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How to Run a Business in Virginia

How to Run a Business in Virginia

There are nearly 725,000 small businesses that call the state of Virginia home. Small businesses employ 1.5 million residents – or 47% of all private-sector employees – and make up 99.5% of all businesses statewide.   

Virginia's economy is relatively strong, boasting a gross domestic product (GDP) of $534 billion in 2018. That GDP grew at a healthy rate of 2.8% last year, closely tracking the national economy's growth rate of 2.9% in 2018. The state is experiencing a very low unemployment rate of 2.9% as a result, which reflects the strength of the economy but can also complicate small businesses' efforts to acquire the talent they need to fill open positions.

Overall, Virginia appears to be a business-friendly state that is doing well economically. CNBC selected Virginia as the top state in the nation for business in 2019; its first selection for the No. 1 spot since 2011.

Virginia is a relatively wealthy state overall, with a per-capita personal income of nearly $57,000 per year, the 11th highest in the nation. That's about 6% higher than the national per-capita personal income of $53,712, meaning the average Virginian makes more money each year than the average American. With a relatively low cost of living, Virginia's higher per-capita personal income translates into a modest boost in spending power, which benefits small businesses by bolstering consumer spending.

The main challenge in competing for those consumer dollars comes from big businesses, such as Amazon, which has a headquarters based in Virginia. Tisha McCoy-Ntiamoah, CEO and owner of PrePOPsterous Gourmet Popcorn and Sodas, said while that growth is good and large businesses are welcome signs of Virginia's economic success, it can be tough for small businesses to compete.

"There are some very well-known national chains that are popular in major metropolitan areas moving in," she said. "The growth is good, and those kinds of companies come to your city or town because they see value in the market, which is fantastic. It's just about balancing it out and ensuring there is space for small businesses that invested here early on when larger corporations didn't see the value yet."

Virginia is a diverse state home to a wide range of businesses across several industries. In Hampton Roads and Reston's Innovation Center, for example, defense contractors thrive due to the U.S. military presence in the state. Throughout Alexandria, Staunton, Richmond, and Norfolk, restaurants and cafes can be found in significant numbers. There is also a thriving manufacturing and logistics industry in Loudon, Prince William, Henrico, Chesterfield, Wise, and Suffolk counties. Virginia also boasts many rural areas and small towns, where family farms and associated support businesses are commonplace. There is also a great deal of tourism and hospitality centered around scenic vacation spots like Virginia's Eastern Shore, the Blue Ridge Mountains, the Northern Neck, the Greater Washington, D.C., area, and Colonial Williamsburg.

"We have a wide variety of businesses, with northern Virginia very urban, diverse, and tech-oriented," said Joyce Krech, director of the Shenandoah Valley Small Business Development Center at James Madison University. "And then we have rich agriculture regions and small towns. No matter your niche there's a place to do it."

In each of these areas, Virginia's cost of living and doing business vary greatly. It's important for entrepreneurs to understand these differences when writing their business plan, as cities and counties often offer diverse conditions for doing business even when they are in the same region of Virginia, Krech told Business News Daily.

"Virginia is unique in that we have cities and we have counties," Krech said. "Sometimes the city sits in the middle of the county but is a separate jurisdiction. That can be confusing for some people."

While Virginia itself offers a wide range of opportunities for entrepreneurs and established small businesses, it is also closely tied to nearby large markets, including Washington D.C., Baltimore, and Philadelphia. Hunter Markle, co-founder and managing partner of BarTrack, told Business News Daily the connectedness with larger markets is central to the company's plan to expand its range of solutions to bars and restaurants throughout the region.

"It's super convenient for traveling," Markle said. "It's easy to get to D.C. or Baltimore really quickly, and Philly is also an easy drive."

Markle's business partner and co-founder, Brett Danielsen, added that basing the company in Virginia allowed them to take advantage of the relatively low cost of living while maintaining access to those bigger cities.

"Everything you do in Virginia is cheaper," Danielsen said. "It's a great spot to be positioned right now."

However, James Wilson, a business attorney and owner of Wilson Law Group, said the proximity to larger markets really depends on your specific location in Virginia. Even the furthest flung, though, can count on access to the necessary transportation infrastructure to obtain the goods they need and visit important nearby markets.

