Guide to Understanding Virginia Sales Tax 2025

Navigating Virginia sales tax can be tricky, especially with varying rates, exemptions, and filing requirements across the state. 

Whether you’re a business owner, a consumer, or someone involved in managing tax compliance, understanding the fundamentals is crucial. 

In this guide, we’ll walk you through the essentials of Virginia sales tax — including who collects it, the current rates, common exemptions, and how to file your returns. 

What Is the Sales Tax Rate in Virginia?

Virginia’s general sales tax rate is 5.3%. Local jurisdictions can add to this rate, with rates ranging from 0% to 2.7%. Depending on local municipalities, the total tax rate can be as high as 7%.

In all of Virginia, food for home consumption (e.g., grocery items) and certain essential personal hygiene items are taxed at a reduced rate of 1%.

Sales tax rates can vary within a county, a city, or even a ZIP code. It is important to utilize resources like the sales tax rate lookup on the Virginia Tax website to determine the accurate rate for a specific address.

Virginia Sales and Use Tax Overview

Virginia operates under a destination-based sales tax system. This means that sales tax is typically charged based on the location where the buyer receives the goods or services. As a business owner selling taxable goods or services, you act as an agent of the Commonwealth of Virginia by collecting tax from purchasers and passing it along to the appropriate tax authority.

Key Features of Virginia Sales Tax

• Sales Tax: Levied on the sale, lease, or rental of tangible personal property and some services.
• Use Tax: Applies to tangible items used, consumed, or stored in Virginia when sales tax was not paid at the time of purchase.

Taxable and Exempt Items

Understanding which items are taxable versus exempt is crucial for compliance.

Common taxable items include:

• Sales, leases, and rentals of tangible personal property in or for use in Virginia.
• Accommodations and certain taxable services.

Sales tax exemption in Virginia applies to several categories, including:

• Nonprescription drugs and medicines for the treatment or prevention of disease.
• Durable medical devices and equipment suitable for home use.
• Magazine and newspaper subscriptions.
• Purchases from out-of-state mail order catalogs totaling $100 or less for the calendar year.
• Sales to federally chartered credit unions.
• Purchase of meals, lodging, or other accommodations by the federal government or its employees traveling on government business.

In all of Virginia, food for home consumption (e.g., grocery items) and certain essential personal hygiene items are taxed at a reduced rate of 1%.

For a comprehensive list of taxable and exempt items, businesses should refer to the Virginia Department of Taxation’s guidelines and resources.

When Do Businesses Need to Collect Sales Tax in Virginia?

Businesses must collect sales tax in Virginia if they meet all of the following conditions:

• They have nexus in Virginia.
• They are selling taxable goods or services to Virginia residents.
• Their buyers are required to pay sales tax.

“Nexus” means that the business has sufficient activity in Virginia. This can be established through physical presence, such as having a location, employee, or inventory in the state. Nexus can also be established through economic activity, such as remote sellers or online retailers that make more than $100,000 in annual Virginia gross sales or 200 or more transactions to Virginia customers.

Even temporary selling activities in Virginia generally create a sales tax nexus requiring a seller’s permit. This includes presence at conventions, trade shows, fairs, etc.

If a business meets the nexus requirements, it is required to register for a sales tax permit and collect sales tax from buyers in Virginia. They must register to collect and pay sales tax in Virginia. For more info, you can click here.

Failure to Collect Virginia Sales Tax

If you meet the criteria for collecting sales tax in Virginia and choose not to, you will be held responsible for the tax due, in addition to penalties and interest.

Penalties for Late Filing and Payment

• Late Filing Penalty: If a business fails to file its sales tax return by the due date, a penalty of 6% per month is added to the amount of tax owed, with a maximum penalty of 30%. The minimum penalty is set at $10, which applies even if no tax is owed.
• Late Payment Penalty: For businesses that do not pay the full amount of sales tax due by the deadline, interest accrues at the federal underpayment rate plus 2%. This interest continues to accumulate on the outstanding tax until it is fully paid.
• Criminal Penalties: In cases involving willful failure to collect or account for sales tax, individuals may face criminal penalties. This can include imprisonment for up to one year or fines up to $2,500, or both, especially in situations involving fraud or intentional disregard of tax laws.

It is crucial for businesses operating in Virginia to understand these penalties and ensure timely compliance with sales tax filing and payment requirements to avoid incurring additional costs and legal issues.

Also read: U.S. Sales Tax Penalties: What Are the Penalties for Filing Late[Not Paying]?

