Learn About the Virginia Corporate Tax Rate: How to Know if Virginia is the best place for you to incorporate your business

Introduction to the Virginia Corporate Tax Rate

In today’s rapidly changing business landscape, location is critical to enterprise success and growth. Virginia stands out as an excellent destination for entrepreneurs and businesses because of its regulatory framework, which fosters growth, innovation, and success. The Virginia corporate tax rate is one of the nation’s lowest corporate income tax rates, making it attractive to businesses. In 2018, Forbes named Virginia one of the best states for business, ranking first in the “Regulatory Environment” category. It also placed second on CNBC’s Best Cities for Business list in 2023.

Virginia is home to numerous large business service operations, and many startups register there daily due to the state’s supportive infrastructure and favorable regulatory framework. Furthermore, the state provides a cost-competitive environment for businesses and has one of the country’s highest concentrations of information technology workers. Virginia businesses are better positioned to face challenges, seize opportunities, and chart sustainable growth courses because they have access to a skilled workforce. These are just a few of the business-specific benefits that your company can take advantage of. Read the rest of this guide to learn the ins and outs of the Virginia corporate tax rate.

Key Takeaways

• Virginia has a progressive income tax system with rates anywhere from 2% to 5.75%.
• The Virginia corporate tax rate is a flat rate of 6% of gross income.
• May 1st is the deadline for filing individual income tax returns in Virginia.
• Virginia imposes a statewide sales tax on tangible personal property and some services. Virginia has a 5.3% sales tax as a standard; however, certain localities may impose additional taxes, raising the overall rate.
• Virginia businesses are subject to several taxes, such as retail sales and corporate income taxes. The tax obligations for companies can vary based on the type of business entity and the nature of the business activities.

What Will I Have to Do If I Want to Open a Business in Virginia?

It is easy to start a business in Virginia. Here are the general steps for starting a business in Virginia:

1. Choose a business structure.
2. Choose a name for your business.
3. Get a federal Employer Identification Number (EIN)
4. Make sure your company is registered with the Virginia State Corporation Commission. 
5. Apply for required licenses and permits
6. Open a business bank account
7. Get business insurance
8. Market your business

To learn more about starting a business in Virginia, check out this link. 

Does Virginia Have an Income Tax? 

Individual taxpayers in Virginia are subject to a progressive income tax system with multiple brackets. The rates range from 2% to 5.75%. Tax rates vary according to your income level. It’s important to verify the most recent rates for each tax year. For corporations, the Virginia corporate tax rate is 6% of income. Virginia also authorizes local gross receipts taxes.

Does Virginia Have a Franchise Tax?

Virginia does not have a franchise tax.

Does Having a Mailing Address in Virginia Trigger Corporate Income Tax and/or Registration Requirements?

Simply having a mailing address in Virginia alone typically does not trigger corporate income tax or registration requirements. Nonetheless, whether a business is subject to the Virginia corporate tax rate or registration requirements depends on several factors, including the nature of its activities within the state and the establishment of a nexus. Any business with a physical presence in Virginia, such as operating a retail store, maintaining a warehouse, holding inventory, or having salespeople or representatives, must register with the Virginia Department of Taxation and charge, collect, and remit sales tax.

Will I Pay the Virginia Corporate Tax Rate If I Have a Business in Virginia But Live in Another State?

Yes, you are required to pay the Virginia corporate tax rate even if you reside in another state but earn income from Virginia-related sources such as services performed within the state, rental income from real estate located in the state, sale or transfer of real estate, and income from Virginia business, trade, or profession.

All My Activities are Outside the U.S., and I Live in a Different Country But Own a Company in Virginia. Do I Have to Pay the Virginia Corporate Tax Rate? 

If all your business activities are conducted outside the United States and you are not generating income from the United States, you generally should not have to pay state income tax in Virginia. State income taxes are typically calculated based on the source of income and the location of business activities within the state.

Virginia state tax obligations are less likely to apply to your company if it is based in the United States but operates entirely outside the state and has no revenue or business operations. To keep your business entity in good standing, you must meet specific administrative requirements, such as keeping your registered agent current and filing annual reports with the Virginia State Corporation Commission.

Does Having an Employee in Virginia Trigger the Requirement to Pay the Virginia Corporate Tax Rate on Income? 

Yes, having an employee in Virginia can trigger corporate income tax obligations for a business, even if the company is based outside Virginia. This is because having an employee in Virginia creates a “nexus,” or a strong enough link to the state, which may subject the company to Virginia state taxes.

Like many other states, Virginia has specific rules for determining when a business has established a nexus in the state for tax purposes. Having an employee working in Virginia often meets the criteria for establishing a nexus because it constitutes a physical presence in the state.

Does Having an Independent Contractor in Virginia Trigger the Requirement to Pay the Virginia Corporate Tax Rate on Income?

No, a business should not be required to pay the Virginia corporate tax rate on income solely because it employs an independent contractor in Virginia. The hiring of independent contractors is treated as a separate entity from the business, and their presence in Virginia is typically not a direct factor in determining the company’s income tax obligations.

Does Having a Founder Living in Virginia Trigger Corporate Income Tax?

No, a company’s corporate income tax liability should not be triggered simply because one or more founders live in Virginia. Corporate income tax is typically determined by the business’s operations and presence in the state rather than the residential addresses of the founders or owners. 

However, determining whether a business is subject to paying the Virginia corporate tax rate depends on the nature and extent of the business’s activities within the state. If the company operates in Virginia, has employees or offices there, generates revenue from activities in Virginia, or engages in significant business activities there, it may be subject to Virginia corporate income tax.