"Virginia is spread out as a state," Wilson said. "For example, northern Virginia is very accessible to D.C. and Baltimore … [but] central Virginia is not as close. Southwest Virginia is somewhat limited, and relies on rail and roads for the majority of its connectivity."

A series of ongoing projects to widen main highways, including I-81 and I-64, as well as a major port in Norfolk, ensures that the state is well connected to the surrounding area, though, he added.

Virginia comes with its own inherent risks and obscure taxation laws for small businesses. For restaurants and cafes, taxation is generally set at around 5% (4% state tax and 1% local tax), but the tax rate on food that is purchased for home consumption is 2.5% (1.5% state tax and 1% local tax). For hybrid concepts, like delicatessens, butcher shops and carryout stores, business owners must extensively research each municipality's tax code.

Virginia's Retail Sales and Use Tax Code is the most comprehensive and complex in the country, covering a vast array of what is rendered as liable under the Virginia Department of Taxation.

For the adventurous agriculturalists wishing to hawk their wares at farmers markets and roadside stands, "sales of agricultural produce and eggs are exempt from tax when such items are raised and sold by an individual at retail in local farmer's markets and at roadside stands, provided that the annual income from such sales by the agricultural or egg producer does not exceed $1,000."

Within the hospitality industry, a fee is imposed on the "in-room rental or purchase of digital media offered in guest rooms rented out for continuous occupancy for fewer than 90 days, such as hotels and motels," which is especially relevant for bed-and-breakfast arrangements.

Virginia's taxation renders all companies that garner revenue from the state as liable ‒ it does not give home-rule privilege to companies that receive federal contracts to operate in other states but that retain Virginian ownership.

Virginia designates a business as a "pass-through entity" if that company is doing business in Virginia or has income from Virginia sources; consequently, that business is therefore required to file an income tax return with the Department of Taxation for each taxable year. Pass-through entities include Subchapter S corporations, partnerships, limited liability companies (LLCs), electing large partnerships and business trusts.

Throughout the past year, Virginia's unemployment rate has been hovering around 2.9%, which is one of the lowest unemployment rates in the country and almost a full percentage point lower than the national average.

While a low unemployment rate signals a humming economy, it also creates a highly competitive labor market, especially when it comes to finding top talent. Small businesses find themselves competing ferociously to fill open positions with qualified candidates, often needing to court prospects with attractive compensation packages and perks.

"There's definitely a scarcity of high-quality labor compared with other states," said Brett Danielson, co-founder and managing partner of BarTrack. "That doesn't mean it's not there; you just have to do some more digging. But it is hard to find full-time people, for sure."

To address the demand for skilled labor, Krech said joint efforts between community colleges, universities and industrial businesses have been essential. These partnerships seek to extend the education and training required by state-based employers, so the local workforce will be prepared for the jobs available within Virginia.

"Everybody is working together to bring to the workforce the skills and trades they need for open positions," she said. "And these are high-level skills [that are taught] in these programs that lead to good wages."

Starting a business anywhere can be a difficult process. Navigating regulations and obtaining the right licenses can seem confusing and overwhelming. Luckily, Business News Daily is here to help. If you're looking to start a business in Virginia, check out these frequently asked questions, or take a look at these resources to help you launch your company.

Whether you intend to headquarter your operations in the Commonwealth of Virginia or simply conduct some business within the state, you must first register your business with the Virginia Department of Taxation.

And if you plan to hire employees, you must also register your business with the Virginia Employment Commission. The registration can be done online at the Virginia Department of Taxation's website, or you can fill out a physical copy of the Business Registration Form R-1 and submit the form via mail.

Unlike many other states, Virginia does not require sole proprietors to maintain a business license. For other businesses, the type of license required depends on the nature of the business itself.

Licensing boards governed by the Department of Professional and Occupational Regulation (DPOR) apply to some businesses to ensure all relevant certifications are obtained before launching the business.

The cost of business licenses varies by municipality, but, generally, could be estimated to cost around $100. Prior to applying for a license, consider consulting with local officials to find out more about your specific circumstances, as the rules vary throughout the state.

