Virginia Income & Tax for eCommerce Businesses

💡 Income Tax Warning: Virginia does not strictly require physical presence to create corporate income tax obligations. A corporation can have Virginia income tax nexus based solely on income derived from Virginia sources — including regular sales delivered into the state. This is a broader standard than most sellers expect.

Part 1: Virginia Corporate Income Tax

Virginia imposes a flat 6% corporate income tax on the taxable income of C corporations with nexus in the state. S corporations, partnerships, and LLCs taxed as partnerships do not pay Virginia corporate income tax — their income passes through to individual owners, who pay Virginia's individual income tax.

What Creates Virginia Corporate Income Tax Nexus?

Virginia's income tax nexus standard goes beyond pure physical presence. A corporation has nexus — and must file a Virginia corporate income tax return — if it has income from Virginia sources, including:

• Ownership of real or tangible personal property in Virginia (including FBA inventory in Virginia warehouses)

• A business, trade, profession, or occupation carried on in Virginia

• Regular sales of tangible personal property delivered into Virginia — particularly when conducted on a systematic, ongoing basis

• Employees, agents, or representatives operating in Virginia

• Any employee working remotely from a Virginia address, even part-time

Virginia's approach means that eCommerce sellers who generate regular, ongoing revenue from Virginia customers — even without physical presence — may have corporate income tax filing obligations. This is meaningfully broader than states that require a physical connection.

PL 86-272 Limitations

Federal Public Law 86-272 protects C corporations from Virginia income tax if their only Virginia activity is soliciting orders for tangible goods approved and shipped from outside Virginia. However:

• FBA inventory in a Virginia fulfillment center eliminates this protection immediately

• Virginia has taken the position that certain online interactions beyond pure solicitation may also erode PL 86-272 protection

• If you have regular, systematic solicitation activity in Virginia without physical presence, a nexus review with a qualified advisor is strongly recommended

Virginia's Three-Factor Apportionment

If a C corporation has Virginia nexus, it apportions its income to Virginia using a three-factor formula based on property, payroll, and sales. Virginia uses market-based sourcing for service receipts — meaning services are sourced to where the customer receives the benefit, not where the service is performed.

Part 2: Virginia Sales Tax

Economic Nexus Threshold

Virginia implemented economic nexus for remote sellers effective July 1, 2019. The threshold is:

• $100,000 in gross retail sales into Virginia in the current or previous calendar year, OR

• 200 or more separate transactions into Virginia in the current or previous calendar year

• Marketplace sales through certified facilitators do not count toward your individual threshold — those are tracked separately

• Resale and wholesale transactions are excluded from the threshold calculation — Virginia only counts retail sales

Virginia Sales Tax Rates

Virginia's base state sales tax rate is 5.3%. Several regions have higher combined rates due to local transportation taxes:

• Northern Virginia (Arlington, Fairfax, Loudoun, Prince William counties): 6.0%

• Hampton Roads/Historic Triangle (Virginia Beach, Norfolk, Hampton, Newport News): 6.0%

• Most of the rest of Virginia: 5.3% (some localities are 5.3% + local transit levies)

Virginia is a destination-based state for remote sellers — you charge based on the customer's delivery address. For sellers shipping to Northern Virginia (a very high-volume area given Amazon's presence there), the 6.0% rate applies.

FBA Sellers: The Northern Virginia Factor

Amazon's largest cluster of fulfillment and data center infrastructure in the eastern U.S. is concentrated in Northern Virginia — particularly in Loudoun, Prince William, and adjacent counties. If you are an FBA seller, your inventory is almost certainly warehoused in Virginia at some point. This creates immediate physical nexus for both sales tax and potentially corporate income tax purposes, regardless of your sales volume.

What About Sales Tax?

Virginia's varying rates across regions (5.3% to 6.0%) and its destination-based sourcing for remote sellers require careful rate lookup by delivery address.

At Tall Oak Advisors, we put together this guide as a resource for our eCommerce community. Tax rules vary significantly from state to state, and we want sellers to have the information they need to make informed decisions. More info at talloakadvisors.com

Disclaimer: The information in this article is for general informational purposes only and does not constitute legal or tax advice. Tax laws change frequently. Consult a qualified tax advisor or CPA regarding your specific situation.

Sources: Va. Code Ann. § 58.1-400 et seq. (Corporate Income Tax); Virginia Tax — Remote Sellers & Economic Nexus (eff. July 1, 2019); Va. Code Ann. § 58.1-602 (Sales Tax); Pub. L. No. 86-272.