If You Hold Board Meetings in Virginia, Will It Trigger the Requirement to Pay the Virginia Corporate Tax Rate? 

No, holding board meetings in Virginia alone typically should not trigger corporate income tax liability for a company that does not conduct business activities in the state that generate taxable income. The mere act of holding board meetings or having a physical presence for meetings is generally not sufficient to create a tax obligation.

Does Virginia Collect Sales Tax? 

Virginia has a state sales tax of 5.30%, a maximum local sales tax of 0.70%, and an average combined state and local sales tax of 5.75%.

Does Virginia Tax SaaS Income? 

Virginia does not impose a sales tax on cloud computing, SaaS, or digital products. Virginia’s sales tax generally applies to tangible personal property (physical goods) and a few specific services. However, tax laws can change, so it’s essential to verify this information with the most recent sources or consult a tax professional for the most up-to-date information regarding Virginia’s tax policies.

Does Virginia Tax Online Marketplaces?

If the yearly gross revenue of a marketplace facilitator or remote seller from sales into the Commonwealth is more than $100,000 (“gross revenue”) or if you have 200 transactions with Virginia customers, you are required to register for tax collection beginning July 1, 2019.

Does Virginia Tax Remote Software Sales?

No, it does not tax remote software as long as it is proven to be delivered electronically. When the taxpayer could not prove the software was delivered electronically and was exempt, the Virginia Tax Commissioner taxed software purchases and maintenance.

What Will I Do If I Want to Close My Business in Virginia?

Dissolving a business in Virginia involves a few steps, and following the legal requirements to end your business entity is critical. The procedures are as follows:

• Article of Dissolution: The majority of the board’s directors must approve a board resolution to wind up the corporation.
• Valuation of Your Business: Determine the fair market value of your business and its assets. This step is crucial, especially if multiple owners or shareholders are involved.
• List all Debts and Obligations: Make a comprehensive list of all your business debts, outstanding loans, and financial obligations. This includes loans, leases, contracts, and unpaid bills.
• Review Operating Documents: To understand the specific procedures and requirements for dissolution, consult your company’s operating agreement (for an LLC) or bylaws (for a corporation).  Follow the procedures outlined in these documents.
• Cancel Permits and Licenses: Cancel all permits, licenses, or registrations your business may hold at the local, state, or federal level. Contact the respective agencies or departments to initiate the cancellation process.
• Tax Clearance: Ensure that you are current with all state and federal tax obligations, including sales tax, income tax, and employment tax. You may need to obtain a tax clearance certificate or confirm with the tax authorities that you have no outstanding liabilities.
• Settle Debts and Obligations: Use the funds and assets of the business to settle the outstanding debts and obligations. Notify creditors and vendors of your intent to dissolve and make arrangements to satisfy the debts.
• File Articles of Dissolution or Cancellation: Depending on your business structure, file the appropriate dissolution document with the Virginia State Corporation Commission (SCC). For corporations, file “Articles of Termination of Corporate Existence.” For LLCs, file “Articles of Cancellation.”

• Notify Stakeholders: Inform all stakeholders, including employees, shareholders, creditors, and business partners, about the dissolution of the business. Give the proper notice and adhere to any notification requirements set forth by law.
• Close Bank Accounts: Following your operating agreement or bylaws, close all business bank accounts, settle debts and obligations, and distribute the remaining funds to shareholders or members.
• Final Tax Filings: File final tax returns for your business at the federal, state, and local levels, if applicable. This covers employment and income tax returns and any other necessary filings.
• Keep Records: Keep all business records, financial statements, and dissolution documents on file for a designated period.
• Publication (if required): Certain Virginia businesses may be required to publish a dissolution notice in a local newspaper. Check with the SCC or consult legal counsel to determine if this requirement applies to your business.

Closing a business can be complicated, and failing to follow the proper procedures can have legal and financial ramifications. At Cleer, we make this process simple and straightforward, ensuring that all legal requirements are met. Our comprehensive Final Tax Package includes filing Form 966, federal and state tax returns, and the cancellation letter for your Employer Identification Number (EIN). Recognizing that the final Certificate of Dissolution from your state of registration may take weeks, we offer an extension at no additional cost.

When is My Tax Return Due for Virginia?

Individual taxpayers in Virginia continue to have until May 1st to file their state taxes. Fiscal year filers have until the 15th day of the fourth month following the end of their tax year to file their returns. If you have a tax due, the state will only charge a penalty after June 1st. However, interest will still apply. The corporate income tax return is due on April 15 for calendar-year filers. For corporations that follow a fiscal-year filing schedule, the deadline falls on the 15th day of the 4th month after the end of their taxable year. Without requiring an application, Virginia automatically extends the deadline for filing your return by six months.

What Happens If I File My Tax Return in Virginia Late?

The law provides for the penalty to be imposed at a rate of 6% per month or a fraction of a month, starting on the date the return is due and continuing until the return is filed or the maximum penalty of 30% has been reached.

Can Cleer Tax Help Me with Determine if I Need to Pay the Virginia Corporate Tax Rate?  

Yes, we gladly offer services to help you avoid the stress and inconvenience of preparing and filing your tax return. Cleer Tax has a Corporate Income Tax Package that includes federal and state income tax filings. If you do business in multiple states, each additional state is only $175. We also offer all-inclusive bookkeeping packages, which include your monthly statements plus your federal and state tax returns.

If you have any other questions about forming your company or maximizing your tax savings, schedule a consultation to discuss the best structure for your startup business, regardless of where you register.

If you need any help reducing your tax liability, schedule a consultation, or feel free to contact us.