Virginia Retail Sales and Use Tax Regulations

Farm Business Management Update, December 1997

By Bill Whittle of the Department of Agricultural and Applied Economics, Virginia Tech

The issue surrounding sales and use tax is often confusing, and many myths cloud the issues. Two primary agricultural concerns arise with sales and use tax. First, should a farmer pay sales tax on purchases and when should the tax be paid? Second, when should a farmer collect sales tax? The answer to both questions is similar: Sales tax is collected from the end user of a product. To be more specific both situations need to be considered.

Farmer Making Purchases: A farmer engaged in the business of producing agricultural products for market may claim an agricultural exemption. A purchase for personal or family use or consumption is not exempt. For-Hobby farmers cannot claim the tax exemption. Note: Horses for racing or showing and the associated feed and supplies are subject to the tax.

The list of exempt/non-exempt items, though extensive, is very specific and should be reviewed on individual cases. The list of exempt items includes commercial feeds, seed, plants, fertilizers, liming materials, breeding and other livestock, semen, breeding fees, baby chicks, turkey poults, agricultural chemicals, fuel for drying or curing crops, baler twine, containers for fruit or vegetables, farm machinery, and agricultural supplies. These items, to be tax exempt, must be purchased by a farmer or contractor or furnished to a contractor by a farmer to be affixed to real property owned or leased by the farmer and must be used in agricultural production for market. Exception: "Structural construction materials" are not included as exempt tangible personal property and, therefore, are subject to the tax. This group includes, but is not limited to, silos, barns, sheds, permanent storage bins, greenhouses, cattle guards, permanent fence, fuel storage tanks, electrical wiring, except wiring running from special purpose equipment to an off-on switch, plumbing, except as part of special purpose equipment.

Certificate of Exemption: Exempt items must be purchased under a Certificate of Exemption. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser, a certificate of exemption indicating that the property is exempt under the law. Certificates of Exemption exist for various categories. The Agricultural Certificate of Exemption is Form ST-18. An exemption certificate cannot be used to make tax-free purchase of any item of tangible personal property not covered by the exact wording of the certificate.

Use Tax: For most purposes the use tax is similar to sales tax and would be treated in the same manner as exemptions for agriculture. In brief, the use tax applies to property produced outside Virginia, purchased, and shipped into the state for consumption, without resale. The most common example is the purchase of an item from a mail-order store. The store does not collect tax, but as the consumer, you are supposed to pay tax on these items via the state income tax form.

Farmers Selling Production: A farmer regularly engaged in selling tangible personal property at retail must register as a dealer and collect and pay the tax due on retail sales. Retail is the key. If a farmer sells to a wholesaler who is purchasing the item for resale to an end user and who has the appropriate Certificate of Exemption, no sales tax is collected.

Certificate of Registration: Though no fee is charged, every individual, partnership, corporation, etc. desiring to engage in or conduct business as a dealer in Virginia must file an application for a Certificate of Registration with the Virginia Department of Taxation. Application forms for the Certificate of Registration are available from and must be on file with the Virginia Department of Taxation. A separate application is required for each place of business located in Virginia and must be conspicuously displayed. The sales tax applies to regular or recurring sales of farm products by farmers or peddlers at public markets, roadside stands, farms, or any other place.

Occasional Sales--The tax does not apply to an occasional sale, provided the sale is not one of a series of sales sufficient in scope and character to constitute an activity requiring a Certificate of Registration. Occasional sale is defined as three or fewer separate occasions within in one calendar year. (Sales at fairs, flea markets, etc. are not occasional sales.)

Interstate Commerce--The sales tax does not apply to sales of tangible personal property in interstate commerce. A sale in interstate commerce occurs only when title or possession to the property being sold passes to the purchaser outside Virginia and no use of the property is made within Virginia. The seller can transport the property in his own vehicle, hire an independent carrier, have it delivered by a common carrier, such as the U.S. Post Office, without tax being applied. The purchase and immediate transport out-of-state by a dealer require that the dealer, even if registered in another state, have a valid certificate of exemption (Form St-14)

For more information contact:

Virginia Department of Taxation Customer Service P.O. Box 1115 Richmond, VA 23208 (804) 367-8037

Publications available from the Virginia Department of Taxation:

Virginia Retail Sales and Use Tax Regulations: January 1, 1997.
(Includes regulations Virginia Code 58.1-600 through 58.1-639 adopted prior to January 1, 1997).

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