its sales provided it makes sales on three or fewer separate occasions within the calendar year. However, sales made at fairs, flea markets, festivals and carnivals are not considered occasional sales.

D. Change of organization or operations. If a nonprofit organization changes its organizational structure or the nature of its operation in a way that voids its exemption from retail sales and use tax, it is required to register to collect and remit sales tax on retail sales and pay use tax on purchases of tangible personal property or services previously exempted, where applicable, in accordance with § 58.1-612 of the Code of Virginia.

E. Misuse of exemption certificates. Any misuse of exemption certificates will be subject to the penalties prescribed in § 58.1-623.1 of the Code of Virginia, which include a penalty of up to $1,000 or suspension of the use of the exemption for a period of at least one year. In all cases, the person misusing an exemption certificate will be liable for the unpaid tax and interest thereon.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-74 §§ 3-7; revised July 1969; January 1979; August 1982; November 1983; August 1984; amended, eff. July 28, 1993.

23VAC10-210-1080. Occasional sale.

A. Generally. The tax does not apply to an occasional sale provided the sale or exchange is not one of a series of sales or exchanges sufficient in number, scope and character to constitute an activity requiring the holding of a certificate of registration.

B. Occasional sale defined. The term "occasional sale" means:

1. A sale by a person who is engaged in sales on three or fewer separate occasions within one calendar year, except that sales at fairs, flea markets, circuses and carnivals and sales made by peddlers and street vendors are not occasional sales; or

2. A sale of tangible personal property not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration. The words "not held or used by a seller in the course of an activity for which he is required to hold a certificate of registration" mean that a registered dealer is not entitled to an occasional sale exemption solely by virtue of the fact that the article sold may be of a different class from the merchandise he/she regularly sells; or

3. The sale or exchange of all or substantially all the assets of any business; or

4. The reorganization or liquidation of any business.

The following examples illustrate the application of the occasional sale exemption:

Example 1: If Company A, which holds a certificate of registration only for retail sales made in its employee cafeteria, sells one piece of computer equipment, such transaction will be deemed an occasional sale since the computer is not property used in the cafeteria, which is the activity for which A is required to hold a certificate of registration.

Example 2: If Company B, which operates a hotel and holds a certificate of registration for collecting tax on room rentals, sells beds and mattresses used in the hotel, the occasional sale exemption is inapplicable since the property being sold is being used in the activity for which B is required to hold a certificate of registration.

Any person who is engaged in limited sales activity is encouraged to request a written ruling on the applicability of the occasional sale exemption to the sales activity.

C. Purchases. Any person who purchases an item in a transaction which is deemed an "occasional sale" shall likewise not be liable for any use tax on such purchase.

For auctioneers, agents and factors, see 23VAC10-210-140.

Statutory Authority

§§ 58.1-203 and 58.1-609.10(2) of the Code of Virginia.

Historical Notes

Derived from VR630-10-75; revised July 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-1090. Out-of-state vendors.

Every person outside this state who engages in business in this state as a dealer (as defined in 23VAC10-210-460) is required to register and to collect and pay the tax on all taxable tangible personal property sold or delivered for storage, use or consumption in this state. Such dealers must file returns and perform all other duties required of dealers in this state. Out-of-state vendors who have not subjected themselves to the jurisdiction of this state in any way are encouraged to apply for a Certificate of Registration and to collect the use tax as a service to their Virginia customers.

For out-of-state lessors, see 23VAC10-210-840; out-of-state peddlers, 23VAC10-210-2020; place of business in Virginia, 23VAC10-210-2070.

Statutory Authority

§§ 58.1-203 and 58.1-612 of the Code of Virginia.

Historical Notes

Derived from VR630-10-76; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-2000. (Repealed.)

Historical Notes

Derived from VR630-10-77 or VR630-10-78, revised July 1, 1969; January 1, 1979; amended, eff. July 1, 1993; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-79; revised July 1969; January 1, 1979.

23VAC10-210-2030. (Repealed.)

Historical Notes

Derived from VR630-10-80 § 1; revised January 1, 1979; August 1, 1984; amended, eff. July 28, 1993; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-2032. Penalties and interest; audits.

A. Definitions. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise:

"Compliance ratio" means the percentage figure used by the department to determine a taxpayer's effort to comply with the retail sales and use tax laws of the Commonwealth.

"Measure found" means the dollar amounts of additional sales deficiency or dollar amounts of additional use deficiency disclosed by the audit. Separate compliance ratios for sales and use taxes will be necessary if the audit contains deficiencies in both areas.

"Measure paid to vendor" means the dollar amounts of purchases on which the purchaser paid the Virginia sales or use tax to the vendor.

"Measure reported" means the dollar amounts of taxable sales or the dollar amounts of purchases reported on a return for the entire audit period.

"Net underpayment" means use tax deficiency for each month determined by the audit.

"Net understatement" means sales tax deficiency determined by the audit less allowable credits, such as the sales price of tangible personal property returned by the purchaser, repossessed, or charged off as bad debts for each month during the period of the audit.

B. Penalty.

1. The application of penalty to audit deficiencies is mandatory and its application is generally based on the percentage of compliance determined by computing the dealer's compliance ratio. The compliance ratio for the sales or use tax may be computed by using the following ratio:

Measure Reported

= Compliance Ratio

Measure Reported + Measure Found

This method is to be used by the auditor in separately computing the compliance ratio on both the sales portion of the audit and the purchases portion of the audit.

2. If the auditor's computation indicates that a taxpayer has failed to meet the required compliance ratio for the accrual of use tax on the purchases portion of the audit, the taxpayer may, at its option, compute a separate compliance ratio by including the measure on which tax was paid to its vendors, as follows:

Measure Reported + Measure Paid to Vendors

= Compliance Ratio

Measure Reported + Measure Paid to Vendors + Measure Found

It is the taxpayer's responsibility to compute the above compliance ratio (hereinafter referred to as the "alternative method") and provide the auditor with documentation supporting the computation. The taxpayer must compute the ratio based on a review of purchases for the same period used by the auditor to compute the compliance ratio. Use tax penalty will not be assessed if the taxpayer's tax compliance ratio falls within the required tolerances.

3. First generation audits. Generally, penalty will be waived for first generation audits. First generation audit penalty cannot be waived if any of the following conditions exist:

a. The taxpayer has been previously notified in writing by the Department of Taxation to collect tax on sales or to pay tax on purchases, but has failed to follow instructions;

b. The taxpayer has collected the sales tax, but failed to remit it to the Department of Taxation; or

c. The taxpayer has willfully evaded reporting and remitting the tax to the Department of Taxation and indications of fraud exist.

The audit of a business that has experienced a name change, a change in responsible partners or officers or the addition of new locations, and where the business is conducted in the same manner and for the same purposes as during a prior audit, will not be considered a first audit for purposes of this subsection.

Similarly, audits performed for periods subsequent to the institution of reorganization plans, where during such reorganizations, the continuity of the business was not affected and the business entity maintained operations for the purpose of producing the same product(s) or rendering the same service(s), will not qualify for first generation audit status. In addition, audits performed for periods subsequent to business mergers, absorptions and like ventures, where the intent is to diversify or expand, will not qualify for first generation audit status. However, penalty generally will not be applied to audit deficiencies occurring in new areas not covered in prior audit(s) as set forth in subdivision 8 of this subsection.

In the event that a business should undergo a reorganization, restructuring, acquisition, merger, diversification of product line or process, or any other event that would subject the business to a different sales tax application than its normal course of business, it is recommended that the business request a written ruling from the department as to the proper sales and use tax application. See 23VAC10-210-20.

4. Second generation audits. Penalty will generally be applied unless the taxpayer's compliance ratios meet or exceed 85% for sales tax and 60% for use tax, as computed by the auditor or under the alternative method.

5. All subsequent generation audits. Penalty will generally be applied unless the taxpayer's compliance ratios meet or exceed 85% for sales tax and 85% for use tax, as computed by the auditor or under the alternative method.

6. Taxable sales. Penalty, based on the compliance ratio, will generally be applied to the net understatement of the sales tax.

7. Taxable purchases. Penalty, based on the compliance ratio calculated by either the auditor or under the alternative method, will generally be applied to the net underpayment of the use tax on recurring purchases of tangible personal property used regularly in the business.

a. Withdrawals from inventory. Withdrawals of tangible personal property are subject to the use tax on a cost basis (or fabricated cost basis in the case of a fabricator/manufacturer) and should be added to taxable recurring purchases for purposes of computing the compliance ratio.

b. Fixed assets. The tax applies to purchases of fixed assets used in the business and such purchases should be added to taxable recurring purchases and taxable withdrawals from inventory for purposes of computing the compliance ratio.

8. Exceptions. Penalty generally will not be applied to audit deficiencies occurring in new areas not covered by prior audit(s), provided the application of the tax is not clearly established under existing law, regulations or other published documents of which the taxpayer reasonably should have had knowledge, or areas where the taxpayer has relied on prior correspondence with the department that has not been superseded by a law change, a change in regulations, or other published documents of which the taxpayer reasonably should have had knowledge. Deficiencies in these areas will not be included in compliance ratio computations. Notwithstanding the above, items of like class or similar nature may be subject to penalty even though the specific item was not addressed in the previous audit(s) if the general class of items was held taxable in previous audit(s). The application of penalty to audit deficiencies will not be waived on second and subsequent audits for other than exceptional mitigating circumstances.

C. Interest. The application of interest to all audit deficiencies is mandatory and accrues as set forth in 23VAC10-210-2030 C.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-80 § 2; revised January 1, 1979; August 1, 1984; amended, eff. July 28, 1993; Volume 26, Issue 01, eff. October 19, 2009.

23VAC10-210-2034. (Repealed.)

Historical Notes

Derived from VR630-10-80 § 3 or VR630-10-81; revised January 1, 1979; August 1, 1984; amended, eff. July 28, 1993; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-82; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-2060. Physicians, surgeons, and other practitioners of the healing arts.

A. Sales. The charges for professional services performed by physicians, surgeons and other "practitioners of the healing arts" are not subject to the tax. If a practitioner regularly makes sales of tangible personal property, he is required to register as a dealer and collect and pay the tax on retail sales.

B. Purchases. Physicians, surgeons and other "practitioners of the healing arts" are the consumers of all tangible personal property used in performing their professional services. They must pay the tax to their suppliers at the time of purchase. If the supplier fails to collect the tax, the practitioner must pay the tax on a Consumer's Use Tax Return, Form ST-7. The only exception is that licensed physicians may purchase controlled drugs and hemodialysis and peritoneal dialysis equipment and supplies for use in their professional practice exempt from the tax. Controlled drugs are those itemized in Article 5 (§ 54.1-3443 et seq.) of Chapter 34 of Title 54.1 of the Code of Virginia. Purchases by a licensed physician of wheelchairs, braces, crutches, prostheses, orthopedic appliances, durable medical equipment, and similar items are subject to the tax, unless purchased on behalf of a specific patient. Other purchases, including bulk purchases, of such items are subject to the tax, even if items from a bulk inventory are subsequently dispensed to or modified for specific patients.

For medicines, drugs, durable medical equipment, and dialysis equipment see 23VAC10-210-940.