Virginia Sales Tax for Out-of-State and Amazon FBA Program Sellers

Out-of-state sellers must comply with Virginia sales tax regulations if they establish nexus in Virginia. This includes businesses selling through platforms like Amazon, particularly those using the Fulfillment by Amazon (FBA) program.

Virginia Economic Nexus: For sales made on and after July 1, 2019, a remote seller must register with the state, then collect and remit Virginia sales tax if the remote seller meets either of the following criteria (the economic thresholds):

• Receive more than $100,000 in gross revenue from retail sales in Virginia, “or other minimum amount as may be required by federal law”.
• Engage in 200 or more separate retail sales in Virginia, “or other minimum amount as may be required by federal law”.

Key Considerations for Out-of-State Sellers:

• Nexus Determination: Sellers should assess whether their activities in Virginia create nexus, which could be through physical or economic presence.
• Sales Tax Collection: Once nexus is established, sellers must register for a Virginia seller’s permit and begin collecting sales tax on all applicable transactions.
• Compliance Obligations: Out-of-state sellers must file regular sales tax returns and remit collected taxes to the Virginia Department of Taxation.

Registering for a Virginia Seller’s Permit

To register for a seller’s permit in Virginia, also known as a Retail Sales and Use Tax Permit or Use Tax Permit, follow these steps:

1. Online Application: Register online through the Virginia Department of Taxation for Businesses website. Click the title “Are you a new Business? Register Here“.
2. Information Needed: To successfully register, have the following information ready:
   1. Legal business name, physical address, and mailing address
   2. Business online services primary user’s account information
   3. Business Entity Structure (e.g., sole proprietorship, partnership, corporation, LLC)
   4. Federal Employer Identification Number (EIN or FEIN)
   5. Name, Address, and Social Security Number (SSN) of owners, partners, or officers
   6. Business Activity Details: Date & State of Incorporation, start date with the state of Virginia (nexus start date)
   7. North American Industry Classification System (NAICS) Code
   8. Sales tax types your business will be responsible for
3. Cost: Registering for a sales tax permit in Virginia is free.
4. Account Number and Sales Tax Certificate: Upon completing your registration, you will receive your 15-digit sales tax account number and Sales Tax Certificate of Registration (Form ST-4). Save both.
5. Display: Display your certificate prominently at your registered location.

If you are already registered with Virginia Tax, log in to your business online services account to add sales tax as a new tax type.

Also read: Sales Tax Permit: How to Register, Verify, and Why Your Business Needs It

How to Collect Sales Tax in Virginia

After registering to collect sales tax in Virginia, apply the correct rate to all taxable sales, file timely returns with Virginia Tax, and maintain organized records. Use the Sales Tax Rate and Locality Code Lookup Tool to determine the correct rate. 

How you collect Virginia sales tax is influenced by how you sell your goods:

• Brick-and-mortar store: Point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.
• Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. These stores offer a dashboard environment where Virginia sales tax collection can be managed.

See how you can track taxes, file your returns, and stay compliant with Commenda.

Tax-Exempt Customers

Virginia law allows certain entities to make purchases without paying sales tax, provided they meet specific criteria. For instance, a common exemption is “purchase for resale,” where you buy something intending to sell it to someone else. 

To ensure a customer is legitimately tax-exempt, collect the appropriate documentation, such as a certificate for sales tax exemption in Virginia. Keep these certificates on file to substantiate why sales tax was not collected on specific transactions.

Filing Sales Tax Returns in Virginia

After registering for your Virginia sales tax license and collecting the appropriate sales tax, the next step is filing and paying those taxes. 

In Virginia, filing frequency for sales tax returns is usually based on the volume of sales tax collected by the business and can be either monthly, quarterly, or annually.

Filing Frequency

If a Virginia sales tax filing date falls on a weekend or holiday, your sales tax filing is due the next business day. You have to file a return for each period, even if you don’t owe any tax.

Filing Steps

1. Determine your filing frequency (monthly, quarterly, or annually).
2. File your Virginia sales tax return online through the Virginia Tax Online Services for Businesses.
3. Form ST-9 can be accessed and completed online.
4. You must file a return for each period, even if you don’t owe any tax26. Simply enter 00 in the tax amount.

How to Pay Your Virginia Sales Tax

Virginia sales tax returns and payments must be remitted at the same time through the Virginia Tax Online Services for Businesses.

You have several options for paying your sales tax:

• Electronic Funds Transfer (EFT): Pay directly from your bank account.
• Credit Card: Pay using a credit card (Visa, MasterCard, American Express, or Discover). Note that processing fees may apply.
• Check or Money Order: Only acceptable in limited circumstances. Make payable to the Department of Taxation. Be sure to include your account number and the tax period you’re paying.

