Rental Tax and Fee Computation
Taxes and the 2% rental fee are levied on the gross proceeds from the rental of motor vehicles in Virginia.
Gross proceeds for each month are calculated by determining the total amount of all charges on rental agreements, minus the rental tax and the 2% rental fee. The only adjustments permitted in the computation are as follows:
- Proceeds from transactions which are exempt from rental taxes and the 2% rental fee may be deducted from the gross proceeds.
- Bad debt accounts on rental transactions (if such accounts have been charged off as worthless for federal income tax purposes) may be deducted from the gross proceeds. Any recovery of payment for bad debts previously charged off must be included as gross proceeds in the month for which the recovery payment is received.
The table below displays the percentage of tax based on the type of rental vehicle and whether the 2% rental fee is applicable.
| Type of Vehicle | Tax Required | 2% Rental Fee Required |
|---|---|---|
| Motor vehicles with a gross vehicle weight or gross combined weight of 26,000 pounds or less | 8% (4% state rental tax and 4% additional rental tax) | Yes |
| Motor vehicles with a gross vehicle weight or gross combined weight of 26,001 pounds or more | 4% additional rental tax | Yes |
| Manufactured homes | 4% state rental tax | No |
| Mobile offices | No tax required | No |
| Motorcycles | 4% state rental tax | No |
The 4% additional tax is collected by DMV and distributed to the city, town or county where the daily rental vehicle was delivered to the rental customer. Counties, cities or towns cannot impose tangible personal property tax, license tax, license fee or require a license tag, sticker or decal on any daily rental vehicle which is subject to the 4% additional rental tax. The 4% additional rental tax is in addition to, and not in lieu of, the 4% rental tax.
The 2% rental fee is collected by DMV and disbursed to the state police for the Statewide Agencies Radio System (STARS).
Transactions Exempt from Rental Tax and 2% Rental Fee
Motor vehicles rented to the following entities are exempt from rental taxes and the 2% rental fee:
- Rentals to federal, state and local governments, their agencies or to any volunteer fire or rescue squad department.
- Rentals to accredited consular or diplomatic officers of foreign governments, provided they are not United States citizens.
- Rentals to employees of any federal or Virginia governmental agency while traveling for official business.
- Rentals to another licensed rentor for the purpose of re-rental. To qualify for the exemption, the rentor must hold a valid rental certificate at the time the re-rental occurs.
- Rentals to private nonprofit institutions of learning, solely for use in driver education instruction.
Exempt transactions must be listed specifically on a statement and attached to the rental return. For instance, a rental to a government entity should indicate the exact name of the organization or institution.