Statutory Authority

§§ 58.1-203 and 58.1-609.5(1) of the Code of Virginia.

Historical Notes

Derived from VR630-10-83; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-2070. Situs of sale.

A. Definitions. The following words and terms when used in this section shall have the following meanings unless the context clearly indicates otherwise:

"Hampton Roads Region" means the Counties of Isle of Wight, James City, Southampton, and York and the Cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg.

"Local sales and use tax" means the local retail sales and use tax imposed by ordinance in all Virginia cities and counties at the rate of 1.0%.

"Northern Virginia Region" means the Counties of Arlington, Fairfax, Loudoun, and Prince William and the Cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park.

"Place of business" means the business location in Virginia that first takes the purchaser's order, whether in person, by purchase order, or by letter or telephone, regardless of the location of the merchandise or the point of acceptance of the order or shipment. "Place of business" includes a store, a sales or other office, or any warehouse.

"Regional sales and use tax" means the additional state retail sales and use tax imposed in the Hampton Roads Region and the Northern Virginia Region at the rate of 0.7%.

B. Sourcing.

1. Sales tax. Sales by dealers located in Virginia are generally subject to the sales tax and sourced to the city or county of the place of business of the dealer collecting the tax, without regard to the city or county of possible use by the purchaser. The sale of tangible personal property at the place of business of the seller is sourced to that place of business, even if the goods are ultimately delivered to the purchaser at another location. The remote sale (by telephone, Internet, or mail order) of tangible personal property from an in-state dealer with a place of business in Virginia is sourced to the location in which the order was first taken, even if the goods are ultimately delivered to the purchaser at another location. Accordingly, an order placed for merchandise in a store in County A, forwarded by the store in County A to a sales office in City B and shipped to the purchaser from a warehouse or branch store in County C is a sale made in County A.

Example 1: Dealer A makes a sale to a customer at his place of business in the City of Fairfax in the Northern Virginia Region. Dealer A has the goods delivered to the customer in Loudoun County in the Northern Virginia Region. The sale is sourced to the City of Fairfax. Dealer A should collect 6.0% (4.3% state, 0.7% Regional, and 1.0% local) sales tax on the purchase. The 1.0% local tax should be sourced to the City of Fairfax.

Example 2: Dealer B makes a sale to a customer at his place of business in Loudoun County in the Northern Virginia Region, but the goods are delivered to the customer in Roanoke County, which is not in the Northern Virginia or Hampton Roads Region. The sale is sourced to Loudoun County, in the Northern Virginia Region. Dealer B should collect 6.0% sales tax on the purchase. The 1.0% local tax should be sourced to Loudoun County.

Example 3: Customer C orders merchandise from Dealer D by placing a call to Dealer D's store, located in the City of Newport News in the Hampton Roads Region. The goods will be shipped to Customer C's residence that is neither in the Hampton Roads nor the Northern Virginia Region. The sale is sourced to the City of Newport News in the Hampton Roads Region. Dealer D should collect 6.0% (4.3% state, 0.7% Regional, and 1.0% local) sales tax on the purchase. The 1.0% local tax should be sourced to the City of Newport News.

Example 4: Customer E orders merchandise from Dealer F's website, which has a place of business and warehouse in North Carolina. Dealer F is registered to collect the Virginia retail sales and use tax. The invoice indicates that the merchandise will be shipped to Customer E's residence in the City of Richmond, which is outside the Northern Virginia and Hampton Roads Regions. Because Dealer F's place of business and warehouse are located outside of Virginia, the sale is sourced to the location in which the merchandise is delivered, the City of Richmond, which is outside the Northern Virginia and Hampton Roads Regions. Dealer F should collect 5.3% (4.3% state and 1.0% local) sales tax on the purchase. The 1.0% local tax should be sourced to the City of Richmond.

2. Use tax collected by dealers. The use tax is generally sourced to the city or county where the goods are used or consumed by the purchaser, or stored for use or consumption. An out-of-state dealer who has a place of business in Virginia is required to register as a dealer at that place. If the same dealer, at a place of business outside this state, receives orders from Virginia customers directly and not through a place of business in Virginia, he must also register as an out-of-state dealer. Out-of-state dealers who hold Certificates of Registration to collect the use tax from their customers must source sales into Virginia according to the city or county of destination.

Example 1: Dealer A makes Internet sales from his place of business in North Carolina. Dealer A holds a Certificate of Registration to collect the use tax from Virginia customers. Dealer A makes a sale and ships the goods to the City of Fairfax. Dealer A would collect 6.0% (4.3% state, 0.7% Regional, and 1.0% local) use tax on the sale. The 1.0% local tax should be sourced to the City of Fairfax.

3. Consumer use tax. Generally, Virginia residents and others purchasing goods from a business that does not collect the Virginia retail sales and use tax or purchasing goods tax-free while outside Virginia and bringing them into Virginia are subject to the consumer use tax. The use tax is sourced to the city or county where the goods are used or consumed by the purchaser, or stored for use or consumption. For more information on use tax, see 23VAC10-210-6030.

Any person purchasing tangible personal property in other areas of the Commonwealth for use in either the Hampton Roads Region or the Northern Virginia Region is not responsible for the regional consumer use tax if the retail sales and use tax has been paid on the purchase.

Example 1: Customer A, who is located in the City of Fairfax, makes an Internet purchase of tangible personal property from a West Virginia dealer who does not hold a Virginia Certificate of Registration and does not collect the use tax from Virginia customers. Customer A must remit 6.0% (4.3% state, 0.7% regional, and 1.0% local) use tax on the purchase.

Example 2: Customer B is located in the City of Charlottesville. Customer B buys equipment in Charlottesville that is intended for use performing a construction contract in Fairfax County and pays 5.3% sales tax. Customer B subsequently moves the equipment into Fairfax County. Customer B does not owe the 0.7% regional use tax on the equipment as the sales tax has been paid.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-84; revised July 1969; January 1, 1979; amended, eff. January 1, 1985; amended, Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-2080. Prefabricated house sections.

Sales of prefabricated modular house sections or units by manufacturers and other vendors are sales of tangible personal property, and the tax applies to the sales price. For manufacturers or other vendors who contract to furnish and install such units, see 23VAC10-210-410 for tax application.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-84.1; added July 1969; revised January 1, 1979.

23VAC10-210-2090. Pollution control equipment and facilities.

A. Generally. The tax does not apply to pollution control equipment and facilities that have been certified to the Department of Taxation as having been constructed, reconstructed, erected or acquired in conformity with the state program or requirements for the abatement or control of water or air pollution.

B. Pollution control equipment and facilities defined. "Pollution control equipment and facilities" means any real or tangible personal property, equipment, facilities or devices used primarily for the purpose of abating or preventing air or water pollution in Virginia. Any property which is certified as used for these purposes is not subject to the tax (see subsection C below).

C. Certification required. The exemption set forth above is not applicable until the property for which such exemption is sought has been certified by the State Water Control Board or State Air Pollution Control Board as used primarily for abating or preventing pollution. Once such certification is obtained, exemption certificates will be mailed automatically to the person obtaining the certification. Contractors or others may obtain additional exemption certificates by written request to the Department.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(9) of the Code of Virginia.

Historical Notes

Derived from VR630-10-84.2; added January 1979; amended, eff. January 1, 1985.

23VAC10-210-3000. Premiums and gifts.

Donors of tangible personal property are users or consumers of that property. Their purchases are taxable, including purchases of gifts for advertising or promotional purposes. The tax applies to the cost price of property purchased originally for resale and later used as a gift. The tax applies to the cost price of purchases of property to be awarded as prizes.

For catalogs and other printed materials used for advertising tangible personal property for sale, see 23VAC10-210-260.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-85; revised January 1, 1979.

23VAC10-210-3010. Printing.

A. Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise:

"Administrative supplies" mean, but are not limited to, letterhead, envelopes and other stationery, invoices, billing forms, payroll forms, price lists, time cards, computer cards, certificates, business cards, diplomas and awards. The term also includes supplies for internal use by the purchaser, such as menus, calendars, datebooks, desk reminders, appointment books, employee newsletters, and other house organs.

"Consumer printing" means the production or fabrication of printed matter for one's own use or consumption and not for resale.

"Custom printing" means the production or fabrication of printed matter in accordance with a customer's order of copy for the customer's use or consumption.

"Publisher printing" means the printing of books, newspapers, magazines or other periodicals for sale or resale by the publisher-printer and includes the printing of a "publication" as defined in 23VAC10-210-1060 which is distributed free of charge.

B. Generally. The printing of tangible personal property for sale or resale is deemed to be industrial manufacturing. Therefore, to the extent relevant, the provisions of 23VAC10-210-320 apply to printing except as otherwise noted.

C. Custom printing.

Sales and purchases. Unless otherwise noted, the sale of custom printing represents a taxable sale of tangible personal property. The tax is computed on the total invoice charge made on the transaction. The total invoice charge includes the charge made for any engraved, lithoplated, or other type photoprocessed plate, die, or mat involved in the printing and includes the charge made for printing and imprinting when the customer furnishes the printing stock. The printer must add the amount of the tax to the invoice charge.

Purchases by the printer of items which become part of the printed matter for sale or resale are not subject to the tax. Examples of such property include ink, printing stock, staples, stapling wire, binding twine, and glue. Purchases by the printer of items used directly in the production of tangible personal property for sale or resale are similarly not subject to the tax. Examples of such items include engraved, photoprocessed, lithoplated, or any other type of plate, die or mat, machinery and tools and their replacement parts, blotting papers, drying papers, and typesetting.

D. Consumer printing. Consumer printing is not the production of printed matter for sale or resale. Therefore, the tax applies to all purchases by persons engaged in consumer printing, except as provided in subsections G and H of this section.

E. Publisher printing.

Sales and purchases. A publisher-printer making retail sales of books, etc., must add the tax to the charge. He must register as a dealer and collect and pay the tax. But the sale of any publication issued daily, or regularly at average intervals not exceeding three months is exempt from the tax, except as to the newsstand sales thereof (see 23VAC10-210-1060).

The tax applies to purchases by publisher-printers in the same manner as that set forth in subsection C relating to custom printing. The manufacturing exemption set forth in 23VAC10-210-920 applies to the necessary ancillary activities of newspaper and magazine printing when such activities are performed by the publisher of any newspaper or magazine defined as a publication under 23VAC10-210-1060.

F. Materials furnished to printers. The tax does not apply to paper, ink, and other materials furnished to a printer that will become component or ingredient parts of products fabricated by the printer. Materials, such as photographs and plates, that are furnished by customers, but do not become a part of the printer's finished product, are taxable.

G. Catalogs and other printed advertising materials. The tax does not apply to catalogs and other printed materials when distributed for use outside the state after storage in Virginia for one year or less. The tax also does not apply to the envelopes, containers, and labels used to package and mail the catalogs and printed materials exempted above. This exemption applies to materials printed for one's own use or consumption as well as materials printed for sale or resale, provided that such materials are used outside the state after storage here for less than one year.

For a more detailed description of the statutory exemption for catalogs and other printed advertising materials, including a description of the materials qualifying for exemption, see regulation 23VAC10-210-260.

