Virginia Contractor Taxes and Licensing: What Trades Need to Know

Virginia treats a contractor working on real estate as the consumer of the materials it furnishes. You pay sales or use tax when you buy materials and don't collect it from the customer on the contract. Separately, the Board for Contractors licenses firms as Class A, B or C based on the dollar size of their jobs.

What makes Virginia different for contractors?

Three things set Virginia apart. First, the state's sales tax regulation treats every contractor as the consumer of the materials it furnishes on a real estate job, so tax is settled at the supply house, not on your invoice. Second, the state license is tiered by money: the Board for Contractors sorts firms into Class C, B or A depending on how big each job is and how much work you take on in a year. Third, Virginia's cities and counties run their own Business, Professional and Occupational License (BPOL) tax, so your local tax bill depends on where your office sits and where you work.

If you also work across the line, compare the rules in Maryland and West Virginia. West Virginia, for one, taxes repair labor that Virginia leaves alone.

Is contractor labor taxable in Virginia?

Generally no, for work on real estate. Under 23VAC10-210-410, a contractor who builds, installs or repairs real estate or its fixtures is the user or consumer of the property it furnishes. The regulation says the contractor "does not pass the sales or use tax on to anyone else as a tax." Instead, you build the tax you paid on materials into your bid.

The picture changes when you act as a retailer. If you sell an item at retail and install it as part of the sale, the regulation says you must add sales tax to the price. Installation charges are not taxed when they're separately stated on the invoice. Lump them in, and tax applies to the total.

Rates vary by locality. Virginia Tax lists a general rate of 5.3% for most of the state, 6% in the Northern Virginia, Hampton Roads and Central Virginia localities, 6.3% in Charlotte, Danville, Gloucester, Halifax, Henry, Northampton, Patrick and Pittsylvania, and 7% in James City County, Williamsburg and York County. The department says the rate depends on where the sale was made or where the goods were received. For the general model across states, see sales tax on labor vs. materials.

Do Virginia contractors pay tax on materials, and when is use tax due?

Yes. Because you're the consumer, you pay sales tax when you buy materials from a Virginia supplier. If a supplier doesn't charge Virginia tax, say an out-of-state vendor or an online order, the regulation says you owe use tax on those purchases yourself. Tools, equipment and supplies used on the job are taxable too.

• No resale certificate for job materials. A contractor that also runs a retail counter must register as a dealer for those sales, but it can't buy items under a resale certificate when it knows they're headed into its own contract work. Pulling stock from inventory for a job means reporting and paying tax on its cost.
• Government jobs are usually still taxable. Subsection J says purchases by contractors for government construction projects are generally taxable to the contractor.
• Materials stored for out-of-state jobs. Materials temporarily stored in Virginia for a project in another state can be exempt in limited cases; equipment, tools and supplies used on the contract are not.

Use tax is charged at the same rate as sales tax. Virginia Tax's consumer use tax page covers individuals only, so ask the department which business return to use for your purchases. More background: use tax for contractors.

Which contractor licenses does Virginia require?

Virginia licenses contractors at the state level through the Department of Professional and Occupational Regulation (DPOR). Under Va. Code § 54.1-1100, the class you need depends on dollar value:

• Class C: a single contract or project over $1,000 but less than $30,000, or total work under $250,000 in any 12-month period.
• Class B: a single contract of $30,000 or more but less than $150,000, or $250,000 or more but less than $1 million in 12 months.
• Class A: a single contract of $150,000 or more, or $1 million or more in 12 months.

Class sets job size. A separate classification or specialty sets the kind of work, and tradespeople carry individual licenses on top.

Local licensing works differently here. Most Virginia localities require a BPOL license, and many charge a tax on gross receipts. Under Va. Code § 58.1-3715, a contractor that pays license tax where its office is located generally owes no further license tax elsewhere in Virginia, unless its business in another locality exceeds $25,000 in a year. Then that locality can require a license, and you may deduct those receipts from what you report at home. Building permits are handled by the city or county building department. More on the basics: contractor license.

How does Virginia income tax work for sole props, LLCs and S corps?

Profit from a sole proprietorship, single-member LLC, partnership or S corp generally flows to the owners' Virginia individual returns. Virginia Tax's 2026 Form 760ES rate schedule is:

Estimated payments. For taxable years beginning on and after January 1, 2026, the 760ES instructions say you must pay estimated tax or increase withholding if you expect to owe more than $1,000 after withholding and credits. The 2026 installments are due May 1, June 15 and September 15, 2026, and January 15, 2027. Plan cash with quarterly estimated taxes for contractors and the quarterly estimated tax calculator.

Pass-through entity tax. A qualifying partnership, LLC or S corp can elect to pay Virginia tax at the entity level at 5.75% for taxable years beginning on or after January 1, 2021, but before January 1, 2027, per the 2025 Form 502PTET instructions. Owners then claim a credit. Run it past a CPA. Corporations and LLCs also have annual filings with the State Corporation Commission; check with the SCC for current fees.

When do Virginia contractors need workers' comp?

The Virginia Workers' Compensation Commission says an employer that regularly employs more than two part-time or full-time employees must carry coverage. Part-time, seasonal and family workers count. For contractors, the key twist is that your subcontractors' employees count toward your total, even if the subs carry their own insurance. Keep proof of coverage from every sub.

Corporate officers and LLC managers count as employees. The Commission says a single-member LLC is covered only if it elects coverage, and Virginia does not offer a waiver or exemption form for sole proprietors. A sole proprietor with no employees and no subs isn't required to carry it but can buy it voluntarily. See workers' compensation for how premiums work.