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Virginia Basic Business Taxes

Feb/Mar 09
Corporate income tax:
Every corporation in the state or having income from the state is taxed at 6 percent of taxable income, which is defined as the corporation's federal taxable income modified as allowed under the state law. Tax is paid on income allocated and apportioned to the state. There is no unitary tax on worldwide profits. To further enhance Virginia's favorable tax treatment, the sales factor in the state's income apportionment formula is double weighted, reducing the tax burden on companies that sell more of their product outside Virginia.

Sales and use taxes:

In Virginia, the combined state and local sales and use tax rate is 5 percent (4 percent state and 1 percent local). The sales tax is imposed on gross receipts from retail sales of tangible personal property as well as on the rental of such property. Numerous sales and use tax exemptions are available.

Property tax:
Cities, counties, towns, and special taxing districts may levy local property taxes. The state does not tax property. Real property is periodically assessed at 100 percent of fair market value by local assessors. Personal property is assessed at a percentage of original cost or depreciated value. Manufacturing machinery and tools are classified separately and may be taxed at a lower rate. Merchants' capital also may be taxed locally. Tax rates vary with localities. Virginia does not tax intangible property.

Corporate Tax Credits:

• Major Business Facility Job Tax Credit: Qualified companies locating or expanding in Virginia can receive a $1,000 corporate income tax credit for each new full-time job created over a threshold number of jobs. Depending on the location, this threshold is 50 or 100 jobs. This $1,000 credit is available for all qualifying jobs in excess of the threshold and credits are available for taxable years beginning on or after January 1, 1995, but before January 1, 2010.

• Recycling Equipment Tax Credit: Effective for taxable years beginning on and after January 1, 1999, but before January 1, 2015, manufacturers may claim a corporate income tax credit in the amount of 10 percent of the original total capitalized cost of certified machinery and equipment for processing recyclable materials. The total tax credit allowed cannot exceed 40 percent of the taxpayer's Virginia income tax liability (computed prior to claiming the credit). The unused credit may be carried forward up to 10 years. The Virginia Department of Environmental Quality certifies that equipment 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. The maximum credit is $25,000 and may be carried over to the extent usable for the next three taxable years.

• 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 worker retraining. The credit has a 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.

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.

Business inventory:
Manufacturers' inventories are exempt from property tax.

Goods in transit:

Tangible personal property delivered to a factor or export agent for subsequent export to a foreign country is exempt from sales and use taxes.

Pollution-control equipment:
Certified facilities and equipment used primarily for the abatement or control of water and air pollution are exempt from sales and use taxation. At the option of local taxing authorities, pollution-control facilities and equipment may be entirely or partially exempted from local property taxation.

Industrial machinery and equipment:
An exemption for the sales and use taxes is provided for machinery, tools, and repair parts used in processing, manufacturing, mining, refining, harvesting timber, commercial fishing, or making feed for sale. Also exempt are ships or vessels used in interstate or foreign commerce as well as sales or leases of property to an intrastate, interstate, or foreign airline that also serves at least one Virginia airport. Commercial television and radio broadcasting equipment is not subject to 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 cogeneration 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.

Biotechnology businesses:
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.

Additional exemptions:

Manufacturers are exempt from property taxes on office furniture and fixtures, and all firms are exempt from taxes on computer application software, money, accounts receivable, bonds, and shares of stock.

Virginia State Contact:
Virginia Economic Development Partnership
P.O. Box 798
Richmond, VA 23218-0798
(804) 545-5600

Virginia State Contact:
Virginia Economic Development Partnership
P.O. Box 798
Richmond, VA 23218-0798
(804) 545-5600

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.

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