How To Start a Business in Virginia
When CNBC compiled its 13th annual list of Top States for Business in 2019, Virginia (though technically a commonwealth) claimed the number one spot, due to the state’s high concentration of STEM employees, stable economy and solid infrastructure, among other factors.
But its business-friendly government policies may be the real reason so many companies — including Amazon — choose to build their headquarters in Virginia. In fact, several Fortune 500 companies call Virginia home, including Freddie Mac (#40), CapitalOne Financial (#98), and General Dynamics (#92).
Are you interested in starting a business in Virginia? Read on to learn more about how to get started and the cost of doing business in “Old Dominion.”
- How to establish a business entity in Virginia
- Costs of starting a business in Virginia
- Resources for small businesses in Virginia
How to establish a business entity in Virginia
Are you ready to start a business? Assuming you already know what kind of business you want to start and you have a written business plan, here are your next steps.
Step 1: Establish a business entity
The business entity or structure is how your business is legally organized. There are four primary business entities: sole proprietorship, partnership, limited liability company (LLC) and corporation. Each type has its own benefits and limitations, so it’s a good idea to talk to an attorney or accountant to determine the business entity that fits your situation and long-term plans.
Step 2: Select a name and register your business
Before deciding on a name for your business, check with the Virginia State Corporation Commission (SCC) to ensure your company name isn’t taken. You may also want to trademark your business name with the U.S. Patent and Trademark Office. While registering a trademark isn’t required, it can help prevent others from starting a new business with the same name. The application fee for federal trademark ranges from $225 to $400.
You may also choose to trademark your business name in Virginia for just $30. Keep in mind, however, that a state trademark is only valid within the state. If you plan to eventually expand beyond state borders, you should consider filing a federal trademark instead.
Virginia offers an online registration system to register your business name with the state.
When you register your new business, you may have to pay charter and filing fees. The amount you’ll pay depends on your entity type; note, however, sole proprietors are not required to register with the state of Virginia.
- Stock corporation: $25 filing fee, plus charter fees ranging from $50 to $2,500, depending on the number of authorized shares
- Nonstock corporation: $50 charter fee, plus $25 filing fee
- LLCs, business trusts and registered limited liability partnerships: $100 filing fee
- General partnerships: $25 filing fee
Step 3: Apply for a federal tax identification number
An Employer Identification Number (EIN) is a nine-digit tax identification number businesses receive from the IRS. This number is like a Social Security number for an individual, as it is used to track tax returns and payments and open bank accounts.
Sole proprietors are not required to apply for an EIN, but it’s usually preferable to using the owner’s Social Security number for the business. Partnerships, LLCs and corporations are required to file for an EIN.
Fortunately, applying for an EIN online takes just a few minutes, is free of charge, and you’ll receive your EIN immediately.
Step 4: Register with the Virginia Department of Taxation
After getting an EIN, you’ll need to register your business with the Virginia Department of Taxation. This allows you to pay state taxes, such as sales and use tax, employer withholding, and income taxes.
You can register online — registering for an online account is free — or by filling out an application and sending it in via mail or fax. The Virginia Department of Taxation website has an available checklist of information you should have on hand before you get started.
Step 5: Obtain licenses
Virginia does not have a general business license that all businesses must have to conduct business in the state, but other specific types of businesses — these include auctioneers, barbers, home inspectors, engineers and real estate agents — are required to obtain licenses. If your business requires a special permit or professional license, now is the time to apply through the applicable licensing board.
In addition, your city, county or town may require a local business license or zoning permit, so check with your local Commissioner of Revenue, Department of Finance or Zoning Office to ask about requirements they may have.
Costs of starting a business in Virginia
In addition to the charter and filing fees mentioned above, there are a few other costs involved in starting a business in Virginia.
All businesses are responsible for paying federal income taxes, and Virginia levies a state income tax as well.