H. Letters, brochures, reports and similar printed materials. From July 1, 1986, to June 30, 1990, letters, brochures, reports, and similar printed materials (except "administrative supplies" as defined in subsection A of this section, are exempt from the tax when stored for 12 months or less in Virginia and mailed to or distributed outside of Virginia. Neither does the tax apply to the envelopes, containers, and labels used to package and mail the materials exempted as well as materials printed for sale or resale.

Administrative supplies as defined in subsection A of this section, are subject to the tax when sold at retail. The only administrative supplies that are not taxable are those that become an integral part of the exempt printed materials described above and in subsection G of this section. For example, letterhead upon which fundraising or promotional letters are printed, return envelopes enclosed with fundraising letters, and price lists enclosed within catalogs advertising tangible personal property for sale or resale are not taxable.

When stored in Virginia for 12 months or less and mailed to or distributed outside of Virginia, the following printed materials are exempt from the tax:

Fund raising and promotional letters, circulars, folders, brochures, and pamphlets, including those for charitable, political, and religious purposes;

Corporate stockholder meeting notices;

Proxy materials and enclosed proxy cards;

Meeting and convention promotional materials;

A business prospectus;

Corporate monthly, quarterly, and annual stockholder reports;

Announcements, invitations, and informational pieces for external promotional purposes;

Greeting cards, brochures, menus, calendars, datebooks, desk reminders, appointment books, art prints, and posters for external promotional purposes; and

Printed point-of-purchase sales devices, including display racks, animated and action pieces, posters and banners.

The foregoing list is merely illustrative of exempt printed items and is not designed to be all inclusive.

I. Sales of printing to customers outside of Virginia. The sale and delivery of printing from a Virginia printer to a customer outside the Commonwealth is not taxable, provided the conditions set forth in 23VAC10-210-780 on interstate commerce are met. Except as provided in subsections F and G of this section; however, the delivery to a customer of printing in Virginia by any means is taxable. For example, a taxable transaction occurs when an out-of-state customer sends a truck into Virginia to pick up materials sold to him by a Virginia printer. The tax would not be due in a similar situation, however, if the printer shipped the materials to the out-of-state customer by common carrier or the U.S. mail. When a customer purchases printing and directs the printer to ship materials to the customer's business location both within and without Virginia, the tax is applicable only to the materials delivered to the Virginia locations. On the other hand, the tax is applicable in full when printing is delivered to a central storage facility in Virginia for subsequent distribution to facilities outside the Commonwealth, except as otherwise noted in subsections F and G of this section.

J. Sales for resale. Sales of printing to customers for resale by them are not taxable, provided that the printer is furnished a resale exemption certificate by the purchaser. An example of an exempt sale for resale is the sale of labels that will be affixed to canned goods, clothing, or other items of tangible personal property that will be sold to consumers. Also exempt are bags, boxes, and other printed materials used to package products for sale or resale.

K. Photocopying. The sale of photocopies and photostats represents the taxable sale of tangible personal property. "Quick printers" and persons operating photocopy or photostating machines primarily for the reproduction of copy furnished by customers are not industrial manufacturers and are not entitled to exemption from the tax on machinery and tools used in their businesses. Such persons may purchase exempt from the tax only those items, such as paper, that will become ingredient or component parts of the finished products they sell. The application of the tax to photocopying is also described in 23VAC10-210-2050.

For publications, see 23VAC10-210-1060; for manufacturers, see 23VAC10-210-1060; for typesetting, see 23VAC10-210-6020.

Statutory Authority

§§ 58.1-203, 58.1-609.3(2)(v), and 58.1-609.6(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-86 §§ 1-11; adopted December 2, 1986; amended, eff. February 1, 1987.

23VAC10-210-3020. (Repealed.)

Historical Notes

Derived from VR630-10-87; revised, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, March 10, 2007.

23VAC10-210-3030. Radio and television broadcasting.

A. Generally. The tax does not apply to broadcasting equipment (and parts and accessories to that equipment) and towers used or to be used directly in broadcasting by commercial radio and television companies or concerns which are under the regulation and supervision of the Federal Communications Commission.

B. Broadcasting defined. Broadcasting as used in this section means transmitting and not programming (program preparation). The exemption applies only to broadcasting equipment and accessories to such equipment used directly in disseminating a signal into the air. Equipment and accessories used to create the material to be disseminated are taxable.

Cameras and camera supplies purchased by broadcasting companies and other similar businesses for use by reporters in the field for gathering news do not qualify for exemption, and therefore are subject to tax.

Monthly charges by concerns for furnishing news wire services which also include charges for the teletype machines through which the news stories are received are charges for personal services exempt from tax.

C. Copyright radio or video tapes and films. The tax does not apply to the lease of copyright audio or video tapes and films by licensed radio and television broadcasting stations. See 23VAC10-210-840.

D. Cable television services. The tax does not apply to broadcasting, amplification, transmission, and distribution equipment and parts and accessories thereto and towers purchased for use by cable television systems.

Statutory Authority

§§ 58.1-203 and 58.1-609.6(2) of the Code of Virginia.

Historical Notes

Derived from VR630-10-88; revised January 1, 1979; August 1992; amended, eff. January 1, 1985.

23VAC10-210-3040. Refunds.

A dealer may request a refund for taxes erroneously or illegally collected. The dealer must show that the tax erroneously or illegally collected was paid by him and not passed on to the consumer, or the tax was collected from the consumer as tax and subsequently refunded to the consumer. Refunds cannot be authorized unless the request is made within three years from the due date of the return. The amount refunded will be the net amount of state and local tax remitted to the state on the transaction(s) generating the refund. Thus, if a dealer filed a timely return and deducted dealer's discount for the period for which the refund is claimed, the amount of refund will be reduced by the dealer's discount taken (3% of state tax).

For refunds generally and interest thereon, see General Provisions Regulations.

Statutory Authority

§§ 58.1-203 and 58.1-625 of the Code of Virginia.

Historical Notes

Derived from VR630-10-89; revised January 1, 1979; August 1982; amended, eff. January 1, 1985.

23VAC10-210-3050. Repair businesses.

A. Sales. Any person engaged in the business of repairing tangible personal property is required to register and to collect and pay the tax. If the dealer performing the repair work does not separately state, itemize or segregate at a fixed or retail price, the parts, materials and supplies sold, the tax will apply to the total charge including repair labor.

B. Purchases. Replacement parts, materials and supplies that are transferred to the customer may be purchased under certificates of exemption. The tax must be paid on equipment, tools and all other tangible personal property used in performing the repair work.

For maintenance contracts, see 23VAC10-210-910; for fabrication, see 23VAC10-210- 560.

Statutory Authority

§§ 58.1-203 and 58.1-609.5(2) of the Code of Virginia.

Historical Notes

Derived from VR630-10-90; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-3060. Repossessed goods.

A dealer who has paid the sales tax on tangible personal property sold under a retained title, conditional sale or similar contract, and later repossesses the property, may deduct from gross sales the unpaid balance of the sales price due him at the time he repossesses the property. The deduction should be taken in the appropriate place on the sales tax return covering the period in which the property is repossessed. Adequate records must be kept to disclose the essential facts and figures regarding repossessed goods. When any repossessed tangible personal property is resold, the sale is subject to the sales tax.

Statutory Authority

§§ 58.1-203 and 58.1-620 of the Code of Virginia.

Historical Notes

Derived from VR630-10-91; revised January 1, 1979; January 1, 1985; amended, eff. July 1, 1993.

23VAC10-210-3070. Research; general provisions.

A. Definitions. The following words and terms, when used in 23VAC10-210-3070 through 23VAC10-210-3074, shall have the following meanings, unless the context clearly indicates otherwise:

"Basic research" means a systematic study or search in a scientific or technical field of endeavor with the ultimate goal of advancing knowledge or technology in that field. The development of a tangible product or process need not occur in basic research activities. Examples of basic research activities include medical, chemical, or biological experiments conducted in a laboratory environment.

"Direct use" means those activities which are an integral part of basic research or research and development activities, including all steps of these activities, but not including secondary activities such as administration, general maintenance, product marketing, and other activities collateral to the actual research process.

"Exclusive use" means items are used solely in basic research or research and development activities.

"Experimental sense" means work is conducted through tests, trials, tentative procedures, or policies adopted under controlled conditions to discover, confirm, or disprove something doubtful.

"Laboratory sense" means work is conducted in a place equipped for experimental study in a science and providing an opportunity for experimentation, observation, or practice in a field of basic scientific or traditional physical science research.

"Research" means basic research and research and development as defined in this section.

"Research and development" means a systematic study or search directed toward new knowledge or new understanding of a particular scientific or technical subject and the gradual transformation of this new knowledge or new understanding into a usable product or process. Research and development must have as its ultimate goal: (i) the development of new products; (ii) the improvement of existing products; or (iii) the development of new uses for existing products. Research and development does not include the modification of a product merely to meet customer specifications unless the modification is carried out under experimental or laboratory conditions in order to improve the product generally or develop a new use for the product.

B. Generally. The tax does not apply to tangible personal property purchased or leased and used directly and exclusively for research in the experimental or laboratory sense.

Research does not include testing or inspection of materials or products for quality control; however, in the case of an industrial manufacturer, processor, refiner or converter, testing and inspection for quality control is deemed to be an exempt activity under 23VAC10-210-920. Additionally, research does not include environmental analysis, testing of samples for chemical or other content, operations research, feasibility studies, efficiency surveys, management studies, consumer surveys, economic surveys, research in the social sciences, metaphysical studies, advertising, promotions, or research in connection with literary, historical, or similar projects.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-92 §§ 1.1, 1.2; revised July 1, 1969; January 1, 1979; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-3071. Research; extent of the exemption.

A. Direct and exclusive use. The exemption is limited in scope to tangible personal property used directly and exclusively in an actual research process, starting with the handling and storage of raw materials and supplies at the research facility and ending after the last step of the research process when the products of the research process are stored at the research facility. Items of tangible personal property used directly and exclusively in research include chemicals, drugs and other materials, equipment, machinery, tools, supplies, energy, fuel, and power used in these processes. An item is not considered used directly and exclusively merely because it is essential to research activities or because its use is required by law.

B. Items used in both taxable and exempt research activities. When a single item is used both in exempt and nonexempt activities, it is not used exclusively in research activities and is taxable. Therefore, a prorated research exemption of the single item based upon percentages of exempt and nonexempt usage or an exemption based upon the preponderance of an item's use in exempt activities is not permitted.

Example: A company purchases a computer system which is used 90% of the time for research purposes. The remaining 10% of the time, the computer is used to maintain accounting records and generate monthly financial statements. The computer system is taxable on the full purchase price.

C. De minimis usage. When research property is used in a taxable manner, it will continue to be exempt from the tax if the taxable use is de minimis in nature. Taxable use of the property is considered de minimis if the taxable usage of the property (i) does not involve a continuous or ongoing operation; (ii) does not follow a consistent pattern, i.e., weekly, monthly, quarterly, etc.; (iii) is occasional in nature occurring no more than three times; and (iv) in total, accounts for no more than three days.

Example 1. A company purchases a computer system which it uses directly for research. However, a management report is generated which addresses the progress of a research project. It takes two days to generate the report. No other taxable usage was made of the computer. Although the generation of management reports is typically a taxable usage of research equipment, this use of the computer to generate a management report is considered de minimis as it is not a continuous operation, it occurred one time, and took less than three days to complete. Therefore, although de minimis taxable usage of the computer system is made, it will continue to be exempt from the tax.

