Tax Type
Individual Income Tax
Description
Virginia wages; Conformity to FAGI; Liability
Topic
Taxable Income
Withholding of Tax
Date Issued
09-05-2000
September 5, 2000
Re: § 58.1-1821 Application: Individual Income Tax
Dear ****
This will reply to your letter regarding your Virginia individual income tax assessments for the taxable years 1993, 1994, and 1995. I apologize for the delay in responding to your letter.
FACTS
You are a Virginia resident who received wages from an employer who has operations in Virginia. You provided information to your employer indicating that an employer is not required to withhold on wages from United States citizens or residents. You contend that you were not engaged in any taxable activities. Further, you contend that you incurred no liability for income taxes imposed under Subtitle A of Title 26 of the Internal Revenue Code in the preceding years and anticipated incurring no income tax liability for the taxable years 1993, 1994, and 1995. As a result, you directed your employer to cease withholding Virginia taxes on your wages. Additionally, you completed a Virginia Employee's Income Tax Withholding Exemption Certificate indicating that you were exempt from Virginia income and withholding tax.
The department received information from the Internal Revenue Service (IRS) indicating that you were liable for federal income taxes for the taxable years 1993, 1994, and 1995. Letters were sent to you requesting that Virginia returns be filed for those periods. When an adequate response was not received, assessments were issued. You contend that you are not liable for the assessments, and therefore, they should be abated.
DETERMINATION
Code of Virginia § 58.1-301 (copy enclosed) provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia "conforms" to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Section 61(a)(1) of the IRC clearly sets forth certain types of income, such as wages, salaries, and compensation for personal services. Such income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Code of Virginia § 58.1-322 (copy enclosed). Your wages, therefore, were subject to taxation by Virginia to the extent that they were included in your FAGI.
Code of Virginia § 58.1-341 (copy enclosed) provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Code of Virginia § 58.1-321 (copy enclosed). Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia income tax return. When a resident does not file a Virginia return, IRC 6103 (d) (copy enclosed) authorizes the department to obtain information from the IRS that will help in determining the resident's tax liability.
The department received information from the IRS indicating that you were liable for filing a federal tax return. For each of taxable years 1993, 1994, and 1995, the department sent separate letters on March 20, 1996, June 4, 1997, and September 15, 1998, respectively. These letters requested that the proper returns be filed, or explanation be provided concerning why you were not required to file the returns. When a sufficient response was not received, assessments were issued. Code of Virginia § 58.1-312 (copy enclosed) provides that an assessment can be issued at any time if a taxpayer fails to file a Virginia return. Code of Virginia § 58.1-205 (copy enclosed) provides that any assessment issued by the department will be deemed prima facie correct.
Code of Virginia § 58.1-460 (copy enclosed) defines "wages" for Virginia tax purposes. Additionally, Code of Virginia § 58.1-461 (copy enclosed) provides that, "[e]very employer making payment of wages shall deduct and withhold with respect to the wages of each employee for each payroll period an amount determined . . . ." (Emphasis added.) This Code section, also provides an exemption from withholding tax if a withholding exemption certificate is furnished by the employee to the employer:
[c]ertifying that the employee: (i) incurred no liability for income tax imposed by this chapter for his preceding taxable year; and (ii) anticipates that he will incur no liability for income tax imposed by this chapter for his current taxable year. (Emphasis added.)
Unless a withholding exemption certificate is in effect certifying that an employee is exempt from income tax, an employer is required to withhold tax on wages paid to an employee. An employee, however, is entitled to claim a personal exemption as single, married, over 65 years old, blind, or for dependents. In your case, while you furnished a withholding exemption certificate to you employer certifying to be exempt from withholding tax, your wages were clearly subject to Virginia income and withholding taxes.
Your claim that your wages were exempt from Virginia income or withholding taxes because they were not revenue taxable activities subject to Virginia taxation has no basis in fact or Virginia law. Further, a person who fails to file income tax returns based solely on such a claim has intentionally understated his or her income tax liability with the intent to evade tax and would be subject to a 100% fraud penalty pursuant to Code of Virginia § 58.1-308 (copy enclosed). Furthermore, one who files an application for correction pursuant to Code of Virginia § 58.1-1821 (copy enclosed) based solely on such claims has no purpose other than to hinder and delay collection of the proper tax liability. Consequently, collection activity need not be suspended while such applications for correction are being considered.
Based on the information presented, there is no basis to exempt your wages from Virginia income or withholding taxes. Your Virginia income tax assessments for the taxable year 1993, 1994, and 1995 are correct. A summary of your assessments is shown on the enclosed schedule. You must pay the balances due of your assessments or file the appropriate Virginia tax returns. If the payment for the assessments or the tax returns is not received within 60 days, collection actions will resume.
According to the department's records, you have not filed Virginia tax returns subsequent to taxable year 1995. Any Virginia income tax returns, therefore, that have not been filed subsequent to the taxable year 1995 must also be filed within the next 60 days. Your continued refusal to file any of your returns in accordance with Virginia law will justify the 100% fraud penalty and other legal actions to collect the proper tax. Payment of the assessments and tax returns should be sent to the attention of Office of Tax Policy, Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have further questions, ***** may be contacted at *****.
Your letter has been handled pursuant to Code of Virginia § 58.1-1821. If you wish to appeal this matter further, there is a judicial remedy under Code of Virginia § 58.1-1825 (copy enclosed). The court application must be filed within three years from the date of the assessments or one year from the date of this letter, whichever is the later. The assessments, however, must be paid or the appropriate bond posted before the court application is deemed filed.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/20915N
Re: § 58.1-1821 Application: Individual Income Tax
Dear ****
This will reply to your letter regarding your Virginia individual income tax assessments for the taxable years 1993, 1994, and 1995. I apologize for the delay in responding to your letter.
