A Virginia sales tax exemption removes the state’s 5.3% sales tax or the 6% to 7% combined rates that apply in certain regions from a purchase that would otherwise be taxable. The exemption depends on who’s buying, what’s being bought, or both. Some exemptions apply automatically once you have a valid certificate on file. An exemption that’s based on who’s buying comes down to a completed certificate that shifts the tax decision and the risk that comes with it onto the customer.

Below, we’ll cover who qualifies for these exemptions and how certificates work, including the forms involved and what happens when one turns out to be invalid.

Key takeaways

• Virginia grants sales tax exemptions to specific categories of customers, including resellers, manufacturers, agricultural producers, approved nonprofits, and government entities.

• A completed exemption certificate shifts liability for an improper exemption from the seller to the customer—as long as the seller accepted it in good faith.

• Sellers must keep exemption certificates on file for at least three years to match Virginia’s statute of limitations on tax assessments.

What is a Virginia sales tax exemption?

A Virginia sales tax exemption removes the state’s sales and use tax from a purchase that would otherwise be taxable. Exemptions attach to the customer, such as a nonprofit or government agency, or to the transaction, such as a resale purchase or manufacturing equipment bought for production.

Who qualifies for a sales tax exemption in Virginia?

Virginia’s exemptions split into multiple categories. Each one has its own path to qualification:

• Resellers: Any business registered to collect Virginia sales tax can buy inventory tax-free if it plans to resell that inventory. Those businesses use Form ST-10 to document the purchase.

• Manufacturers: Businesses get an exemption under Va. Code § 58.1-609.3 for machinery, tools, and supplies used directly in producing goods for sale; that means the equipment on the production floor rather than the forklift moving finished pallets around a warehouse.

• Agricultural producers: Farm machinery, seed, feed, and fertilizer used to grow crops or raise livestock for market qualify under a similar exemption.

• Nonprofits: A 501(c)(3), (c)(4), or (c)(19) organization must apply to the Department of Taxation for a retail sales and use tax exemption online through Nonprofit Online or via paper Form NP-1. Once granted, the exemption runs on a five- to seven-year renewal cycle before the organization needs to reapply.

• Government entities: Federal, state, and local agencies are exempt on purchases made with government funds, though the paperwork differs depending on whether a contractor is buying materials on the government’s behalf.

• Out-of-state resellers: Businesses purchasing for resale can typically use their home-state resale certificate or a Streamlined Sales Tax certificate instead of registering in Virginia just to buy inventory.

What products and services are exempt from sales tax in Virginia?

Virginia taxes tangible personal property by default and exempts most services. If you’re selling consulting, repair labor, or a subscription that isn’t tied to a taxable good, no tax applies. The exemptions for goods are narrower and more specific.

Here’s what you need to know:

• Groceries and personal hygiene products: Virginia eliminated the state portion of the sales tax on food for home consumption and basic hygiene items. Localities still apply the 1% local option tax on these purchases, so although the shelf price isn’t tax-free everywhere, it’s no longer subject to the statewide rate.

• Prescription drugs and certain medical equipment: Prescription medications, insulin, and durable medical equipment such as wheelchairs and hearing aids are exempt when purchased for a patient’s use.

• Manufacturing and agricultural inputs: Raw materials that become part of a finished product, along with the machinery used directly in production, qualify under the exemptions described above.

• Textbooks purchased by enrolled college students: These are exempt when sold by the school or by another seller when a department or an instructor has certified the book as a required textbook for a specific course.

• Certain nonprofit and government purchases: Once an organization holds a valid exemption certificate, its qualifying purchases are exempt regardless of what’s being bought as long as it’s for the organization’s use.

How do sales tax exemption certificates work in Virginia?

An exemption certificate shifts responsibility for the tax decision from you to your customer. When a customer gives you a completed form, they certify with their signature that the purchase qualifies. Then, you keep the certificate on file instead of collecting tax. If the state decides the exemption didn’t apply, liability typically falls on the customer who made the false certification, not on you.

Virginia allows blanket certificates, which cover all future purchases from that customer without requiring a new form for every transaction. Many businesses use this because it’s not usually feasible to collect a new certificate for every order from a repeat wholesale customer.

A completed certificate needs the purchaser’s name and address, their sales tax registration number when the exemption is resale-based, the reason for the exemption, and a signature. Hold on to certificates in case of an audit, but you don’t need to file them with the Department of Taxation.

Different exemption types use different forms:

• Resale purchases: Form ST-10, which is completed by the customer at the time of purchase

• Government purchases: Form ST-12, which is tied to the agency’s exempt status

• Nonprofit purchases: Form NP-1, once the organization holds a valid exemption certificate

• Research and development purchases: Form ST-11, the same form used for manufacturing

What are the recordkeeping requirements for accepting exemption certificates?

Virginia’s general statute of limitations for a sales tax assessment is three years from the date the return was due. Certificates and the transactions they cover must stay in your files at least that long.

These best practices can make an audit far less painful if it happens:

• Store certificates digitally, and tie them to the customer record: Don’t tie them to individual invoices. A single blanket certificate might cover hundreds of transactions over several years, so the connection must be obvious to anyone reviewing your files.

• Check that every certificate is complete before you accept it: A missing signature, a blank exemption reason, or an expired nonprofit exemption number leaves you unprotected in the case of an audit.

• Recheck nonprofit exemptions periodically: Because these expire on a renewal cycle, a certificate valid three years ago might not be valid today, and the seller is responsible for keeping documentation current.

• Keep certificates even after a customer relationship ends: The three-year retention clock runs from the transaction date.

What happens if a business accepts an invalid exemption certificate?

Virginia typically protects a seller who accepted a certificate in good faith. This means the certificate was complete on its face and there was no reason to suspect the purchase didn’t qualify. In that scenario, if the exemption turns out to be improper, the Department of Taxation pursues the purchaser for the unpaid tax, not the seller.

However, an incomplete form, a signature that doesn’t match the customer, or an exemption reason that doesn’t fit the transaction shifts responsibility to the seller. If an auditor decides you knew or should have known the exemption didn’t apply, you’ll owe the uncollected tax plus penalties and interest calculated to the original transaction date.

Which tools can help handle exemption certificate management?

Most exemption certificate work, from collection to storage, happens outside your payments infrastructure. A payment provider such as Stripe fits in on the calculation side once you’ve determined a customer qualifies.

Stripe Tax lets you mark individual customers as tax-exempt on their customer record through a field with three possible values: none, exempt, or reverse. The last one applies to B2B transactions in tax regimes with reverse charge rules, which doesn’t apply to domestic Virginia sales. Once a customer is flagged as exempt, Stripe Tax excludes them from tax calculations on subsequent invoices and charges automatically. That way, you don’t have to manually zero out tax on every transaction for a repeat wholesale or nonprofit customer.

An automated tool doesn’t validate or store the certificate for you. Just because you’ve marked a customer exempt doesn’t mean you’ve verified them. That’s based on a certificate you’ve reviewed and filed elsewhere, which is recordkeeping the state expects. Businesses handling significant volumes of exempt sales usually pair this setting with a separate document process, whether that’s a shared drive organized by customer or a dedicated certificate-tracking system. The goal is a paper trail behind every exempt customer record—one that’s easy to produce if the Department of Taxation requests it.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on:

• Digital goods and services in all US states and over 100 countries
  
• Physical goods in all US states and 42 countries
  

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for sales tax in the US, let Stripe manage your tax registrations. You’ll benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.
   

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business. 

Learn more about Stripe Tax, or get started today.

FAQs about Virginia sales tax exemptions