Commercial and Industrial Sales & Use Tax Exemption

Virginia offers sales and use tax exemptions for eligible equipment used directly in manufacturing and research and development operations. Prior to exemptions, the Commonwealth’s combined state and local sales and use tax is 5.3% (4.3% state tax and 1% local tax). An additional regional sales tax is imposed in the Hampton Roads and Northern Virginia regions at a rate of 0.7%, for a total 6.0% rate. An additional 1% is imposed in City of Williamsburg and the Counties of James City and York, for a total 7% rate.

Call Jeff Reed at 434.738.2544 or 434.265.2382 with questions pertaining to incentives.

Eligibility

Some important exemptions include:

Manufacturers’ purchases used directly in production, including machinery, tools, spare parts, industrial fuels, and raw materials

Items purchased for resale by distributors

Certified pollution-control equipment and facilities

Custom computer software

Utilities delivered through lines, pipes, or mains

Purchases used directly and exclusively in research and development in the experimental or laboratory sense

Most film, video, and audio production-related purchases

Machinery, tools, and equipment of a public corporation used to generate energy derived from sunlight or wind

Charges for internet access and sales of software via the internet

Purchases used directly and exclusively in activities performed in cooperation with the Virginia Commercial Space Flight Authority

Semiconductor clean rooms or equipment and other tangible personal property used primarily in the integrated process of designing, developing, manufacturing, or testing a semiconductor product

Computer equipment purchased or leased for the processing, storage, retrieval, or communication of data in large data centers

Machinery, tools, equipment, and materials used by a licensed brewer in the production of beer, and materials such as labels and boxes for use in packaging and shipment for sale

FAQ

What localities have the additional 0.7% tax in the Hampton Roads region?

The additional 0.7% regional rate in Hampton Roads applies to the cities of Chesapeake, Franklin, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach, and Williamsburg; and the counties of Isle of Wight, James City, Southampton, and York. An additional 1% is imposed in City of Williamsburg and the Counties of James City and York, for a total 7.0% rate.

What localities have the additional 0.7% tax in the Northern Virginia region?

The additional 0.7% regional rate in Northern Virginia applies to the cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park; and in the counties of Arlington, Fairfax, Loudoun, and Prince William.

When is the retail sales and use tax due?

Retail sales and use tax is due when such property is either (i) delivered to the purchaser, or (ii) paid for in full by the purchaser, whichever occurs first, regardless of when the property is ordered. As such, this is when the exemption must be claimed. This is not a refund given after paying the sales and use tax.

What if, after reading the list of items eligible for the tax exemption, it is still unclear whether a specific item will qualify?

Contact the Virginia Department of Taxation at 804.367.8037.