Virginia Basic Business Taxes
Virginia's corporate income tax rate is 6 percent, and no unitary tax is levied on Virginia companies' worldwide profits. To further enhance Virginia's favorable tax treatment, the sales factor in the state's income apportionment formula is double weighted, benefiting companies with significant Virginia payroll and property. The corporate apportionment formula was amended during the 2009 General Assembly session to allow manufacturing companies to use a single factor apportionment based on sales to determine their Virginia taxable income. This modification will be phased in as follows: for taxable years beginning on or after July 1, 2011, but before July 1, 2013, qualifying corporations may elect to use a triple-weighted sales factor; for taxable years beginning on or after July 1, 2013, but before July 1, 2014, qualifying corporations may elect to use a quadruple-weighted sales factor; and for taxable years beginning on or after July 1, 2014, and thereafter, qualifying corporations may elect to use the single sales factor method to apportion Virginia taxable income.
Sales and use taxes:
The rate of Virginia's combined state and local sales and use tax is 5 percent (4 percent state and 1 percent local). A seller is subject to a sales tax imposed on gross receipts derived from retail sales or leases of tangible personal property, unless the retail sales or leases are specifically exempt by law. When a seller does not collect the sales tax from the purchaser, the purchaser is required to pay a use tax on the purchase, unless the use of the property is exempt. Numerous sales and use tax exemptions are available. Manufacturers do not pay tax on purchases used for production; distributions do not pay tax on items purchased for resale.
Virginia does not tax property at the state level; real estate and tangible personal property are taxed at the local level. Virginia's counties and cities are separate taxing entities. A company pays either county or city taxes, depending on its location. If the company is located within the corporate limits of a town, it pays town taxes as well as county taxes. In addition, Virginia localities do not have separate school district taxes. Virginia does not tax: intangible property, manufacturers' inventory, manufacturers' furniture, fixtures or corporate aircraft, and/or certified pollution control facilities and equipment. Localities have the option to fully or partially exempt the following property from taxation: certified recycling equipment, rehabilitated commercial/industrial real estate for up to 15 years, manufacturers' generating and co-generating equipment, certified solar energy devices and/or environmental restoration sites (eligible real estate in the Virginia Voluntary Remediation Program). Localities may elect to tax the following tangible personal and real property at reduced rates: research and development tangible personal property, equipment used for biotechnology research, development and production, semiconductor manufacturing machinery and tools, computer hardware and peripherals, aircraft, clean-fuel vehicles, tangible personal property used in the provision of certain Internet services and/or energy-efficient buildings.
Corporate Tax Credits:
• Major Business Facility Job Tax Credit: Qualified companies locating or expanding in Virginia receive a $1,000 corporate income tax credit for each new full-time job created over a threshold number of jobs. Companies locating in Enterprise Zones or economically distressed areas are required to meet a 25-job threshold; all other locations have a 50-job threshold. The $1,000 credit is available for all qualifying jobs in excess of the threshold and is taken in equal installments over two years ($500 per year) through 2014. After 2014, the credit will be taken in equal installments over three years ($333 per year). Non-qualifying jobs include seasonal or temporary jobs, positions in building and grounds maintenance, security, positions ancillary to the principal activities of the facility and job re-locations from other company locations in Virginia. Credits are available for taxable years before January 1, 2020. Unused credits may be carried over for up to 10 years.
• Recycling Equipment Tax Credit: An income tax credit is available to manufacturers for the purchase of certified machinery and equipment used for processing recyclable materials in taxable years before January 1, 2015. The credit is equal to 10 percent of the total original capitalized cost of the equipment. In any taxable year, the amount of credit allowed cannot exceed 40 percent of the company's Virginia income tax liability before the credit. The unused amount of the credit may be carried over for 10 years. The Virginia Department of Environmental Quality certifies that equipment to be credited is integral to the recycling process.
• Day Care Facility Investment Tax Credit: Businesses may claim a tax credit equal to 25 percent of all expenditures incurred in the construction, renovation, planning or acquisition of facilities for the purpose of providing day care for children of company employees. Any credit not usable for the taxable year may be carried over to the extent usable for the next three taxable years. The maximum credit is $25,000. The Virginia Tax Commissioner at the Department of Taxation approves applications for this program.
