Document Number
Tax Type
Retail Sales and Use Tax
Tax paid to foreign country
Date Issued
May 11, 2000

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****

This is in response to a letter from ***** (the "Attorney") submitted on your behalf (the "Taxpayer") to appeal the consumer use tax assessed on artwork purchased abroad and imported into Virginia in November 1997. Since no Power of Attorney was submitted, a response could not be provided to your Attorney. I apologize for the delay in responding to your concerns.


The Taxpayer takes exception to the consumer use tax assessed on the imported artwork, and maintains that the Dutch value-added tax (VAT) paid on this purchase should be credited against the Virginia consumer use tax owed. The Taxpayer also maintains that there is no ordinance or resolution authorizing the levy of the local use tax assessed in this case. In addition, it has been claimed that the initial payment of $**** has not been credited as payment against the assessment.


Valued added tax

Code of Virginia § 58.1-604 imposes a use tax on "each item or article of tangible personal property used or consumed in this Commonwealth." The term "used" is defined in Code of Virginia § 58.1-602 as "the exercise of any right or power over tangible personal property incident to the ownership thereof." The use tax is required to be paid on untaxed purchases made by a Virginia resident for use in Virginia, regardless of where the purchases are made.

In imposing the use tax, the General Assembly recognized the potential for double taxation. Code of Virginia § 58.1-611 was enacted to provide a credit against Virginia's retail sales and use tax equal to the amount of the tax paid by the purchaser to another state or political subdivision thereof by reason of imposition of a similar tax on the purchase or use of property.

In providing a credit, the General Assembly specifically limited it to tangible personal property purchased in "another state," and the amount of the credit is equal to the tax paid to "another state or political subdivision thereof." While the term "state" is not defined in Title 58.1, it is defined in Title 1, General Provisions.

Code of Virginia ' 1-13.26 provides that, unless otherwise provided, the word "state," when applied to a part of the United States, "shall be construed to extend to and include the several commonwealths therein, the District of Columbia, and the several territories so-called." There is nothing in the section that would allow a foreign country to fall under the definition. Had the General Assembly intended for the credit to be available for any purchase made outside Virginia and for the tax paid to any government (foreign or domestic), the qualifying language "another state" would not have been included in the statute. Therefore, a tax paid to a foreign country is not paid to "another state" as that term is defined in Code of Virginia ' 1-13.26 and does not qualify for the credit under Code of Virginia § 58.1-611.

The Dutch tax paid on these purchases is a value-added tax (VAT), that is included in the selling price of an article. The VAT is not a "sales tax" similar to that imposed by Code of Virginia § 58.1-603; nor is it a "use tax" similar to that imposed by Code of Virginia § 58.1-604. A value-added tax is a tax imposed on the value added to a product or service at each stage of the production and distribution process. The Virginia retail sales tax is a tax added to the retail sales price of goods or services sold to consumers and is collected only at the point of sale to the ultimate consumer. The Virginia use tax is a tax imposed on the cost price of taxable goods or services purchased by consumers for use or consumption in Virginia and is remitted directly by the ultimate consumers to the department when no sales tax has been collected by the seller. Because the VAT differs from Virginia's retail sales and use tax in design and imposition, the VAT does not constitute a "similar tax" as to qualify for the credit under Code of Virginia § 58.1-611.

The Attorney maintains that the VAT is similar to a sales tax based on a federal court opinion set out in Thiokol Corp. v. Roberts, 858 F. Supp. 674, 677 (W.D. Mich. 1994). In that case, the federal court found that Michigan's single business tax (SBT) was a "value added tax." The court further noted that "[a]s a tax on consumption, the VAT is a type of sales tax."

However, Code of Virginia § 58.1-611 does not merely provide a credit equal to the tax paid to another state by reason of imposition of any type of sales tax. Rather, the credit may only be allowed for a "similar tax" paid to another state. That is, the tax paid to another state must be similar to the Virginia retail sales and use tax in imposition and design. This is clearly not the case with a VAT for the reasons already explained above.

As further support, the Attorney also cites the Virginia Supreme Court's decision in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E. 2d 414 (1980). However, this court decision does not define "another state" for purposes of the credit provided by Code of Virginia § 58.1-611 (former § 58-441.8). Accordingly, no evidence has been presented that either the courts have interpreted, or the legislature intended, for a "foreign country" ta constitute "another state" for purposes of the credit set out in Code of Virginia § 58.1-611.

Local use tax

The Attorney maintains that the local use tax of 1% was never authorized by the City of Virginia Beach. Pursuant to Code of Virginia § 58.1-606, a city or county may impose a local use if it has imposed a local sales tax authorized by § 58.1-605. To adopt the local use tax, a resolution must be passed by a majority of all members of the city council or governing body. In researching this matter, my tax policy staff was able to obtain a copy of the use tax resolution (copy enclosed) enacted by the City of Virginia Beach on April 8, 1968. Also see the enclosed copy of ' 1-60 of the 1969 Virginia Retail Sales and Use Tax Rules and Regulations. Accordingly, the imposition of a local use tax in this matter is proper.

Initial payment

The Attorney indicates that the Taxpayer did not receive credit for a payment made on February 3, 1999. However, it is my understanding that the auditor returned such payment to the Taxpayer on May 14, 1999, since the Taxpayer had wanted it accepted as full payment of the liability at issue. I trust that such payment was returned. If not, please contact ***** at *****.


Based on all of the foregoing, the assessment as issued is proper. The Taxpayer's payment of $***** and interest of $**** is accepted as full payment in this matter. However, no refund is allowable.

If you have any questions about this response, please contact ***** in the department's Office of Tax Policy at *****.


Danny M. Payne
Tax Commissioner

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46