Under the budget passed by the 2010 Virginia General Assembly, Virginia taxpayers meeting specific requirements must make accelerated sales and use tax payments (“Accelerated Sales and Use Tax”) for the month of June of each year, starting June 2010.

Under the Accelerated Sales and Use Tax program, taxpayers with taxable sales and purchases of more than $1 million for the prior fiscal year must make an Accelerated Sales and Use Tax payment for the month of June of each year totaling 90 percent of their sales and use tax liability for the prior June. Taxpayers’ Accelerated Sales and Use Tax payments are due June 30 if made electronically and, otherwise, are due by June 25.

The adoption of Accelerated Sales and Use Tax allows Virginia to receive June sales and use tax remittances before the end of Virginia’s June 30 fiscal year. Otherwise, Virginia would receive June’s sales and use tax remittances in July after the close of the fiscal year because Virginia sales and use tax returns are due the 20th day of the month following taxable purchases and sales. Virginia will keep the Accelerated Sales and Use Tax program in place for June of future years, gradually phasing it out between June 2013 and June 2021.

Implementation of the Accelerated Sales and Use Tax

The Virginia Department of Taxation (the “Department”) is in the process of implementing the Accelerated Sales and Use Tax for June 2010. The Department will determine which taxpayers are subject to the Accelerated Sales and Use Tax based on a taxpayer’s aggregate taxable sales or purchases for all locations, regardless of how many returns the taxpayer files.

In early May 2010, the Department will send written notices to taxpayers that are subject to the Accelerated Sales and Use Tax. On or about June 1, taxpayers will also receive, payment vouchers for each of their accounts notifying them of the amount of their accelerated tax liability for each account. The Department is considering excluding certain de minimus accounts from the Accelerated Sales and Use Tax to avoid situations where the cost of collecting the tax exceeds the amount of tax collected.

Taxpayers will reconcile their Accelerated Sales and Use Tax payment with their actual June 2010 tax liability on their June returns, which are due July 20, 2010. In the case of overpayment, taxpayers will receive a credit on their July returns.

In future years, determinations of which taxpayers are subject to the Accelerated Sales and Use Tax will be made on an annual basis. That determination will be made without regard to whether the taxpayer has been subject to the Accelerated Sales and Use Tax in the past.

Undue Hardship Exception

The Department will consider making exceptions to the Accelerated Sales and Use Tax in cases of undue hardship. Possible hardship exceptions include cases where sales have deteriorated significantly since June 2009, cases where taxpayers closed or sold portions of their businesses since June 2009, or cases where changes to a taxpayer’s business model make payment of the Accelerated Sales and Use Tax a financial hardship. Such hardship could be exacerbated by the continued deterioration of the credit markets, which may prevent taxpayers from getting access to credit to pay the Accelerated Sales and Use Tax.

Hardship relief could include waiver of the Accelerated Sales and Use Tax or a reduced accelerated tax liability based on an alternative calculation, such as 90 percent of the taxpayer’s monthly average sales and use tax liability for the first quarter of 2010. This calculation could soften the blow, particularly for retailers that have experienced a pronounced decline in sales over the past year.

In light of the rapidly approaching payment deadline, taxpayers seeking hardship relief should be prepared to submit written hardship requests to the Department and do so quickly. Taxpayers may also want to consider appealing to the Tax Commissioner pursuant to Va. Code § 58.1-1820, et seq. and 23 VAC 10-20-165. The Department is preparing to act quickly on hardship requests.

Penalties

Taxpayers who fail to make their Accelerated Sales and Use Tax payments by the required date are subject to a 6 percent penalty. The 6 percent penalty is computed on any late or unpaid Accelerated Sales and Use Tax due, as shown on the payment voucher.

Timeline of Important Dates

  • May 4, 2010 – The Department mails Accelerated Sales and Use Tax notification letters to taxpayers.  
  • May 25, 2010 – The Department mails Accelerated Sales and Use Tax vouchers and reconciliation returns.  
  • June 25, 2010 – Taxpayers’ Accelerated Sales and Use Tax payments made by mail must be postmarked.  
  • June 30, 2010 – Taxpayers’ Accelerated Sales and Use Tax payments made by electronic funds transfer are due.  
  • July 20, 2010 – Taxpayers’ Accelerated Sales and Use Tax June reconciliation returns are due.