FACTS
You are a Virginia resident who received wages from an employer who has operations in Virginia. You provided information to your employer indicating that an employer is not required to withhold on wages from United States citizens or residents. You contend that you were not engaged in any taxable activities. Further, you contend that you incurred no liability for income taxes imposed under Subtitle A of Title 26 of the Internal Revenue Code in the preceding years and anticipated incurring no income tax liability for the taxable years 1993, 1994, and 1995. As a result, you directed your employer to cease withholding Virginia taxes on your wages. Additionally, you completed a Virginia Employee's Income Tax Withholding Exemption Certificate indicating that you were exempt from Virginia income and withholding tax.
The department received information from the Internal Revenue Service (IRS) indicating that you were liable for federal income taxes for the taxable years 1993, 1994, and 1995. Letters were sent to you requesting that Virginia returns be filed for those periods. When an adequate response was not received, assessments were issued. You contend that you are not liable for the assessments, and therefore, they should be abated.
DETERMINATION
Code of Virginia § 58.1-301 (copy enclosed) provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. For individual income tax purposes, Virginia "conforms" to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Section 61(a)(1) of the IRC clearly sets forth certain types of income, such as wages, salaries, and compensation for personal services. Such income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Code of Virginia § 58.1-322 (copy enclosed). Your wages, therefore, were subject to taxation by Virginia to the extent that they were included in your FAGI.
Code of Virginia § 58.1-341 (copy enclosed) provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Code of Virginia § 58.1-321 (copy enclosed). Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia income tax return. When a resident does not file a Virginia return, IRC 6103 (d) (copy enclosed) authorizes the department to obtain information from the IRS that will help in determining the resident's tax liability.
The department received information from the IRS indicating that you were liable for filing a federal tax return. For each of taxable years 1993, 1994, and 1995, the department sent separate letters on March 20, 1996, June 4, 1997, and September 15, 1998, respectively. These letters requested that the proper returns be filed, or explanation be provided concerning why you were not required to file the returns. When a sufficient response was not received, assessments were issued. Code of Virginia § 58.1-312 (copy enclosed) provides that an assessment can be issued at any time if a taxpayer fails to file a Virginia return. Code of Virginia § 58.1-205 (copy enclosed) provides that any assessment issued by the department will be deemed prima facie correct.
Code of Virginia § 58.1-460 (copy enclosed) defines "wages" for Virginia tax purposes. Additionally, Code of Virginia § 58.1-461 (copy enclosed) provides that, "[e]very employer making payment of wages shall deduct and withhold with respect to the wages of each employee for each payroll period an amount determined . . . ." (Emphasis added.) This Code section, also provides an exemption from withholding tax if a withholding exemption certificate is furnished by the employee to the employer:
[c]ertifying that the employee: (i) incurred no liability for income tax imposed by this chapter for his preceding taxable year; and (ii) anticipates that he will incur no liability for income tax imposed by this chapter for his current taxable year. (Emphasis added.)
Unless a withholding exemption certificate is in effect certifying that an employee is exempt from income tax, an employer is required to withhold tax on wages paid to an employee. An employee, however, is entitled to claim a personal exemption as single, married, over 65 years old, blind, or for dependents. In your case, while you furnished a withholding exemption certificate to you employer certifying to be exempt from withholding tax, your wages were clearly subject to Virginia income and withholding taxes.
Your claim that your wages were exempt from Virginia income or withholding taxes because they were not revenue taxable activities subject to Virginia taxation has no basis in fact or Virginia law. Further, a person who fails to file income tax returns based solely on such a claim has intentionally understated his or her income tax liability with the intent to evade tax and would be subject to a 100% fraud penalty pursuant to Code of Virginia § 58.1-308 (copy enclosed). Furthermore, one who files an application for correction pursuant to Code of Virginia § 58.1-1821 (copy enclosed) based solely on such claims has no purpose other than to hinder and delay collection of the proper tax liability. Consequently, collection activity need not be suspended while such applications for correction are being considered.
Based on the information presented, there is no basis to exempt your wages from Virginia income or withholding taxes. Your Virginia income tax assessments for the taxable year 1993, 1994, and 1995 are correct. A summary of your assessments is shown on the enclosed schedule. You must pay the balances due of your assessments or file the appropriate Virginia tax returns. If the payment for the assessments or the tax returns is not received within 60 days, collection actions will resume.
According to the department's records, you have not filed Virginia tax returns subsequent to taxable year 1995. Any Virginia income tax returns, therefore, that have not been filed subsequent to the taxable year 1995 must also be filed within the next 60 days. Your continued refusal to file any of your returns in accordance with Virginia law will justify the 100% fraud penalty and other legal actions to collect the proper tax. Payment of the assessments and tax returns should be sent to the attention of Office of Tax Policy, Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have further questions, ***** may be contacted at *****.
Your letter has been handled pursuant to Code of Virginia § 58.1-1821. If you wish to appeal this matter further, there is a judicial remedy under Code of Virginia § 58.1-1825 (copy enclosed). The court application must be filed within three years from the date of the assessments or one year from the date of this letter, whichever is the later. The assessments, however, must be paid or the appropriate bond posted before the court application is deemed filed.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/20915N
Rulings of the Tax Commissioner