• Worker Retraining Tax Credit: Virginia employers will be eligible to receive an income tax credit equal to 30 percent of all expenditures made by the employer for eligible worker retraining. The credit is equal to the cost per qualified employee, up to $200 per qualified employee annually, or $300 per qualified employee annually if the eligible worker retaining includes retraining in a STEM or STEAM discipline. The credit has a statewide spending cap of $2.5 million in any taxable year. Eligible worker retraining consists of courses at Virginia community colleges and private schools, certified by the Department of Business Assistance, or retraining programs through apprenticeship agreements approved by the Virginia Apprenticeship Council.
• Green Job Creation Tax Credit: For taxable years before January 1, 2015, a taxpayer will be allowed a credit against the Virginia personal or corporate income tax for each new green job created within the Commonwealth by the taxpayer. The amount of the annual credit for each new green job will be $500 for each annual salary that is $50,000 or more. The credit will be first allowed for the taxable year in which the job has been filled for at least one year and for each of the four succeeding taxable years, provided that the job is continuously filled during the respective taxable year. Each taxpayer may claim the credit for up to 350 green jobs. The credit may not exceed the total amount of Virginia income tax for the taxable year in which the green job was continuously filled. If the amount of credit allowed exceeds the taxpayer’s tax liability for such taxable year, the amount that exceeds the tax liability may be carried over for credit against the income taxes of the taxpayer in the next five taxable years.
Property tax abatement:
Localities may grant a partial exemption from taxation for up to 15 years for qualifying real estate that has been substantially rehabilitated for commercial or industrial use. Structures must be at least 20 years old.
Manufacturers' inventories, furniture, fixtures, and corporate aircrafts are exempt from property tax, nor does a manufacturer pay business license tax on gross receipts when the sales are at wholesale and occur at the place of manufacture.
Certified facilities and equipment used primarily for the abatement or control of water and air pollution are exempt from sales and use taxation. Certified pollution-control facilities and equipment are also exempt from property taxation.
Industrial machinery and equipment:
An exemption for the sales and use taxes is provided for manufacturers' purchases used directly in production, including machinery, tools, spare parts, industrial fuels and raw materials. Most film, video and audio production related purchases are also exempt from sales and use taxes.
Industrial fuels and raw materials:
Power, fuel, energy or supplies used in processing, manufacturing, refining, mining or harvesting forest products; raw materials that become a component part of a finished product; advertising matter; gas, electricity or water received through mains, lines or pipes; and packaging materials are exempt from sales and use taxes.
Energy and fuel conservation measures:
Certified solar energy equipment, facilities or devices may be exempted or partially exempted from property taxation. Local taxing authorities may exempt or reclassify manufacturers' energy conversion and co-generation equipment to result in a lower rate than other personal property.
Computer software and hardware exemptions:
Custom software is exempt from sales and use taxes. Localities may enact an ordinance to establish a separate class of tangible personal property for computer hardware used by data processing businesses. Such property may be taxed at a rate equal to or less than the rate on other tangible personal property.
Data Center Commercial Sales and Use Tax Exemptions:
Data Centers can qualify for sales and use tax exemptions on computer equipment purchased or leased to upgrade, add to, or replace computer equipment purchase or leased in the initial investment for the processing, storage, retrieval, or communication of data, including but not limited to servers, routers, connections and other hardware. The exemption shall not apply to any computer software sold separately from the computer equipment, nor shall it apply to general building improvement or fixtures. In order to receive this exemption, the company must purchase at least $150 million worth of computer equipment as described above; create 50 new jobs; the jobs must pay at least one and one-half times the prevailing average wage for the locality in which it locates; and must enter into an MOU with VEDP between 7/1/2010 and 6/30/2020.
Localities may separately classify equipment used for certain research, development, production or provision of biotechnology for the purpose of developing or providing products or processes for specific commercial or public purposes, including medical, pharmaceutical, nutritional and other health-related purposes; agricultural purposes; or environmental purposes and assess and tax it at a level not to exceed that applicable to machinery and tools.
Manufacturers are exempt from property taxes on office furniture and fixtures.
Virginia State Contact:
Virginia Economic Development Partnership
901 East Byrd Street
P.O. Box 798 Richmond, VA 23218-0798
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.