Sales tax on invoices in Virginia

Virginia treats a contractor as the consumer of the property it furnishes and installs in real estate. You pay the tax when you buy your materials and don’t charge your customer sales tax, and collecting it by mistake doesn’t cancel the use tax you owe.

Registration and who owes the tax

Virginia’s retail sales and use tax is a license or privilege tax on anyone who sells at retail or distributes tangible personal property in the Commonwealth, or furnishes a service the law expressly makes taxable. If you meet the definition of a dealer, you register with the Virginia Department of Taxation (Virginia Tax) to collect and pay sales tax, and you receive a 15-digit sales tax account number and a Sales Tax Certificate of Registration (Form ST-4).

Contractors: the consumer of what you install

Under 23VAC10-210-410, a contractor is anyone who contracts to perform construction, reconstruction, installation, repair or any other service with respect to real estate or fixtures on it, and to furnish tangible personal property with it, as prime contractor or subcontractor. Virginia treats every contractor as the user or consumer of that property: your supplier collects the tax from you, or you owe use tax if it doesn’t. Property incorporated into real property construction that loses its identity as tangible personal property counts as used or consumed.

A contractor doesn’t pass the tax on to anyone else as a tax; it takes the tax into account when it bids. No purchase is exempt because your customer is a government agency, a public service corporation, or a nonprofit school or hospital, or because the contract is cost-plus.

• Government jobs: purchases for real property construction contracts with Virginia, the United States or their political subdivisions are taxable to you. Only a contractor officially designated as the government’s purchasing agent, with the government’s credit bound directly, buys exempt, and property the government buys itself and provides to you isn’t subject to use tax.
• Locks and bank security: a business that furnishes and installs locks and locking devices is a retailer of those items, not a consuming contractor, and so is a business primarily furnishing and installing security property on real property for financial institutions.
• Contractors that also sell: if you sell tangible personal property to customers for their own use, you’re a dealer for those sales and need a Certificate of Registration. You can’t buy on a resale exemption certificate what you know will go into a specific contract, and when you take property bought for resale out of inventory for a contract, you pay tax on its cost on your dealer’s return.

Services: generally exempt

Charges for services are generally exempt from Virginia’s retail sales and use tax, but services provided in connection with sales of tangible personal property are taxable. Separately stated labor or service charges for repairing, installing, applying or remodeling tangible personal property are exempt, and so are separately stated services by repairmen. When one transaction includes both property and a service, the “true object” test decides whether the whole charge is taxable or exempt. A service provider pays tax on the property it buys to provide exempt services.

Landscaping and lawn treatments

Retail sales of plants, shrubbery, nursery stock and sod are taxable in Virginia. If you sell shrubbery and agree to plant it on the buyer’s land for a lump sum, tax applies to the total charge; a transplanting charge separately stated on the invoice isn’t taxed.

A landscaper, nurseryman or contractor who goes beyond selling and planting, and contracts to grade, seed and fertilize lawns or to provide periodic fertilizing or weed-killing treatments, is the consumer of the property it uses. Pay the tax on that property when you buy it; your charge to the customer for the service isn’t taxed. For mowing, ask Virginia Tax.

Invoice rule: dealers state the tax, contractors don’t charge it

When a Virginia dealer collects the tax, it must state the amount separately and add it to the sales price or charge. A dealer that collects tax on an exempt or nontaxable transaction must send it to the Tax Commissioner unless it can show the tax was refunded or credited to the purchaser.

Contractors are the end consumers of the property they install for customers, so Virginia Tax says they aren’t required to collect sales tax on those jobs and shouldn’t. Pay tax on your purchases, or accrue and remit use tax, rather than passing your use tax on to the customer as sales tax.

Watch-out: sales tax charged on a contract job

Charging sales tax on an installation job doesn’t remove your use tax on the materials. Tax Bulletin 24-3’s examples are a fencing business that collected sales tax on the entire price of an installed fence, and a cabinet installer that collected it on the entire contract price of a kitchen job. The bulletin sets up a one-time safe harbor: if you collected and remitted sales tax in error, Virginia Tax can credit it against a use tax assessment, but only once, and only if you show the property you charged tax on is the same property the assessment covers. It doesn’t refund sales tax you remitted unless you show you refunded it to your customer or credited their account.

Local tax: the 1% and more

The rate on this page is Virginia Tax’s general rate, which includes the 1% local sales tax that any city or county may levy; the Tax Commissioner administers and collects it like the state tax. Some regions and localities add more, so the rate varies by the locality where the sale is made or the merchandise received, and by the type of item.

Virginia law also lets every county and city impose an additional 1% local sales and use tax for school construction or renovation, and in Planning District 8 also for public transportation, if voters approve it in a referendum. That tax can’t be levied on food purchased for human consumption or essential personal hygiene products.