Example 2. Facts are the same as Example 1, except that instead of generating a management report, the computer is used to generate weekly payroll and employment tax return reports, which consumes 2.0% of the computer's time. The generation of payroll and employment reports is not a de minimis taxable usage of the computer as the reports are generated on an ongoing basis. Therefore, the computer is not considered used exclusively for research and is taxable.

D. Item changed from exempt to taxable use. When tangible personal property is purchased exempt of the tax for direct and exclusive use in research and is subsequently used in a manner other than that which would retain the exemption, the tax must be remitted directly to the department using Consumer Use Tax Return, Form ST-7, based on the purchase price of the property. However, if the taxable use of the property occurs more than six months after the date it was purchased, the tax may be computed on the lower of purchase price or fair market value at the time the taxable use was made. The burden of proof is on the person to substantiate the fair market value of the property.

E. Equipment purchased or leased for use by other companies. Tangible personal property must be purchased or leased by the person, firm, corporation, or other entity that actually will perform research activities in order to qualify for the tax exemption for items used directly and exclusively in research. If the research equipment is purchased or leased by a person and is subsequently donated or loaned to another person to perform research for either party, the equipment is taxable to the person making the purchase, even if the other party is a nonprofit organization, governmental entity, or is otherwise exempt from the sales and use tax.

Example: A company hires an institution to conduct research on its behalf. The company purchases research equipment which it donates to the institution to conduct the research. The company is taxable on the purchase price of the equipment because it is not actually conducting the research activities.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-92 §§ 2.1-2.5; revised July 1, 1969; January 1, 1979; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-3072. Research; taxable and exempt items.

Following are examples of taxable and exempt items used in research activities. These lists are exemplary and are not intended to be all inclusive.

1. Taxable:

a. Desks, chairs, copy machines, calculators, file cabinets, typewriters, etc., used by administrative clerical personnel in support of research activities;

b. Desks, chairs, copy machines, file cabinets, work benches, storage cabinets used to store research equipment, tools, and supplies, etc., used by research personnel;

c. Heating and cooling equipment used to maintain an optimum temperature in a research facility when also used for general heating and cooling purposes;

d. Items used in the publication of research findings;

e. Items used in marketing new products resulting from research;

f. Computer hardware and taxable prewritten or modified software when used for administrative and other activities collateral to actual research activities;

g. Equipment and supplies for cleaning or sterilizing items used directly in research activities either before or after these activities;

h. Equipment and supplies used to produce items that will be used directly in research activities;

i. Technical books and journals purchased by a research facility for general reference and training purposes, or to keep research personnel informed of current scientific advancements, achievements, or events, and not purchased in connection with specific research activities.

2. Exempt when used directly and exclusively in research:

a. Test tubes, flasks, reagents, microscopes, slides, and similar items;

b. Electronic instrumentation and components, laboratory tables and equipment, tools, and similar items;

c. Technical books and journals purchased by a research facility for use in performing background research for a specific research project;

d. Paper and supplies used to record research findings during the actual research process;

e. Computer hardware and software when used exclusively to store, retrieve, and process research data;

f. Protective clothing provided gratuitously to employees engaged in research activities;

g. Items used to transport or store research materials during and between various steps of research at the research facility;

h. Heating and cooling equipment used to maintain the integrity of research materials;

i. Repair parts for new equipment used during the field testing stage of research activities; and

j. Drugs, chemicals, animals, and other raw materials, including the cabinets, shelves, or cages in which these items are stored.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-92 § 3.1; revised July 1, 1969; January 1, 1979; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-3073. Research; contractors.

Generally, a contractor is the user and consumer of all tangible personal property furnished to or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts as provided in 23VAC10-210-410. However, tangible personal property furnished to or by the contractor which will be used directly and exclusively in research is exempt from the tax. The contractor may purchase this property exempt of the tax by furnishing to the vendor a properly executed exemption certificate, Form ST-11A.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-92 § 4.1; revised July 1, 1969; January 1, 1979; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-3074. Research; use of exemption certificates.

In making purchases for use in research, a person should furnish suppliers with a certificate of exemption, Form ST-11. However, these certificates should not be used in making purchases of items which are not directly and exclusively used in research. If the business gives a certificate of exemption and then uses some of the property purchased for purposes other than research, the business must remit the tax to the department as provided in 23VAC10-210-3071 D.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-92 § 5.1; revised July 1, 1969; January 1, 1979; January 1, 1985; amended, eff. July 1, 1994.

23VAC10-210-3080. Returned goods.

A. Generally. A dealer may deduct from gross sales any portion of the sales price of tangible personal property returned by a customer provided that such amount has been refunded to or credited to the account of the purchaser. Adequate records must be kept to disclose the essential facts.

B. Returns before tax paid by dealer. If a dealer refunds or credits to a customer's account all or any portion of the sales price of returned goods and has not yet paid the sales tax to the department, such portion of the sales price may be deducted from gross sales by the dealer in the appropriate place on his return for the period.

Example 1. Customer A purchases a sweater from Dealer B for $20 and pays to B the appropriate $1.06 sales tax. A returns the sweater the same day and B refunds $21.06. If the sale was included in gross sales for the month, B may deduct the $20 sales price of the sweater.

C. Returns after tax paid by dealer. If a dealer refunds or credits to a customer's account all or any portion of the sales price of returned goods after the dealer has paid the tax on the goods to the department, such portion may be deducted from gross sales on the dealer's return for the period in which the refund was made or credit given.

Example 1. In December Customer C purchases a bed from Dealer D for $700 and pays the $37.10 tax. C returns the bed to D in January and D credits C's account for $737.10. In reporting gross sales for January, D may deduct the $700 sales price of the bed reported in a previous month.

D. Refund or credit for returned goods. If a dealer as described in subsection C of this section has insufficient gross sales during the period in which goods are returned or a refund or credit issued to absorb the amount of the sales price of the returned goods, the dealer may carry the deduction forward as a credit against gross sales until used. If any portion of such credit has not been used by the time a dealer ceases business or if a dealer is no longer engaged in making retail sales, he may request a refund for any portion of the unused credit for returned goods. The amount of refund will be the net amount of tax remitted, therefore, if a dealer deducted dealer's discount in filing his original return, such discount shall similarly be deducted from the amount to be refunded. The following example illustrates this concept.

Example 1. Customer E purchases equipment from Dealer G in January for $10,000 and pays the $530 sales tax. The transaction is reported on G's January sales tax return which is filed timely. E returns the equipment in April and G refunds to E $8,000 of the sales price and the applicable tax of $424. G's gross sales for April are only $5,000, therefore, only $5,000 of the amount refunded may be used as a credit. G goes out of business on April 30 and applies for refund of the tax attributable to the remaining $3,000 of sales price which was refunded. G will be issued a refund of $155.40 computed as follows:

(Sales Price X 5.3% tax) ‑ dealer's discount = Refund ($3,000 X 5.3% tax) ‑ (1.6% X $90) = $157.56

E. Sales of returned goods. When any returned tangible personal property is resold, the sale is subject to the sales tax.

F. Hampton Roads Region and Northern Virginia Region. The total rate of the state and local sales and use tax in localities that fall within these regions is 6.0% (4.3% state, 0.7% regional, and 1.0% local). The provisions of this section apply to transactions sourced to the Hampton Roads Region and the Northern Virginia Region, mutatis mutandis. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-93; revised January 1, 1979; amended, eff. January 1, 1985; Volume 25, Issue 11, eff. March 4, 2009; Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-3090. Sale or quitting of business; successor business.

A. Sale or quitting business, final return. If any dealer liable for any tax, penalty or interest sells his business or stock of goods or quits the business, he must make a final return and payment within 15 days after the date of selling or quitting the business. At that time, he must also return his Certificate of Registration to the Department of Taxation and include a letter explaining the situation. He must report on his final return the full name and address of any successor.

B. Liability of successor business for unpaid taxes. If a sale of a business for a consideration occurs, the dealer's successors or assigns, if any, must withhold a sufficient portion of the purchase money to cover the amount of any taxes, penalties and interest due and unpaid until the former owner produces either a receipt from the Department of Taxation showing that payment has been made or a certificate stating that no taxes, penalties or interest are due. If the purchaser of a business or stock of goods fails to withhold a sufficient portion of the purchase money, he becomes personally liable for the payment of the taxes, penalties and interest due and unpaid by any former owner. This section does not qualify or limit the exemption from the sales tax of an occasional sale as defined in 23VAC10-210-1080 nor does it intend to imply successor liability where no "sale" of a business occurs.

C. Application of successor business for Certificate of Registration. Any person, firm or corporation who succeeds a dealer in the operation of a business must apply for a Certificate of Registration. When applying for a Certificate of Registration, the successor dealer must inform the department of the acquisition of the business previously operated and furnish the name and certificate number of the previous dealer. The successor may request a receipt of certificate from the department showing the amount of tax, or no tax, due by the previous dealer. Such a receipt or certificate will be sufficient evidence to authorize the successor to release to the previous dealer any funds withheld from the purchase price. A Certificate of Registration may not be issued to a successor who has been notified by the department that any tax, penalty or interest is due and unpaid by previous dealers until such amount is paid in full.

Statutory Authority

§§ 58.1-203 and 58.1-629 of the Code of Virginia.

Historical Notes

Derived from VR630-10-94; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-4000. (Repealed.)

Historical Notes

Derived from VR630-10-95; revised July 1, 1969; January 1, 1979; amended, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-4010. (Repealed.)

Historical Notes

Derived from VR630-10-95.1; added July 1, 1969; revised January 1, 1979; amended, eff. January 1, 1985; repealed, Volume 25, Issue 04, eff. November 26, 2008.

23VAC10-210-4020. Schools and colleges, certain educational institutions and other institutions of learning.

A. When conducted not for profit.

1. Generally. The tax does not apply to sales of tangible personal property to nonprofit schools, colleges and other institutions of learning for their use or consumption and paid for out of their funds. An "other institution of learning" must be similar to a college, that is, it must (a) employ a professionally-trained faculty; (b) enroll and graduate students on the basis of academic achievement; (c) prescribe courses of study; and (d) provide instruction at regular intervals over a reasonable period of time. The tax does apply to purchases by day care centers and other pre-grade school establishments other than kindergartens.

Sales to institutions of learning owned and operated by the state have the same status as other sales to the state for its use or consumption. (See 23VAC10-210-690 through 23VAC10-210-694.)

2. Educational institutions. Tangible personal property and services may be purchased exempt from the tax by an educational institution doing business in the Commonwealth which (a) admits regularly enrolled high school and college students, and (b) provides a face-to-face educational experience in American government, a program which (i) leads toward the successful completion of courses in high school in United States history, civics, and problems of democracy, or (ii) which is acceptable for full credit towards an undergraduate or graduate level college degree, provided such institution is conducted not for profit. The property or services must be purchased by the educational institution. Individuals are not eligible for the exemption even if they are reimbursed by the institution for their expenditures. However, the exemption applies even if students, teachers or other educators participating in the institution's program use or consume the purchased property or services, including meals and lodging.

