November 15, 2022
Dear *****:
This is in response to your letter regarding the sales and use tax revenue entitlement for the Virginia Beach Sports or Entertainment Project provided by Va. Code § 15.2-5933. This ruling confirms that the project qualifies for the Retail Sales and Use Tax (“sales and use tax”) entitlement and explains the calculation of the entitlement, the timing of the distributions, and the procedures that must be followed in order to ensure timely receipt of the revenues.
ANALYSIS
Legislation enacted during the 2019 Virginia General Assembly session (Senate Bill 1790, 2019 Acts of Assembly, Chapter 793) authorizes the City to receive a portion of the sales and use tax revenues generated from transactions taking place upon the premises of a qualifying sports or entertainment project in the City.
The term “sports or entertainment project” is defined under Va. Code § 15.2-5928 to include sports facilities, entertainment facilities, or both, representing at least $100 million of investment in the sports and entertainment district of the City, including any office, restaurant, concessions, retail, residential, and lodging facilities that are owned and operated adjacent to or in connection with such sports or entertainment project, film and sound studios and any other sports or entertainment-related infrastructure, and any other directly related properties, including onsite and offsite parking lots, garages, and other properties. The term includes multiple facilities located on multiple properties, provided that such facilities share a nexus of ownership or management.
Sports and entertainment district” is defined under Va. Code § 15.2-5928 to mean the geographic area in the City located south of 21st Street, north of Norfolk Avenue, east of Birdneck Road, and west of the Virginia Beach Boardwalk.
Under Va. Code § 15.2-5933, the entitlement commences upon the execution of a binding development agreement for a sports or entertainment project and the entitlement will expire on July 1 following the twentieth anniversary of the completion of construction of the project. As the City’s Development Authority entered into an agreement on December 20, 2019, for the development of a qualifying sports or entertainment project, the project qualifies for the entitlement under Va. Code § 15.2-5926 et seq., beginning on December 20, 2019.
Calculation of Entitlement
Va. Code § 15.2-5933 entitles the City to the sales and use tax revenues, as defined in Va. Code § 15.2-5928, generated by transactions taking place upon the premises of the sports or entertainment project, including transactions generating revenues in connection with the development and construction of such project that would not be generated but for the existence of such project.
The sales and use tax is imposed at a combined state and local rate of 5.3 percent. This includes a 4.3 percent state tax and a 1.0 percent local option tax. Sales in certain regions of the state, including sales in the City, are subject to an additional 0.7 percent regional tax. Thus, the combined state and local tax rate in the City is 6 percent.
Currently, however, the tax is levied on food for home consumption and essential personal hygiene products at the rate of 2.5 percent, which is comprised of a 1.5 percent state tax and the 1.0 percent local option tax. Beginning January 1, 2023, the 1.5 percent state tax levied on these items is eliminated. Food and essential personal hygiene products will continue to be subject to the 1.0 percent local option tax and will continue to be exempt from all regional and additional local tax rates. For more information, please see Tax Bulletin 22-12.
Va. Code § 15.2-5928 excludes from the entitlement the revenue generated by (i) the 0.5 percent tax paid into the Commonwealth Transportation Fund (‘CTF”); (H) the 1.0 percent tax distributed among counties and cities on the basis of school-age population; and (iii) 0.7 percent tax in certain localities for regional transportation purposes. Additionally, revenues dedicated to local education and transportation are excluded from the entitlement:
• The 0.25 percent tax dedicated to the Public Education Standards of Quality under Va. Code §§ 58.1-638 F(1) and 581-638.1
• The 0.125 percent tax dedicated to the Public Education Standards of Quality under Va. Code §§ 58.1-638 F(2) and 58.1-638.1
• The 0.1 percent tax dedicated to the CTF under Va. Code § 58.1-638 G
• The 0.3 percent tax dedicated to the CTF under Va. Code § 58.1-638.3
After taking into account the exclusions enumerated above, the City is entitled to a 3.025 percent tax entitlement, as summarized in the table below.
|
Total Sales and Use Tax Rate |
6.0% |
|
Less Commonwealth Transportation Fund |
(0.5%) |
|
Less Public Education Based on School Age Population |
(1.0%) |
|
Less Regional Transportation |
(0.7%) |
|
Less Public Education SOQ |
(0.25%) |
|
Less Public Education SOQ |
(0.125%) |
|
Less Commonwealth Transportation Fund |
(0.1%) |
|
Less Commonwealth Transportation Fund |
(0.3%) |
|
Total Sales and Use Tax Entitlement |
3.025% |
The 3.025 percent tax includes the 1.0 percent local option tax which is generally distributed to the city or county of the sellers “place of business” for intrastate sales, and to the city or county to which the goods are destined for interstate sales. “Place of business” means the business location in Virginia that first takes the purchaser’s order, in person, by purchase order or by letter or telephone. For purposes of the sports or entertainment project entitlement, there may be some cases in which revenues from the sales and use tax originate from purchases of construction materials made outside the City and used in the construction of the sports or entertainment project within the City. In these cases, the tax revenues will be distributed to the City as part of its sports or entertainment project entitlement.
Finally, under Va. Code § 15.2-5933, the amount of this entitlement will be reduced by the amount of any entitlement that the project receives pursuant to the provisions of Va. Code § 58.1-3851.1 or § 58.1-3851.2.
Procedures Related to the Entitlement
Procedures for Retailers
Each retailer located within the project must obtain a sales and use tax certificate of registration from the Department for that location.
Procedures for Contractors
Each contractor that works on the project must obtain a sales and use tax certificate of registration from the Department for that location. The Department will provide each contractor with a letter to notify vendors not to collect tax on the contractor’s purchases for the project. The contractor will be required to accrue and remit use tax on qualifying purchases directly to the Department on its monthly or quarterly sales and use or business consumer use tax return.
Procedures for the City
The City will need to designate an individual to be its point of contact to work with the Department regarding the entitlement. In order for the tax revenues remitted by retailers located within the project and contractors working on the project to be treated as entitlement revenues, the City will need to provide lists of such retailers and contractors to the Department and update them as needed. The City should inform the Department of any new retailers and contractors as soon as possible in order to minimize delays in receiving the entitlement with respect to them.
Distribution of the Entitlement
The Department will distribute the 1.0 percent local option portion of the entitlement on a monthly basis, in the same manner as with other local sales and use tax revenues under the general process.
The Comptroller will distribute the 2.025 percent portion of the entitlement on a quarterly basis. Tax revenues will be collected and processed within each of the following quarterly periods and distributed after the close of the period:
1st Quarter July 1 — September30
2nd Quarter October 1 — December 31
3rd Quarter January 1 — March 31
4th Quarter April 1 — June 30
As the Department will need to verify the accuracy of these amounts before the Comptroller can make the distributions, these distributions will typically be completed within 45 days after the close of the quarter in which the return was filed.
Reports to the General Assembly
Under the second enactment of 2019 Acts of Assembly, Chapter 793, the Tax Commissioner will report to the Chairmen of the Senate Committee on Finance, the House Committee on Finance, and the House Committee on Appropriations, annually prior to July 1, the amount of this entitlement.
CONCLUSION
I hope this has responded to your inquiry as to the process the City must follow in order to ensure that it receives the proper amount of sales tax revenues pursuant to the entitlement. If you have any questions about these procedures, you may contact ***** in the Office of Tax Policy, Policy Development Division at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
CMB/sk