To apply for licensure or certification with the DPOR, visit the agency's website. However, Virginia's licensing rules vary on a case-by-case basis, so check with government officials about your business's precise obligations.

To form an LLC in Virginia, you must first complete and file the Articles of Organization with the Virginia State Corporation Commission. The fee to file the Articles of Organization is $100.

You can file your Articles of Organization with the Virginia State Corporation Commission online, which immediately establishes your business. Otherwise, you can submit your filing by mail along with the filing fee. If you do so, the processing time is generally one to three weeks before your LLC is officially established.

In Virginia, LLCs are required to pay an annual registration fee of $50 to the Virginia State Corporation Commission. That fee is due each year before the last day of the month in which your LLC was formed.

Under Virginia law, LLCs are considered pass-through entities, which means they are not required to pay a business income tax. Instead, the individual members of the LLC must include profits in their personal income tax filings. Some LLCs can choose to be taxed like corporations in Virginia by filing Form 2553 with the IRS. In Virginia, there is a corporate flat tax of 6%, which would apply to LLCs filing the IRS Form 2553.

In Virginia, a registered agent is responsible for receiving all government communications sent to a business. Registered agents can be another business based in Virginia or an individual named on your filing paperwork. All registered agents must have a Virginia address and be present at that location during normal business hours.

The process of registering a DBA in Virginia is similar to the process in many other states. First, you must confirm that your desired DBA name is available by searching the Commonwealth of Virginia State Corporation Commission's website. DBAs must also be accurate about the business's geographical location, as well as distinct from other DBA's already registered to avoid confusion. Once you've confirmed your chosen DBA name meets these standards and is indeed available, you must obtain an "Assumed/Fictitious Name Filing" from a Virginia Circuit Court. That document must then be filed with the Clerk's Office of the Commission, as well as every county clerk's office in the state where you plan to operate your business.

Note that operating with an unregistered DBA is illegal and could result in fines up to $2,500 and/or imprisonment for one year. Once a DBA is registered, company's can use the alternative name for bank accounts and other legal documents.

The Virginia SWaM program refers to the "Small, Women-owned, and Minority-owned Business Certification Program." The SWaM program intends to expand opportunities for these businesses in participating in state-funded projects.

To participate in the state SWaM program, you must apply on the Virginia Department of Small Business and Supplier Diversity's website. If you have already been accepted into the program, you must recertify annually.

To learn more about the SWaM program, visit the Virginia Department of SBSD's website.

Here are a few organizations for small business owners in Virginia who are looking for resources to help them move forward:

The SBA offers financing and grants as well as consultations and counseling services. Small business owners are encouraged to use the SBA's Office of Advocacy profile on Virginia for more information.

SBA District Office - Virginia

SCORE's volunteer business professionals and expert mentors give counsel and guidance to entrepreneurs who are looking to start or expand their businesses. The services are entirely free and volunteer-driven. There are nine regional SCORE chapters in Virginia, which can be found via the link below.

Virginia SCORE chapters

Virginia's SBDC is a statewide network that supports entrepreneurs and business owners. Each center offers no-cost, confidential business consulting and targeted educational programs to help improve and grow small and emerging companies in the state. You can find your region's small business development center via the link below.

Virginia SBDC network

The state's proprietary SBSD assists with the process of business certifications, provides business development advice and outreach services, and includes the Virginia Small Business Financing Authority.

Virginia SBSD

The VSBFA is the Commonwealth of Virginia's economic development organization governed by the state SBSD. The agency offers loans directly to businesses and nonprofits as well as credit enhancements to banks lending to small businesses. The VSBFA also works with small businesses to attract and locate potential equity investments.

Virginia SBFA

Ryan Fallon also contributed to the reporting and writing in this article. Some source interviews were conducted for a previous version of this article.

Adam C. Uzialko

Adam C. Uzialko, a New Jersey native, graduated from Rutgers University in 2014 with a degree in political science and journalism and media studies. He reviews healthcare information technology, call centers, document management software and employee monitoring software. In addition to his full-time position at Business News Daily and Business.com, Adam freelances for several outlets. An indispensable ally of the feline race, Adam is owned by four lovely cats.

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