Bulletin Number
VTB 86-15
Tax Type
Retail Sales and Use Tax
Description
Retail Sales and Use Tax: Tax Rate Increase Effective on January 1, 1987
Topic
Rate of Tax
Date Issued
10-30-1986
DATE: October 30, 1986
SUBJECT: Increase in the Virginia Sales and Use Tax Rate Effective on January 1, 1987
EFFECTIVE JANUARY 1, 1987, THE VIRGINIA STATE AND LOCAL SALES AND USE TAX RATE WILL INCREASE FROM 4% TO 4|1/2%.
RATE INCREASE:
Due to a recent law change effective January 1, 1987, the rate of the Virginia sales and use tax will increase from 4% (3% state and 1% local) to 4|1/2% (3|1/2% state and 1% local). In addition, the special sales and use tax rate for vending machine dealers will be increased effective January 1, 1987 to 5|1/2% (4|1/2% state and 1% local) of wholesale purchases for resale.
DEALER'S DISCOUNT:
The dealer's discount will be held at its current level of 3%, but will not apply to the additional |1/2% sales tax. Sales tax dealers who file returns and pay the tax on time may now keep 3% of the 3% state sales tax they collect. Thus, to compute the dealer's discount now you merely multiply the state tax due on your return by 3% (.03). Effective for January 1987 sales tax returns and all returns due after that month, dealers will continue to receive the a discount of 3% for the first 3% of the state sales tax. Thus, starting with your January 1987 return, you would compute the dealer's discount simply by multiplying the state tax due on your return by 2.57% (.0257).
To illustrate the change, assume that you make taxable sales of $10,000 during a month:
Present Law
State Tax = $10,000 X 3% = $300
Local Tax = $10,000 X 1% = $100
Dealer's Discount =|
State Tax ($300) X 3% = $9
Law Effective for January 1987 Returns and Future Returns
State Tax = $10,000 X 3.5% = $350
Local Tax = $10,000 X 1% = $100
Dealer's Discount =
State Tax ($350) X 2.57% = $9
CONTRACTS ENTERED INTO BEFORE OCTOBER 27, 1986:
The new law generally provides transitional provisions for persons who enter into bona fide real estate construction contracts, contracts for the sale of tangible personal property, or leases prior to October 27, 1986 (the date the sales and use tax rate increase legislation was signed by the Governor). Under these transitional provisions, tangible personal property purchased or leased under such contracts would still be subject to the 4|1/2% tax on and after January 1, 1987, but the purchaser or lessee of the property will generally be entitled to request refunds from the Department of Taxation on the additional |1/2% tax he pays as the result of the rate increase.
As with refund requests generally, a request for the refund of the additional |1/2% tax will have to be made within 3 years of the date the tax became due. For instance, if a piece of equipment is purchased in January 1987, the tax does not become due to the department from the dealer until February 20, 1987. Thus, a refund request could be filed anytime on or before February 20, 1990. In addition, interest will be paid by the department on such refunds for the period from the date the tax became due to the date of refund.
Discussed below is how the transitional provisions apply to real estate construction contracts (including highway construction contracts), contracts for the sale of tangible personal property, and leases:
Real Estate Construction Contracts
In the case of a bona fide real estate construction or highway construction contract (one that includes plans and specifications) which contains a specific and stated date of completion, refunds will be available when (1) the contract is entered into prior to October 27, 1986 and (2) the property is delivered prior to the completion date of the project. In addition, refunds will be available for bona fide real estate construction contracts which do not contain a specific and stated date of completion, provided that (1) the contract is entered into prior to October 27, 1986 and (2) the property is delivered on or before March 20, 1987. Refunds will not be available, however, for property purchased or leased under non-bona fide contracts (those that do not include plans and specifications as of October 27, 1986).
Contracts for the Sale of Tangible Personal Property
Refunds of the additional |1/2% tax will be available for tangible personal property purchased under sale contracts, including lay-away sales, entered into before October 27, 1986, provided that the property is delivered to the purchaser on or before March 30, 1987. The transitional provisions will not have any impact, however, on installment sales made before or after January 1, 1987 or sales of gift certificates. The provisions do not affect installment sales because the sales tax on such sales is to be paid in full when the contract is entered into. Similarly, the provisions do not affect the sale of gift certificates, because the sales tax is not collected until the certificate is redeemed.
Leases
As with contracts for the sale of tangible personal property, refunds of the additional |1/2% tax will be available for lessees of tangible personal property, provided that the lease is entered into prior to October 27, 1986 and the property is delivered to the lessee on or before March 30, 1987. These provisions apply even though the term of a lease may last beyond March 30, 1987. For example, a person who enters into a 5 year equipment lease on October 24, 1986 and who takes delivery of the equipment on or before March 20, 1987 would be able to seek a refund from the department on the additional |1/2% tax paid he pays on the lease between January 1, 1987 and the end of the lease period (October 24, 1991).
REGULATIONS:
The Department of Taxation will publish emergency regulations to explain in greater detail the upcoming law changes. These regulations will be mailed to you shortly after December 1, 1986. The emergency regulations will remain in effect only until the department publishes permanent regulations on the law changes. The permanent regulation will be developed under the Administrative Process Act and will include ample opportunities for public input.
BRACKET CHARTS:
To illustrate the upcoming sales tax rate increase, enclosed with this bulletin is a draft sales tax bracket chart for transactions of up to approximately $80. A final version of this chart will be enclosed with the December 1 emergency regulations. The new law requires, as does the current law, that the tax be rounded to the nearest whole cent. For instance, the tax on a $3 sale on January 1, 1987 would be 13.5 cents ($3 multiplied by 4|1/2% = 13.5 cents) if computed exactly, but on the new bracket chart the tax is rounded to 14 cents. As under present law, however, collection of the tax based on the bracket chart will not relieve you of the requirement to pay tax to the department based on 4|1/2% of your gross taxable sales.
NEW SALES TAX RETURNS AND COUPON BOOKLETS:
Also to be mailed to you with the December 1 emergency regulation is a facsimile of the new sales and use tax returns that will be used beginning with the month of January 1987. You can also expect to receive a new sales and use tax coupon booklet around January 25, 1987.
WHAT TO EXPECT ON DECEMBER 1:
You can expect to receive the following items in the mail shortly after December 1, 1986:
(1) Copies of emergency regulations describing in detail the upcoming sales and use tax law changes and how they will affect the collection of the tax and the filing of returns;
(2) A copy of the sales tax bracket chart that will be used on and after January 1, 1987 (this chart will show the tax due on transactions up to slightly more than $100); and
(3) A facsimile of the sales and use tax return that will be used starting with your January 1987 return.
WHERE TO GET INFORMATION
Any questions on the recent law change may be directed to the Department of Taxation's Taxpayer Assistance Section at P. O. Box 6-L, Richmond, Virginia or you may telephone (804) 257-8037.
Tax Bulletins