3. Public school system. The tax does not apply to purchases by public free schools for their use or consumption, provided purchases are made pursuant to official purchase orders to be paid for out of public funds. The tax applies to purchases not paid for out of public funds. (See 23VAC10-210-690 through 23VAC10-210-694.)

4. Sales. The exemption does not extend to sales by the institution (other than school textbooks). (See "School textbooks" below.) For example, the institution must collect the tax on retail sales of meals to students or others if the price of the meals is not included in room, board or tuition charges or fees. For school lunches, see "School lunches" below.

5. Independent associations. The tax does apply to sales to independent athletic and other such associations, whether or not affiliated with a nonprofit institution of learning (including state institutions). When these associations make retail sales, they should contact the Department to determine if they should register as a dealer.

6. School activity funds.

a. With respect to purchases of tangible personal property paid for out of funds other than public funds or funds of the nonprofit institution of learning, the tax applies if such tangible personal property is for the use of any school class, club, group, organization, association or individual. Such items cannot be purchased under certificates of exemption, and the tax must be paid to dealers. These items include yearbooks, class rings, graduation gowns and caps, photographs, school supplies, etc., for use by students. For school lunches, see the paragraph below on "School lunches."

b. The tax does not apply to purchases of tangible personal property by a school, such as athletic equipment, band instruments, etc., to be paid for out of school activity funds if the purchases become the property of the school. These items may be purchased under certificates of exemption.

7. School lunches. The tax does not apply to school lunches sold and served to pupils and employees of schools and subsidized by government at any level. The ingredients for providing the lunches can be purchased under certificates of exemption. Equipment and supplies purchased by a school for its use in preparing and serving school lunches, and which become the property of the school, can be purchased under certificates of exemption. This exemption also applies to government subsidized school lunches sold and served by non-public schools to their pupils and employees.

8. School textbooks. The tax does not apply to school textbooks sold by a local school board or its authorized agency. It also does not apply to school textbooks for use by students attending a college or other institution of learning not conducted for profit when sold (a) by such institution or (b) by any other dealer (provided such textbooks are certified by the institution as required course materials for its students).

9. Parent Teacher Associations and other groups. Parent Teacher Associations or other groups engaging in fund raising projects are the consumers of any tangible personal property they purchase for the projects. The tax must be paid by them to their suppliers.

B. When conducted for profit. The tax applies to sales of tangible personal property to schools, colleges and other institutions of learning when they are conducted for profit. They are required to pay the tax to their vendors at the time of purchase, unless their purchases are made for resale as dealers. All sales of tangible personal property made by such institutions are taxable. In addition, these institutions must collect the tax on any retail sales of meals to students or others, if the price of the meals is not included in room, board, or tuition charges or fees.

23VAC10-210-1070 through 23VAC10-210-1072 covers purchases for use or consumption by certain organizations for the benefit of retarded citizens and of severely physically handicapped children and young adults.

Statutory Authority

§§ 58.1-203 and 58.1-609.4(1),(2),(5) of the Code of Virginia.

Historical Notes

Derived from VR630-10-96; revised July 1969; July 1979; March 1983; August 1984; amended, eff. January 1, 1985.

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.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-97; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-4040. Services.

A. Generally. Charges for services generally are exempt from the retail sales and use tax. However, services provided in connection with sales of tangible personal property are taxable.

Transactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt on the full amount charged, regardless of whether the charges for the service and property components are separately stated. As explained in subsection D of this section, the "true object" test is used to determine the taxability of these transactions.

B. Taxable services. Charges made for the following are taxable:

1. Any services included in or in connection with the sale of tangible personal property;

2. Any services in connection with the fabrication of tangible personal property whether or not the customer furnishes, either directly or indirectly, the materials used in fabrication (see 23VAC10-210-560);

3. Any services in connection with the furnishing, preparing, or serving by a person for a consideration of meals or other tangible personal property (see 23VAC10-210-930); and

4. Any rooms, lodgings or accommodations furnished to transients by any hotel, motel, inn, tourist camp or cabin, camping grounds, club or any other similar place furnished for less than 90 continuous days (see 23VAC10-210-730).

C. Exempt services. The following are not subject to the tax:

1. Personal, professional, or insurance transactions which involve sales as inconsequential elements for which no separate charge is made;

2. Separately stated services performed by repairmen (see 23VAC10-210-3050);

3. Separately stated labor or service charges for the repair, installation, application or remodeling of tangible personal property;

4. Separately stated transportation charges (see 23VAC10-210-6000);

5. Separately stated charges for alterations to apparel, clothing and garments (see 23VAC10-210-120);

6. Charges for gift wrapping services performed by a nonprofit organization;

7. An amount separately charged for labor or services rendered in connection with the modification of prewritten programs as defined in § 58.1-602 of the Code of Virginia (see 23VAC10-210-763); and

8. Computer programs that meet the requirements of "custom programs" as defined in § 58.1-602 of the Code of Virginia (see 23VAC10-210-763).

D. Determination of the appropriate tax treatment of service and sale transactions; information services. In order to determine whether a particular transaction which involves both the rendering of a service and the provision of tangible personal property constitutes an exempt service or a taxable retail sale, the "true object" of the transaction must be examined. If the object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the object of the transaction is to secure the property which it produces, then the entire charge, including the charge for any services provided, is taxable.

Example of a taxable transaction. If one commissions an artist to paint a portrait, the entire transaction is deemed to be a taxable sale despite the fact that a considerable amount of the charge represents the artist's labor, since the object is to obtain the finished product.

Example of an exempt service transaction. Charges for training programs which include charges for required workbooks and tapes are exempt from the tax as charges for services since the object is to obtain the training services. However, separately stated charges for workbooks and tapes are subject to the tax.

In instances where both the services rendered and the property transferred are critical elements of a transaction, the degree of customization, uniqueness or specific services provided in connection with the product shall be considered in determining its appropriate tax status. The following are examples of transactions in which the tax status is based on these factors:

1. Taxable.

a. Standard data lists, reports

b. Extra copies of reports, letters

c. Equipment rentals

d. Data communications equipment

2. Exempt.

a. Customized data lists, reports

b. Original letters, reports

c. Equipment rentals with operators

d. Data communications services, including equipment

The object of the exempt transactions is to obtain a service from the seller. However, the object of the taxable transaction is to obtain the tangible personal property provided by the seller since no special or customized services are involved in providing the tangible property.

The object of any transaction which includes the transmittal of information through electronic means (e.g., current stock market quotations via a terminal) is deemed to be a service since the object of the transaction is to obtain the service of electronic information transmittal and the tangible personal property included serves only as the medium for securing the service. However, the sale or lease of tangible personal property which transmits or receives electronic information not in connection with the provision of information services is taxable.

Example. A taxpayer provides information retrieval services and in connection therewith leases or rents computer equipment to its customers. Charges for the retrieval service, which include charges for the lease or rental of the equipment, are exempt from the tax. However, if the taxpayer leases or sells computer equipment to customers without the provision of the information services, such lease or sale is taxable.

Information conveyed via tangible means (e.g., diskette, computer tape, report, etc.) generally is taxable except for information customized to a particular customer's needs and sold to that particular customer.

E. Tax responsibilities. A service provider is the taxable user and consumer of all tangible personal property purchased for use in providing exempt services. If a supplier fails to collect the tax from a service provider, the provider shall remit use tax to the department as provided in 23VAC10-210-6030.

Any service provider who also makes retail sales of tangible personal property must register as a dealer with the department and collect and remit the tax on its sales.

Example of service provider making retail sales. A person engaged in transmitting and receiving facsimile documents for a fee is deemed to be providing a nontaxable service. However, if he charges a fee for copies of a faxed document, such charges are taxable.

When making bulk purchases of items, some of which will be used in providing services and some of which will be used in making retail sales, a person may purchase all such items exempt from the tax using a certificate of exemption, Form ST-10. The person shall remit use tax to the department on any tangible personal property purchased for resale but used in providing exempt services based on the cost price of the items used.

Statutory Authority

§§ 58.1-203 and 58.1-609.5(1) of the Code of Virginia.

Historical Notes

Derived from VR630-10-97.1 §§ 1-5; revised January 1985; amended, eff. July 1, 1994.

23VAC10-210-4050. Ships or vessels used or to be used exclusively or principally in interstate or foreign commerce.

A. Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context clearly indicates otherwise:

"Foreign commerce" means a business venture between persons in the United States and those in a foreign country.

"High seas" means that portion of the ocean which is beyond the territorial jurisdiction of the United States. It does not include the Chesapeake Bay, intercoastal waterways, or inland rivers or waterways.

"Intercoastal trade" means the exchange of goods or commodities between ports.

"Interstate commerce" means a business venture between the people of two states.

"Principally" means more than 50%.

"Used directly" means those items that are both indispensable to the building, conversion, or repair process and which are used as an immediate part of such process. See 23VAC10-210-920 for further explanation of this term.

B. Ships and vessels used in interstate or foreign commerce; dredges and attendant vessels. Ships or vessels used or to be used exclusively or principally in interstate or foreign commerce or the charge for repairs and alterations of them are exempt from the tax. Ships or vessels which are not principally used in interstate or foreign commerce are subject to the tax. This includes charter party boats, fishing vessels, and other vessels which leave a point in one state and return to the same point without docking in another state.

Dredges and attendant vessels, such as barges upon which silt from the dredging process is loaded, are entitled to the exemption set forth in this subsection and subsection C provided they are principally used in the dredging of interstate waterways. Vessels not physically involved in the dredging of an interstate waterway, such as crew boats, survey boats, and barges used to move equipment, materials, and employees from the dredging site, are subject to the tax.

C. Shipbuilding, conversion, and repair. Tangible personal property used directly in the building, conversion, or repair of ships or vessels (i) used or to be used exclusively or principally in interstate or foreign commerce, or (ii) plying the high seas, either in intercoastal trade between ports in the Commonwealth and ports in other states of the United States, its territories or possessions, or in foreign commerce between ports in the Commonwealth and ports in foreign countries, is exempt from the tax. Persons engaged in the building, conversion, or repair of such ships or vessels may be eligible for the manufacturing exemption set forth in 23VAC10-210-920. Items of tangible personal property which are used directly in the building, conversion, or repair process, such as machinery, tools, fuel, power, energy, and supplies, may be purchased exempt from the tax. Items of tangible personal property used indirectly in shipbuilding, conversion, or repair activities are subject to the tax. For example, tangible personal property purchased for use in providing shipboard or support services, including, but not limited to crew berthing, and power, water, steam, and refrigeration services for the crew's facilities, in connection with the repair of vessels, is deemed to be used indirectly in the process and subject to the tax.

See 23VAC10-210-920 for further description of the manufacturing/processing exemption.

For repairs to ships or vessels not meeting the interstate or foreign commerce or plying the high seas requirements, see 23VAC10-210-3050.

D. Fuel and supplies; vessels and ships plying the high seas. Fuel used for propulsion of ships or vessels, including dredges, is exempt from the tax pursuant to subdivision 6 of § 58.1-609.1 of the Code of Virginia. However, except as provided in this subsection, fuel used to operate equipment which is not an integral part of a ship, boat, or vessel, generally is taxable.

