The Virginia Retail Sales and Use Act establishes a tax on the sale, lease, or rental of tangible personal property or the use or consumption of tangible personal property in Virginia, as well as taxable services in Virginia. Personal property is everything except real property (land and buildings). Examples include equipment, furniture, vehicles, securities, intellectual property. Tangible personal property is personal property that can be felt or touched. (Va. Code §58.1-600 et seq.).
Sales tax Does Not Apply To
- Tangible personal property delivered to a purchaser residing outside of Virginia for use or consumption outside of the Commonwealth. (Va. Code §58.1-609.10).
- Internet sales of tangible items for delivery to an out-of-state purchaser.
- Services, with certain exceptions:
- Combined Property and Services: Where service and tangible personal property are combined in a product, the Virginia Department of Taxation will apply the “true object” test and the end user will be taxed on the entire product. (23 VAC §10-210-4040). For instance, where a Mason unit fabricates a tangible item for delivery to a purchaser, the “true object” is the sale and delivery of the end product, and thus the entire cost of the item, including any services involved in the fabrication, will be deemed subject to sales tax.
- Lodging: The provision of 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. (23 VAC §10-210-730).
- Meals: Any services in connection with the furnishing, preparing, or serving by a person for a consideration of meals. (23 VAC §10-210-930).
The seller is responsible for collecting sales tax from the purchaser on each taxable sale. The tax must be separately stated on the invoice and added to the sales price. The general sales tax rate for Virginia is 5.3 percent (4.3 percent state tax and 1 percent local tax). However, for Northern Virginia there is a regional transportation tax of .7% which brings the combined sales tax rate to 6.0%.
Use Tax is the same tax but levied by the Commonwealth on the end user of tangible personal property and taxable services. “Sales” and “Use” are merely separate means of collecting and remitting the tax. Use tax is remitted to the Commonwealth directly by the end user, while sales tax is collected from the end user at the time of sale and subsequently remitted to the Commonwealth by the seller. Regardless of the means of collection and remittance, the tax is added to the retail purchase price and is paid by the purchaser.
The general rule is that a seller must collect sales tax on any taxable sales unless an exemption applies. As such, the burden of proving that the tax does not apply to a particular sale rests with the university unless it receives from the purchaser a certificate of exemption indicating that the sale is exempt. (23 VAC §10-210-280).
The most common exemptions are listed below
Purchases for Resale
A purchase of tangible personal property for resale is not considered a “retail sale” subject to the tax because the purchaser is not the end user. An organization that is regularly engaged in selling tangible personal property for resale must provide the University department or unit making the sale with a resale exemption certificate, Form ST-10. (Va. Code §58.1-603).
Sales to Governments
Purchases of tangible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States are not subject to sales tax (but see the “Special Exemption Rules” below). The governmental purchaser must provide the University department or unit making the sale with a governmental exemption certificate, Form ST-12. (Va. Code §58.1-609.1).
Sales to Nonprofits
Purchases of tangible personal property for use or consumption by any nonprofit entity that has been issued a certificate of exemption from the Department of Taxation are not subject to sales tax (but see the “Special Exemption Rules” below). Note that certificates of exemption are valid only for the period of time stated on the certificate; the nonprofit purchaser must provide the University department or unit making the sale with an exemption certificate that is valid on the date of the sale. (Va. Code § 58.1-609.11).
Special Exemption Rules for Meals and Lodging
- Sales to Nonprofits and Virginia State Agencies. The sales tax exemptions available to nonprofits and Virginia governmental agencies do not apply to sales of meals or lodging. (23 VAC §10-210-690 and 23 VAC §10-210-1071).
- Sales to the Federal Government. Purchases of meals, lodging, and other accommodations, by the federal government or its employees traveling on government business are exempt from the tax provided that 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 the government or by use of a 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. (23 VAC §10-210-690).
- Sales to Federal Employees. If a federal employee pays for meals or lodging 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.(23 VAC §10-210-690).
Collection and Retention of Exemption Certificates
Mason must retain copies of purchasers’ exemption certificates on file to substantiate that the sale was indeed tax exempt under the law. Exemption certificates are gathered and maintained at the departmental or unit level. For audit purposes, the department or unit is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.(23 VAC §10-210-470).
Taxability of Purchases made by Mason
Mason is generally exempt from paying sales tax in Virginia (except for the tax on lodging). The procedures for tax exemption are on page 8 of the Form ST-12.
Questions about whether sales tax should be collected on particular transactions and on tax compliance generally should be directed to the University’s International Tax Office, at 703-993-5223 or email@example.com.