Using Sales Tax Automation Tools

Sales tax automation tools like Commenda simplify tax calculations, collection, and remittance, ensuring timely compliance. Commenda is a global leader in incorporation, compliance management, and sales tax solutions, and is trusted by businesses from startups to multinational corporations. 

Commenda’s streamlined interface is designed to make sales tax management simple for businesses of all sizes.

Key features of Commenda’s sales tax software:

• Sales Tax Automation: Automates sales tax calculation, exemption certificate management, and sales tax return filing. This saves time and reduces errors.
• Multi-State and International Operations: Handles nexus status, sales tax returns, and compliance for businesses operating in multiple states in the US and internationally.
• Nexus Analysis and Management: Tracks transactions and alerts you if your business approaches a nexus threshold, helping you avoid penalties.
• Exemption-Certificate Management: Manages and validates exemption certificates at the time of sales tax filing.
• Integration With Other Business Systems: Integrates with e-commerce platforms (Shopify, Amazon) and ERP systems for smooth operations.

Virginia Sales Tax Compliance Checklist

Here’s a Virginia sales tax compliance checklist:

1. Nexus Determination: Determine if your business has a Virginia economic nexus or physical nexus.
2. Sales Tax Permit: Register for a sales tax permit with Virginia Tax if you meet nexus requirements.
3. Collect Sales Tax: Collect sales tax on taxable goods/services sold to Virginia residents.
4. File Sales Tax Returns: File sales tax returns online through Virginia Tax Online Services.
5. Pay Sales Tax: Remit sales tax payments through Virginia Tax Online Services.
6. Maintain Accurate Records: Keep records of all sales, tax collected, and exemption certificates.
7. Use Tax Compliance Ratio: Calculate and maintain a use tax compliance ratio above the required sales tax threshold.
8. Prepare for Audits: Be prepared for potential audits by keeping accurate records.
9. Stay Updated: Monitor changes to Virginia sales tax laws and regulations.

How Should I Prepare for Virginia Sales Tax Audits and Appeals?

Virginia regularly audits businesses required to collect and remit sales tax. A sales tax audit determines whether a business has collected and paid the correct amount of sales tax owed to the state for taxable transactions.

Understanding the Audit Process

A Virginia state tax audit generally begins with a notification letter from the Virginia Department of Taxation. The Code of Virginia authorizes Virginia Tax to routinely audit businesses to validate compliance with Virginia tax laws. The auditor reviews records over a period of days, weeks, or months to discover oversight or fraud and promote compliance with tax laws.

Steps to Prepare for an Audit

1. Know your rights: Ensure you have a copy of the Virginia Taxpayer Bill of Rights.
2. Address discrepancies: A sales tax audit often occurs when a state tax agency suspects a business of understating its reported sales or when the sales tax return filed with the state doesn’t match what was reported to the Internal Revenue Service (IRS).
3. Accounting records, general ledgers, other ledgers, and subsidiary journals: The auditor will verify the amounts filed on Virginia tax returns.
4. Federal income tax returns: The auditor will compare revenues on this return to the amounts reported on Virginia tax returns, as applicable.
5. Bank statements: The auditor will compare deposits to Gross Sales reported on Sales and Use Tax returns.
6. Credit Card statements and related invoices: The auditor will ensure the appropriate application of sales tax or consumer use tax to these transactions.
7. Sales invoices: The auditor will determine if the vendor charged Virginia sales tax on all or part of the transaction appropriately.
8. Certificates of Sales Tax Exemption in Virginia: The auditor will confirm the validity of the certificate(s) and the appropriate application to the non-taxed sales transactions.
9. Purchase invoices: The auditor will determine if the vendor charged Virginia sales tax on all or part of the transaction, if applicable.
10. Consider professional help: It is good to start with getting a state and local tax professional involved to prepare for the audit.

During the Audit

During the interview, the auditor will discuss the audit period, audit methods, and the schedule for performing the audit. During the audit, the auditor will:

• Discuss the operation of your business.
• Ask how your records are maintained.
• Ask you to identify other issues that may affect the audit.
• Determine how your records will be reviewed.
• Determine the method in which the audit will be conducted.

The auditor will compare your Virginia sales and use tax returns to your federal income tax returns or bank statements to determine whether you reported all applicable or gross sales on your Virginia Sales tax return(s). Common areas audited include advertising, auto and truck expenses, repair and maintenance, office expenses, and supplies.

Virginia Sales Tax Rates by City

Don’t let your business slow down because of sales tax complexities. With Commenda on your side, you can navigate these challenges with ease. Schedule a free call with our sales tax experts now and ensure your business stays compliant and efficient!

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FAQs

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