Fuel for the propulsion or operation of equipment and supplies for use aboard ships or vessels plying the high seas, either (i) in intercoastal trade between ports in this state and ports in other states of the United States or its territories or possessions, or (ii) in foreign commerce between Virginia ports in this state and ports in foreign countries are exempt from the tax when delivered directly to such ships or vessels.

Fuel used to operate machinery and equipment which is not an integral part of and supplies purchased for use on ships or vessels which do not ply the high seas in intercoastal trade or foreign commerce, such as dredges or barges, is taxable. When fuel is used in both taxable and exempt activities, the tax due is prorated between the percentage of use in taxable and exempt activities. For example, fuel used in engines to both propel a dredge and to operate equipment on such is taxable based upon the percentage of usage in operating the equipment.

Statutory Authority

§§ 58.1-203 and 58.1-609.3(4) of the Code of Virginia.

Historical Notes

Derived from VR630-10-98 §§ 1-4; revised January 1979; January 1985; amended, eff. July 1, 1994.

23VAC10-210-4060. (Repealed.)

Historical Notes

Derived from VR630-10-99; revised January 1, 1979; amended, eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-4070. Sign manufacturers and painting.

A. Generally. The tax applies to the charge for the manufacture or fabrication of signs, outdoor boards, and similar items. The tax applies to the total charge for the finished product including the labor involved in the construction or painting of the sign, boards, etc. The tax does not apply to separately stated installation charges. Any person who constructs and installs signs, billboards or similar items which, upon installation, become incorporated into realty is a contractor with respect to such items. No tax is applicable to the charge for constructing and installing a sign which becomes attached to realty, but the person constructing and installing the item must pay the tax on all property used in the construction and installation.

B. Sign painting. The tax does not apply to charges for painting signs on buildings, trucks, outdoor boards, windows, doors, etc. Materials and supplies used in performing such services are taxable at the time of purchase or removal from a non-tax-paid inventory.

C. Neon, electric and like signs. Any person making sales at retail, leasing or renting electric, neon or other signs must collect the tax on the total charge for such sign, excluding any separately stated installation charges.

D. Maintenance and repair. If a seller or lessor of signs contracts to provide periodic maintenance or repair of signs which involves providing replacement parts, the charge for such maintenance is subject to the tax. If the sale or lease of a sign includes, as a part of the sale, an agreement to provide maintenance or repair labor, the charge for such agreement must be included in the sales price of the sign. Persons maintaining or repairing signs which are real property are acting as contractors with respect to such activities and no tax is applicable to the charge for such service contracts. Such persons must pay the tax on all property used in the maintenance or repair.

For manufacturers, see 23VAC10-210-920; for contractors, see 23VAC10-210-410.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-100; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-4080. (Repealed.)

Historical Notes

Derived from VR630-10-100.1 to VR630-10-102.3; added or revised July 1969; January 1, 1979; added or amended eff. January 1, 1985; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-5060. Tobacco products.

The tax applies to retail sales of cigarettes, cigars and other tobacco products. The tax is computed on the sales price as set forth in 23VAC10-210-4000 without any deduction for excise or other taxes on the products, whether such taxes are levied by the United States, the Commonwealth of Virginia, or any city, town or county.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-103; revised January 1, 1979; January 1, 1985; amended, eff. July 1, 1993.

23VAC10-210-5070. Trade-ins.

Where used articles are taken in trade, or in a series of trades as a credit or partial payment on the sale of new or used articles, the tax must be paid on the net difference between the sales price of the new or used article and the credit for the used articles. Any trade-ins subsequently sold are subject to the tax.

Statutory Authority

§§ 58.1-203 and 58.1-602 of the Code of Virginia.

Historical Notes

Derived from VR630-10-104, revised January 1, 1979; January 1, 1985; amended, eff. July 1, 1993.

23VAC10-210-5080. (Repealed.)

Historical Notes

Derived from VR630-10-105 or VR630-10-106 §§ 1 to 5, eff. May 15, 1988; January 1, 1979; amended, eff. January 1, 1985; amended, Virginia Register Volume 9, Issue 18, eff. July 1, 1993; repealed, Virginia Register Volume 23, Issue 8, eff. March 10, 2007.

23VAC10-210-6000. Transportation or delivery charges.

A. Generally. The tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer. If the transportation or delivery charges are not separately stated on the invoice, they will become part of the sales price of the property and will be subject to the tax.

Where the use tax is applicable, separately stated transportation charges are also excludable in the computation of cost price.

B. "Transportation" and "delivery charges," defined. As used in this section the terms "transportation" and "delivery charges" mean charges for delivery from the seller to the purchaser, commonly known as "transportation-out," and include postage or common carrier charges. Transportation and delivery charges do not include charges from a manufacturer to a retailer's place of business relative to purchases for resale, nor do they include handling charges.

The following example illustrate the application of the tax to transportation and delivery charges.

Example 1: Company A orders furniture from a manufacturer for Purchaser B. The furniture is delivered to A's place of business by the manufacturer who separately states the transportation charges. Because the furniture is for resale, no tax is applicable to any portion of the charge from the manufacturer to A. A then delivers the furniture to B's home and separately states the charges for delivery from the store to B. These charges do qualify as "transportation-out" and are not subject to the tax. However, the charges from the manufacturer to A represent "transportation-in" to the seller, are a part of the cost of the furniture, and are included in the sales price of the furniture subject to the tax, even if separately stated on the invoice to the customer.

Example 2: Purchaser P places an order for an auto part through Dealer D. D orders the part from manufacturer M who ships the item directly to P and bills D for the cost of the part plus separately stated transportation charges. D in turn bills P for the part and separately states the transportation charges from M. Providing that D does not mark-up the transportation charges, the tax will not apply to the charges.

For "sales price," see 23VAC10-210-4000.

Statutory Authority

§§ 58.1-203 and 58.1-609.5(3) of the Code of Virginia.

Historical Notes

Derived from VR630-10-107; revised, eff. July 1, 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-6010. Trustees, receivers, assignees, executors, and administrators.

A trustee, a receiver, an assignee, an executor, or an administrator who continues to operate, manage, or control a business engaged in making retail sales of tangible personal property must make application for a new Certificate of Registration except for a corporation which continues to exist as the same legal entity. The tax must be collected and paid like any other dealer. It is immaterial that such officer or person may have been appointed by a court.

The personal representative of a decedent sometimes finds it necessary, in the course of his administration of an estate, to sell some or all of the tangible personal property coming into his hands as executor or administrator, such as household goods and personal effects, etc. A personal representative doing this, including a sheriff or sergeant who is acting as administrator, is not required to register to collect the sales tax on such sales, because they are regarded as an occasional sale. However, if the personal representative engages an auctioneer to sell the property, the sales are not occasional to the auctioneer and the tax applies.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-108, revised July 1, 1969; January 1, 1979; amended, eff. July 1, 1993.

23VAC10-210-6020. Typesetting.

A. Definitions. The following words and terms, when used in this section, shall have the following meanings unless the context clearly indicates otherwise:

"Electronic prepress" means any process involved in taking manuscript, conventionally supplied artwork, electronically supplied artwork, electronically supplied keystrokes, and other client materials and formatting these materials into electronic commands so that they can be output as film or paper to image-setting output devices or prepared in such a way that they can be distributed electronically by way of any electronic or magnetic media. It also includes the various proofing steps that are required prior to final output or distribution by way of any electronic or magnetic media.

"Typesetting" means the process by which specialized equipment is used to accept front-end commands and to transform them into text characters according to the font, type size, and other instructions of a composition system and includes electronic prepress, as defined in this section.

B. Generally. Persons engaged in providing typesetting products for sale or resale to printers which qualify for the industrial manufacturing exemption as set forth in subdivision 2 of § 58.1-609.3 of the Code of Virginia are also considered industrial manufacturers, regardless of whether finished products are produced by hand composition, machine composition, photocomposition, typographic composition, or electronic page composition.

C. Sales. The sale of typesetting products is the sale of tangible personal property. The tax is computed upon the total charge for typesetting, including any charges for services connected with the sale. All typesetting operations must register as dealers. In addition, they must collect the tax from their customers, and remit the tax to the department unless the customer furnishes a valid exemption certificate, as provided in 23VAC10-210-280.

D. Purchases. Typesetters, as industrial manufacturers, are exempt from taxation on the purchase of industrial materials, machinery, tools, equipment, and other items of tangible personal property that are used primarily and directly in the production of typesetting products to be sold or resold to printers qualifying for the industrial manufacturing exemption. Examples of exempt typesetting materials, machinery, and equipment include, but are not limited to, the following:

1. Computer hardware and software;

2. Disk drives;

3. Linotype, monotype, and ludlow machines and their related attachments;

4. Keyboards;

5. Line plates, halftone plates, combination plates, and similar items;

6. On and offline terminals;

7. Optical scanner readers;

8. Paper and magnetic tape readers;

9. Paper stock, film or plating materials on which type or images are set; and

10. Proofing equipment.

E. Word processing. Word processing, used in the production of customized letters, resumes, reports, and similar products (even when produced by a business also engaged in typesetting) is not industrial manufacturing for purposes of the exemption described in subsection D of this section.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-108.1 §§ 1-5; added January 1, 1984; amended, eff. July 1, 1994.

23VAC10-210-6030. Use tax.

A. Generally. The use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased. The rates of the state and local use tax are the same as the rates of the state and local sales tax. There is no duplication of the tax.

B. Exemption from use tax. The use tax does not apply to livestock and livestock products, poultry and poultry products or farm and agricultural products, if produced by a farmer and used or consumed by him and the members of his family.

C. Computation of use tax. The use tax is computed on the cost price of tangible personal property. However, tangible personal property brought into this state six months or more after its purchase is taxed on the basis of the current market value but not in excess of the cost price. For the definition of "cost price," see 23VAC10-210-4000.

D. Property purchased outside state. Tangible personal property purchased for use outside the state but later brought into the state is taxed based on the proportion of the cost price or fair market value as the duration of time of use within this state bears to the total useful life of the property. It is presumed that the property will remain in this state for the remainder of its useful life until otherwise proven. This paragraph applies, for example, to construction equipment acquired outside this state and brought into this state for use in performing real estate construction contracts.

E. Method of payment; use tax returns. Any person or concern not registered to collect the Virginia sales or use tax must report the use tax on a Consumer's Use Tax Return, Form ST-7. A return must be filed along with the applicable tax on or before the 20th day of each month following the period in which the use tax liability was incurred. Returns are not required to be filed for any period in which no use tax is due.

Dealers registered to collect the sales or use tax must include any use tax liability on their sales or use tax returns, Forms ST-8 or ST-9.

For credit for taxes paid to another state or its political subdivision, see 23VAC10-210-450; for moving a residence or business into the state, see 23VAC10-210-1040; registration of out-of-state vendors, see 23VAC10-210-1090; place of business in Virginia, see 23VAC10-210-2070.

Statutory Authority

§§ 58.1-203 and 58.1-604 of the Code of Virginia.

Historical Notes

Derived from VR630-10-109; revised July 1969; January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-6040. Vending machine sales; generally.