Virginia has a flat corporate income tax rate of 6% of gross income. Other pass-through businesses, including sole proprietorships, partnerships and LLCs, report their share of the business’s income on their owners’ personal tax returns and pay federal and state income taxes at the applicable rates for their tax bracket.
In a 2019 analysis of corporate income taxes across all U.S. states conducted by the Tax Foundation, Virginia ranked 10th out of 50 states (with first being the best and 50th being the worst).
Sales and use taxes
Sales tax is imposed by state and local jurisdictions on the sale of a product or service from a seller to a consumer. Generally, a business adds sales tax to the sales price of their product or service, charges it to the purchaser, and then remits the collected sales tax to the state.
Use tax is applied to products and services that are made to a customer located outside of the business’s state.
In Virginia, the combined state and local Virginia Retail Sales and Use Tax Rate is 5.3% (4.3% state and 1.0% local). Businesses in the Northern Virginia and Hampton Roads regions also pay an additional regional sales and use tax of 0.7%.
Tangible personal property taxes
Businesses that own machinery and equipment, office equipment, computer hardware, furniture and fixtures, trucks, automobiles and other types of equipment may have to pay tangible personal property tax to their local jurisdiction.
Rates vary based on locality, type and age of the property.
Merchant’s capital tax
Many counties in Virginia impose a tax on the capital of merchants, such as inventory and property used for short-term rentals. The rate and types of property taxed varies by county.
Business, professional and occupational license (BPOL) tax
Several of Virginia’s counties and cities impose a BPOL tax on certain types of businesses within their jurisdiction, including retailers, wholesalers, warehousing and distributors, personal and repair service firms, professional service firms, contractors, research and development firms and more.
The license tax is usually based on gross receipts. The rate depends on the locality and type of business.
Businesses carry a variety of insurance policies. Some are required of all businesses with employees; others are optional.
- Unemployment insurance. This offers employees some protection while they are unemployed through no fault of their own. All Virginia businesses that employ workers for 20 or more weeks a year during a calendar year or pay wages of $1,500 or more in a calendar quarter must register with the Virginia Employment Commission and pay unemployment insurance. Tax rates are based on the employer’s experience.
- Workers compensation insurance. This covers lost wages and medical benefits to employees who are injured on the job. Any business in Virginia with more than two part- or full-time employees must carry workers compensation insurance; the cost varies by industry and job classification.
- New hire report. Any Virginia business with employees is required to fill out a new hire report. Besides being required by state law, new hire reporting can help prevent fraudulent unemployment claims drive up your business’ insurance rates.
The following types of insurance aren’t required by Virginia, but might be a good idea.
- Liability insurance. Protects you, your employees and customers in the event of an accident.
- Commercial property insurance. Covers your company’s physical assets, such as buildings, equipment, futures and inventory in the event they are stolen, vandalized, damaged by fire, etc.
- Commercial auto insurance. Protects your business and its employees while operating a business vehicle.
- Business interruption insurance. If your business must close due to a fire or other unforeseen event, this helps cover lost income and keep the business afloat.
Virginia businesses with 50 or more employees are required to provide health insurance for their workers. Those with fewer than 50 employees also have options for providing health coverage, but this is optional.
Resources for small businesses in Virginia
If you need financial help getting your business off the ground, there are several state-specific and national programs available. Some good places to start include:
- The Virginia Small Business Financing Authority offers direct loans, grants and credit enhancement programs that help business owners qualify for outside financing.
- The U.S. Small Business Administration Richmond District Office maintains a list of Virginia lenders that make SBA loans.
- The Virginia Small Business Development Corporation offers business counseling, training and other resources for new and existing businesses in the state. The Virginia SBDC doesn’t offer financing directly, they do have on-demand workshops on financing topics.
The bottom line
With a highly educated workforce and low business taxes, Virginia is an excellent place to live out your entrepreneurship dreams. Start with the checklist above to get your business started out on the right foot, and you’ll be on your way to building the business you’ve always dreamed about.