Retail Sales and Use Tax; taxation on various services, includes digital personal property.

Plain English Breakdown

The bill does not provide specific details on how revenue will be allocated for all types of delivery services.

Tax Changes for Services and Digital Products

This bill changes tax laws by adding taxes on certain services like recreation, personal care, home repairs, vehicle maintenance, storage, delivery, travel planning, and digital products while providing exemptions for some health care and nonprofit services.

What This Bill Does

• Adds a sales tax on various services such as admissions, recreation, fitness or sports facilities, nonmedical personal services or counseling, dry cleaning and laundry services, companion animal care, residential home repair or maintenance, landscaping, vehicle and engine repair, repairs to tangible personal property, storage of tangible personal property, delivery or shipping services, travel, event, and aesthetic planning services.
• Defines digital services to include software application services, computer-related services, website hosting and design, data storage, and digital subscription services.
• Imposes a sales tax on digital products that can be owned or accessed without additional fees after purchase.
• Allocates the revenue from these new taxes in the same manner as other sales and use taxes; however, revenues generated by delivery services are distributed to specific funds based on their location.

Who It Names or Affects

• People who use fitness facilities, personal care services, home repair services, vehicle maintenance services, storage services, delivery services, travel planning services, and digital products.
• Businesses that provide these services or sell digital products.
• Local schools based on student population and high-need students.

Terms To Know

Digital Personal Property

A digital product delivered electronically that the purchaser owns or has the ability to continually access without having to pay an additional subscription or usage fee to the seller after paying the initial purchase price.

High-Need Student Population

Students who qualify for free school meals, participate in special education programs, or are English language learners.

Limits and Unknowns

• The bill does not specify an effective date and the exact implementation details may vary.
• Some services like health care and professional services are exempt from tax under certain conditions.
• Revenue allocation rules apply only to specific types of delivery services in designated areas.

Official Summary Text

Taxation in the Commonwealth.
Levies the retail sales and use tax on the following services: admissions; charges for recreation, fitness, or sports facilities; nonmedical personal services or counseling; dry cleaning and laundry services; companion animal care; residential home repair or maintenance, landscaping, or cleaning services when paid for directly by a resident or homeowner; vehicle and engine repair; repairs or alterations to tangible personal property; storage of tangible personal property; delivery or shipping services; travel, event, and aesthetic planning services; and digital services. Digital services are defined in the bill as the following: software application services, computer-related services, website hosting and design, data storage, and digital subscription services. The services taxed under the bill include any transaction for digital services where the purchaser or consumer of the service is a business but do not include any service otherwise exempt under law.

The bill also imposes the retail sales and use tax on digital personal property, defined in the bill as a digital product delivered electronically that the purchaser owns or has the ability to continually access without having to pay an additional subscription or usage fee to the seller after paying the initial purchase price.

Revenues generated by the taxes levied on services and digital personal property shall be allocated in the same manner as other sales and use taxes; however, revenues from the state portion of the sales and use tax that would be allocated to the general fund shall instead be allocated as follows: first, (i) revenue generated by the imposition of such tax on delivery services in the Northern Virginia Transportation District shall be distributed to the Washington Metropolitan Area Transit Authority and (ii) all other revenues generated by the imposition of such tax on delivery services shall be distributed to the Commonwealth Transportation Fund. Of the remaining revenues, (a) 60 percent shall be distributed to localities on the basis of school-age population and (b) 40 percent shall be distributed to localities on the basis of the high-need student population in the locality. The bill clarifies that a high-need student population includes students who are (1) automatically certified for free school meals because of participation in social services programs, (2) participants in a program of special education, or (3) English language learners.

The bill provides certain exemptions to the sales and use tax on services, including health care services that must be performed by a person licensed or certified by the Department of Health Professions, veterinary services, professional services, internet access services, and services provided by a person who does not receive more than $2,500 per year in gross receipts for performance of such services. The bill exempts services purchased by a nonprofit organization and services purchased by a homeowners' association or by a landlord for the benefit of his tenant. The bill also repeals the service exemptions currently provided for the sale of custom programs and modification of prewritten programs.

Finally, the bill exempts food purchased for human consumption and essential personal hygiene products from all state, local, and regional sales taxes on and after July 1, 2026. Under current law, food purchased for human consumption and essential personal hygiene products are subject only to the one percent local option sales tax.

Current Bill Text

HB 978

SUBCOMMITTEE

1. Line 274, introduced, after notes,

insert

nonperforming
loans or other accounts receivable,

SUBCOMMITTEE

2. Line 279, introduced, after
dues

insert

(a) charged by entities exempt under § 501(c)(7) of the Internal Revenue Code if such fees and dues grant access to such facilities, except for charges that are separately stated and billed exclusively for capital reserves or debt service; (b) charged by entities exempt under any other provision of § 501(c) of the Internal Revenue Code other than § 501(c)(7) or charged by residential communities unless such charges by such entities or residential communities are limited to members and their guests and are not marketed or generally available to the public; (c) charged by recreational facilities owned or operated by a governmental entity; and (d) charged by any other entity

SUBCOMMITTEE

3. Line 285, introduced, after
54.1

insert

or any expense that is considered an expense for medical care under § 213 of the Internal Revenue Code

SUBCOMMITTEE

4. Line 299, introduced, after
remodeling

insert

, except for maintenance and cleaning of vehicles that are rented or part of a commercial fleet

SUBCOMMITTEE

5. Line 670, introduced, after
54.1

insert

or any expense that is considered an expense for medical care under § 213 of the Internal Revenue Code

SUBCOMMITTEE

6. Line 671, introduced, after
services,

insert

as such term is defined in §
2.2-4301
,

SUBCOMMITTEE

7. Line 671, introduced, after
training

strike

the remainder of line 671 and through
services
on line 672

SUBCOMMITTEE

8. After line 695, introduced

insert

9.
Payment card facilitation services, including credit card interchange fees paid by merchants.

SUBCOMMITTEE

9. After line 908, introduced

insert

G. Notwithstanding any other provision of this chapter, a person acting as a common carrier, motor carrier, air carrier, or third-party logistics provider, or performing fulfillment services, shall not be deemed a "dealer" or be deemed to have sufficient activity within the Commonwealth to require registration under §
58.1-613
, and shall have no obligation to collect or remit any tax imposed under this chapter on any delivery, shipping, freight, transportation, or similar service, provided that the delivery, shipping, freight, transportation, or similar service is furnished as part of a retail sale by another dealer and such dealer shall be responsible for all tax collection and remittance obligations for such sale. This exemption shall not apply when the common carrier, motor carrier, air carrier, third-party logistics provider, or person performing fulfillment services sells such service directly to the purchaser.