Dealers engaged in the business of placing vending machines and selling tangible personal property through such machines are subject to the provisions in 23VAC10-210-6041; however, those dealers, all of whose machines are under contract to nonprofit organizations, are subject to the provisions in 23VAC10-210-6042. Dealers who are not engaged in placing vending machines, but sell tangible personal property through vending machines, e.g. service station operators, are required to report and pay sales tax in the manner set out in 23VAC10-210-6043.

Statutory Authority

§§ 58.1-203 and 58.1-614 of the Code of Virginia.

Historical Notes

Derived from VR630-10-110 § 1; revised July 1, 1969; January 1, 1979; January 1, 1985; December 1, 1986; May 1, 1988; amended, eff. May 15, 1988.

23VAC10-210-6041. Vending machine sales; dealers engaged in the business of placing vending machines.

A. Registration requirements. Except as otherwise authorized by the Tax Commissioner, every person engaged in the business of placing vending machines and selling tangible personal property through such machines shall apply for a Certificate of Registration for each county and city in which machines are placed. A separate registration is required for each place of business from which nonvending machine sales are made. Dealers holding or applying for multiple vending or nonvending registrations may request permission at the time of application to file consolidated vending or nonvending returns.

B. Computation of tax. All items of tangible personal property sold through vending machines by those vending machines dealers engaged in placing vending machines and selling tangible personal property through such machines are taxable at the rate of 6.3% (5.3% state and 1.0% local) and 7.0% (5.3% state, 0.7% regional, and 1.0% local) in the Hampton Roads and Northern Virginia Regions. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Any dealers, all of whose machines are under contract to nonprofit organizations, should refer to 23VAC10-210-6042. Dealers acquiring items from other suppliers and selling them in the same condition which they were acquired shall compute the 6.3% (7.0% in the Hampton Roads and Northern Virginia Regions) tax on the cost price of the purchased tangible personal property. Dealers who manufacture the tangible personal property to be sold through vending machines shall compute the tax on the cost of the manufactured tangible personal property (cost of goods manufactured). The cost of manufactured personal property includes raw material cost plus labor and overhead attributable to the manufacture of the item being sold.

Example:

Dealer A purchases (or manufactures) items, with a total cost price of $1,000, during the month for sale through vending machines. Dealer A would compute the tax as follows:

Total cost price ($1,000) X State tax rate (.053) = State tax ($53)

Total cost price ($1,000) X Local tax rate (.01) = Local tax ($10)

TOTAL TAX = $63

The method of accounting used for federal income tax purposes shall be the accounting method used in determining the cost price of purchased tangible personal property and the cost of manufactured tangible personal property. For example, if the first-in, first-out method of accounting is used for federal income tax purposes, this accounting method shall be used each month for computing the cost price of purchased tangible personal property or the cost of manufactured tangible personal property.

As an alternative method of computing the tax, any dealer unable to maintain satisfactory records to determine the cost price of purchased tangible personal property and the cost of manufactured tangible personal property may request in writing to the Tax Commissioner authority to remit an amount based on a percentage of gross receipts which takes into account the inclusion of the 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) sales tax.

Example:

Dealer B, who has been authorized by the Tax Commissioner to compute the tax based on gross receipts, had gross receipts from vending machine sales during the month of $3,000. Dealer B would compute the tax as follows:

Gross receipts ($3,000) X State tax rate (.043) = State tax ($129)

Gross receipts ($3,000) X Local tax rate (.01) = Local tax ($30)

TOTAL TAX = $159

Upon receiving such authorization from the Tax Commissioner, a return shall be filed to report the 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) sales tax beginning with the period set out in the authorization letter. All subsequent returns shall be filed using this method unless the dealer applies in writing to the Tax Commissioner and is given authorization in writing to change his filing status. Authorization to compute the tax using this alternative method will not eliminate the requirement to maintain records which show the location of each vending machine, purchases and inventories of merchandise bought for sale through vending machines, and total gross receipts for each vending machine.

C. Filing of returns. Except as otherwise authorized by the Tax Commissioner, dealers engaging in the business of placing vending machines and selling tangible personal property through such machines must file a return to report the tax on the items sold through vending machines.

Returns are due by the 20th day of the month following the period in which tangible personal property is sold through vending machines, with the tax to be computed in the manner set out in subsection B of this section. A return is required to be filed for each locality where vending machines are located unless a dealer has requested and been granted authority to file a consolidated return.

D. Purchases. Tangible personal property purchased for resale through vending machines may be purchased under Certificate of Exemption, Form ST-10. All tangible property purchased for use or consumption by the dealer and not for resale, including vending machines and repair parts for such machines, and withdrawals of tangible personal property from a tax exempt manufacturing or resale inventory for use or consumption by the dealer are subject to the tax at the rate of 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) of the cost price of the property. If the supplier does not charge the tax on purchases for use or consumption, the vending machine dealer shall pay the tax directly to the Department of Taxation on the Retail Sales and Use Tax Return (if he is registered for nonvending sales) or on the Consumer's Use Tax Return. Dealers who manufacture or process tangible personal property for sale may be entitled to the industrial exemption for tangible personal property used directly in manufacturing or processing as set forth in subdivision 2 of § 58.1-609.3 of the Code of Virginia and 23VAC10-210-920.

E. Records. Records shall be kept for a period of three years and shall show the location of each machine; purchases and inventories of merchandise bought for sales through vending machines; and the cost price of purchased tangible personal property or the cost of manufactured tangible personal property for each machine.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-110 § 2; revised July 1, 1969; January 1, 1979; January 1, 1985; December 1, 1986; May 1, 1988; amended, eff. May 15, 1988; amended, Volume 23, Issue 24, eff. September 6, 2007; Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-6042. Vending machine sales; dealers under contract with nonprofit organizations.

A. Registration requirements. A separate Certificate of Registration is required for each county and city in which vending machines are placed. Dealers holding multiple registrations may request permission to file a consolidated return at the time of application.

B. Computation of tax. Dealers engaged in the business of placing vending machines all of which are under contract to nonprofit organizations may deduct sales of $.10 or less from gross receipts and divide the remaining balance by 1.053 (1.06 in the Hampton Roads and Northern Virginia Regions) to determine the amount of taxable sales upon which the tax is due and payable. To qualify for this method of computing the tax, all machines of the vending machine dealer must be under contract to nonprofit organizations. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

C. Filing of returns. The Retail Sales and Use Tax Return, is required to be filed for each locality in which vending machines are placed by the 20th day of the month to report the 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) tax on (i) sales made in the previous period and (ii) untaxed purchases for use or consumption by the dealer or withdrawals from tax exempt inventory for use or consumption by the dealer.

D. Records. A contract shall be kept for each vending machine under contract to nonprofit organizations. Additionally, records shall be kept for a period of four years to show the location of each vending machine, purchases and inventories of merchandise bought for sale, and total gross receipts for each vending machine separating items sold for $.10 or less from items sold for more than $.10.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-110 § 3; revised July 1, 1969; January 1, 1979; January 1, 1985; December 1, 1986; May 1, 1988; amended, eff. May 15, 1988; amended, Volume 23, Issue 24, eff. September 6, 2007; Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-6043. Vending machine sales; other dealers selling tangible personal property through vending machines.

Dealers not engaged in the business of placing vending machines but who use vending machines at their places of business to sell merchandise (e.g., service station operators) must report the tax at the rate of 5.3% (6.0% in the Hampton Roads and Northern Virginia Regions) of gross taxable sales on the same return on which nonvending machine sales are reported. For definitions of the "Hampton Roads Region" and the "Northern Virginia Region" see 23VAC10-210-2070.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-110 § 4; revised July 1, 1969; January 1, 1979; January 1, 1985; December 1, 1986; May 1, 1988; amended, eff. May 15, 1988; amended, Volume 23, Issue 24, eff. September 6, 2007; Volume 32, Issue 22, eff. September 12, 2016.

23VAC10-210-6050. Veterinarians.

A. Generally; purchases. Veterinarians are engaged in rendering professional services and are the users or consumers of medicines, drugs, medical supplies, equipment and all other tangible personal property purchased for use in their operation. They must pay the tax to their suppliers on purchases of this property. If the purchases are made from instate or out-of-state suppliers who do not collect the Virginia sales or use tax, the veterinarian must pay the use tax directly to the Department of Taxation on a Consumer's Use Tax Return, Form ST-7.

B. Sales. Veterinarians who maintain an inventory for the purpose of making sales of medicines, drugs, flea powder, soap, pet food, dog collars and similar items at retail must register with the Department of Taxation and collect and pay the tax on such sales. A veterinarian who uses tangible personal property in rendering professional services and also makes sales of the same type of property may, in connection with such purchases, furnish certificates of exemption to his suppliers. The veterinarian is then liable for paying the tax on the property he uses and the tax on sales of such property to users or consumers.

C. Medicines and drugs. No exemption is allowed for medicines or drugs on the ground that they may be sold on prescriptions of veterinarians. For exemptions relating to agricultural supplies sold to and purchased by farmers for use in agricultural production for market, see 23VAC10-210-50.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-111; revised January 1, 1979; amended, eff. January 1, 1985.

23VAC10-210-6060. Watercraft sales, leases, and rentals; repair and replacement parts; and maintenance materials.

A. Generally. Sales, leases, and rentals of watercraft are not subject to the retail sales and use tax when the same transactions are subject to the watercraft sales and use tax. See the Watercraft Sales and Use Tax Regulations, 23VAC10-230, for more information on the tax. Watercraft not subject to the watercraft sales and use tax are subject to the retail sales and use tax when sold, leased or rented.

B. Repair and replacement parts and accessories.

1. Repair and replacement parts, accessories, attachments, and lubricants installed on a watercraft at the time of sale, or on leased or rented watercraft, that are included in the sales price for computing the watercraft sales and use tax or in gross receipts from a lease or rental are exempt from the retail sales and use tax. Such items may be purchased by a dealer, as defined in § 58.1-1401 of the Code of Virginia, exclusive of the retail sales and use tax when a resale exemption certificate, Form ST-10, is presented at the time of sale. Repair parts purchased by nondealers for installation on watercraft are not exempted from the retail sales and use tax.

2. Boat motors. Boat motors that will be installed on watercraft are subject to the Watercraft Sales and Use Tax. Any boat motors that will not be installed on watercraft are subject to the retail sales and use tax. See 23VAC10-230-40 B for more information on boat motors subject to the Watercraft Sales and Use Tax.

C. Maintenance contracts and materials. One-half the charge for maintenance contracts that provide for both repair labor and repair parts is subject to the tax. If a maintenance contract provides only for repair labor, the charge for the contract is tax exempt. Maintenance contracts for replacement parts only are taxable on the full charge for this contract. Maintenance materials such as oil, grease, soaps, cleaners, etc. used on watercraft are subject to the retail sales and use tax. See the Virginia Watercraft Sales and Use Tax Regulations for information relating to the watercraft sales and use tax generally.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-111.1; added August 1, 1982; amended, eff. January 1, 1985; Volume 25, Issue 08, eff. March 8, 2009.

23VAC10-210-6070. Welfare assistance redeemable in goods.

A. Generally. Except as provided in subsection B of this section, the tax applies to tangible personal property purchased by individuals with welfare benefits.

B. Food stamps and WIC drafts. Effective October 1, 1986, the tax does not apply to tangible personal property purchased by individuals with food coupons ("food stamps") issued by the U.S. Department of Agriculture under the Food Stamp Program or drafts (WIC drafts) issued through the Virginia Special Supplemental Food Program for Women, Infants, and Children.

C. Other purchases by food stamp and WIC program participants. The exemptions set forth in subsection B of this section, apply only to food or other items of tangible personal property actually purchased with food stamps or WIC drafts. Thus, all other purchases by food stamp and WIC program participants that are not paid for with food stamps or WIC drafts are subject to the tax.

D. Dealer's returns. In computing the total exempt sales relating to goods paid for with food stamps and WIC drafts, a dealer may make an exact accounting of such sales or may choose one of the two following alternative methods:

ALTERNATIVE 1: A dealer may compute his exempt food stamp and WIC sales by utilizing the monthly total of all food stamps deposited, plus the total number of $1 food stamps retained at the end of the month, reduced by the total amount of coinage given as change from food stamps during the month and the total number of $1 food stamps on hand on the first day of the month. To this total should be added the total amount of WIC drafts deposited during the month.

Example: Tendered to Dealer A during the month are $10,000 in food stamps on purchases of eligible foods. In addition, Dealer A had $40 in food stamps on hand on the first day of the month. Dealer A returns $1,000 of such stamps and $180 in coin to customers as change from food stamp purchases. Thus, Dealer A has taken in a net total of $9,040 in food stamps for the month. Of this total, Dealer A deposits with his bank during the month $8,990 and on the last business day of the month withholds fifty food stamps of the $1 denomination in order to have sufficient change for the next business day. In addition, Dealer A deposits WIC drafts totalling exempt purchases of $500 during the month. Dealer A would compute his total deduction from gross receipts for exempt food stamp and WIC sales as follows:

 

Food stamps deposited during month

$8,990

Food stamps retained at end of month

50

Food stamps on hand at first of month

(40)

WIC drafts deposited during month

500

Coin change from food stamp purchases

(180)

Total deduction for exempt food stamp
and WIC sales

$9,320

ALTERNATIVE 2: The second option available to a dealer in computing his exempt food stamp and WIC sales is to utilize the monthly total of food stamps deposited, plus the total number of $1 food stamps retained at the end of the month (reduced by the total amount of food stamps on hand on the first day of the month), multiplied by 98%. To this total should then be added the total amount of WIC drafts deposited during the month.

Dealers utilizing this approach may also seek authorization from the department to use an alternative percentage to account for coin change returned to customers from food stamps. Any such request must be accompanied by a detailed analysis of not less than one month's food stamp transactions.

Example: Tendered to Dealer B during the month are $10,000 in food stamps. In addition, Dealer B had on hand $40 in food stamps on the first day of the month. Returned to customers in change from such stamps are $1,000 in food stamps; thus, Dealer B has taken in a net total of $9,040 in food stamps during the month. Of this total, Dealer B deposits $8,990 into his bank account and retains $50 in food stamps on the last day of the month. In addition, Dealer B deposits WIC drafts totalling $500 during the month. Dealer B would compute his total deduction from gross receipts for exempt food stamp and WIC sales as follows:

Food stamps deposited during month

$8,990

Food stamps retained at end of month

50

Food stamps on hand on first day of month

(40)

$9,000
x .98
$8,820

WIC drafts deposited during month

500

Total deduction for exempt food stamp
and WIC sales

$9,320

The total exempt food stamp and WIC sales arrived at under either option would then be added to the total of other exempt sales and deducted from gross receipts when the dealer files his monthly sales and use tax return, Form ST-9. The option selected by the dealer for purposes of filing his first return for taxable periods beginning on or after October 1, 1986, must be followed for all subsequent returns, unless the dealer obtains written authorization from the Tax Commissioner for the use of an alternative method.

Statutory Authority

§§ 58.1-203 and 58.1-609.10(6) of the Code of Virginia.

Historical Notes

Derived from VR630-10-112; revised January 1, 1979; amended, eff. July 1987.

23VAC10-210-6080. Wholesalers.

A. A wholesaler, as distinguished from a retailer, is a seller who sells for resale only. If a seller sells to any user or consumer, however large or small, he becomes a retailer for those sales. If he fails to keep adequate records to show sales for resale and retail sales separately, he is required to pay the tax as a retailer on both classes of his business.

B. Every wholesaler is required to keep a record of all sales of tangible personal property, whether such sales be for cash or credit. These records must include the name and address of the purchaser, the number of the Certificate of Registration issued to the purchaser, the date of the purchase, the article purchased and the price at which the article is sold to the purchaser. Records must be kept for three years.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-10-113; revised July 1969; January 1, 1979; amended, eff. January 1, 1985.

FORMS (23VAC10-210).

Business Registration Application, Form R-1 (rev. 3/2008)

5% Virginia Sales Tax Table (rev. 9/2004)

2.5% Virginia Qualifying Food Sales Tax Table (rev. 4/2005)

Certificate of Registration, Form ST-4 (rev. 2/2008)

Virginia Direct Payment Permit Sales and Use Tax Return, Form ST-6 (rev. 9/2005)

Virginia Direct Payment Permit Sales and Use Tax Return Worksheet (Instructions), Form ST-6A (rev. 9/2005)

Virginia Schedule of Local Taxes, Form ST-6B (rev. 7/2005)

Virginia Business Consumer's Use Tax Return, Form ST-7 (rev. 7/2005)

Virginia Business Consumer's Use Tax Return Worksheet and Instructions, Form ST-7A (rev. 6/2005)

Virginia Out-of-State Dealer's Use Tax Return, Form ST-8 (rev. 9/2005)

Virginia Out-of-State Dealer's Use Tax Return Worksheet and Instructions, Form ST-8A (rev. 9/2005)

Virginia Retail Sales and Use Tax Return, Form ST-9 (6210051) (rev. 3/2013)

Virginia Retail Sales and Use Tax Return for Consolidated Filers, Form ST-9 (6210051) (rev. 3/2013); includes:

Virginia Schedule of Local Sales and Use Taxes, Form ST-9B (6202053) (rev. 3/2013)

Virginia Retail Sales and Use Tax, ST-9A Worksheet (6201052) (rev. 3/2013)

Virginia Schedule of Regional State Sales and Use Tax, Form ST-9R (6201055) (rev. 3/2013)

Application for Sales and Use Tax Exemption for Nonprofit Organizations, Form NPO Appl (rev. 1/2008)

Sales and Use Tax Certificate of Exemption, Form ST-10 (6201056) - For a Virginia dealer who purchases tangible personal property for resale, or for lease or rental, or who purchases materials or containers to package tangible personal property for sale (rev. 9/2015)

Sales and Use Tax Certificate of Exemption (For catalogs and other printed materials distributed outside of Virginia; property delivered to factor or agent for foreign export; advertising for placement in media; advertising supplements), Form ST-10A (rev. 6/1995)

Sales and Use Tax Certificate of Exemption (for use by handicapped persons for purchase of special equipment for installation on a motor vehicle), Form ST-10B (rev. 7/1978)

Sales and Use Tax Certificate of Exemption (For manufacturing, processing, refining, converting, mining, basic research and research and development in experimental or laboratory sense, or certified pollution control equipment; equipment, materials or supplies used in the production of a publication issued at least quarterly; high speed electrostatic duplicators; materials, containers, etc. for future used for packaging tangible personal property for shipment or sale), Form ST-11 (rev. 6/2006)

Sales and Use Tax Certificate of Exemption (For use by construction contractors and non-manufacturers when purchasing tangible personal property for usage directly in manufacturing products for sale or resale which are exempt from the tax; incorporation into real property in another state or foreign country which could be purchased free from the tax in such state or country; agricultural production, to be affixed to real property owned or leased by a farmer engaged in agricultural production for market), Form ST-11A (rev. 5/2006)

Sales and Use Tax Certificate of Exemption (For use by a semiconductor manufacturer), Form ST-11B (rev. 5/2006)

Sales and Use Tax Certificate of Exemption (For use by the Commonwealth of Virginia, a political subdivision of the Commonwealth of Virginia, or the United States), Form ST-12 (rev. 10/2006)

Sales and Use Tax Certificate of Exemption (For use by certain medical related organizations), Form ST-13 (rev. 10/2006)

Sales and Use Tax Certificate of Exemption (For use by nonprofit churches), Form ST-13A (rev. 6/2007)

Sales and Use Tax Certificate of Exemption (For use exclusively by an out-of-state dealer who purchases tangible personal property in VA for immediate transportation out of VA in his own vehicle for resale outside VA), Form ST-14 (rev. 3/1999)

Sales and Use Tax Certificate of Exemption (For use exclusively by an out-of-state dealer who purchases livestock in VA for immediate transportation out of VA for resale outside VA.) Form ST-14A (rev. 1/1999)

Sales and Use Tax Certificate of Exemption (For use by individuals purchasing heating oil, artificial or propane gas, firewood or coal for domestic consumption), Form ST-15 (rev. 9/2005)

Sales and Use Tax Certificate of Exemption (For use by watermen who extract fish, bivalves, or crustaceans from waters for commercial purposes.), Form ST-16 (rev. 9/2005)

Sales and Use Tax Certificate of Exemption (For use by harvesters of forest products.), Form ST-17 (rev. 7/1999)

Sales and Use Tax Certificate of Exemption (For use by farmers engaged in agricultural production), Form ST-18 (rev. 5/2006)

Sales and Use Tax Certificate of Exemption (For use by shipping lines engaged in interstate or foreign commerce, and by shipbuilding companies engaged in building, converting or repairing ships or vessel), Form ST-19 (rev. 6/2005)

Sales and Use Tax Certificate of Exemption (For use by certain public service corporations, commercial radio, and television companies, cable television systems, taxicab operators and certain airlines.), Form ST-20 (rev. 9/2004)

Sales and Use Tax Certificate of Exemption (For use by production companies, program producers, radio, television and cable TV companies, and other entities engaged in the production and creation of exempt audiovisual works and the licensing, distribution and broadcasting of same), Form ST-20A (rev. 9/2005)

Sales and Use Tax Certificate of Exemption (For use when purchasing or leasing railroad rolling stock from a manufacturer), Form ST-22 (rev. 4/2007)

Sales and Use Tax Certificate of Exemption (For use by individuals purchasing multi-fuel heating stoves for resident heating, Form ST-23 (rev. 8/2007)

Virginia Consumers Use Tax Return for Individuals, Form CU-7 (rev. 6/2007)

Virginia Vending Machine Dealer's Sales Tax Return, Form VM-2 (rev. 8/2005)

Virginia Vending Machines Dealer's Sales Tax Return Worksheet, Form VM-2A (rev. 9/2005)

Schedule of Local Vending Machine Sales Tax, Form VM-2B (rev. 7/2005)

Website addresses provided in the Virginia Administrative Code to documents incorporated by reference are for the reader's convenience only, may not necessarily be active or current, and should not be relied upon. To ensure the information incorporated by reference is accurate, the reader is encouraged to use the source document described in the regulation.

As a service to the public, the Virginia Administrative Code is provided online by the Virginia General Assembly. We are unable to answer legal questions or respond to requests for legal advice, including application of law to specific fact. To understand and protect your legal rights, you should consult an attorney.