May 3, 2023
Re: § 58.1-1821 Application: Withholding Tax
Dear *****:
This will respond to your letter in which you seek correction of the withholding tax assessments issued to ***** (the “Taxpayer”) for the taxable periods October 2017 through September 2020.
FACTS
The Taxpayer operated a paving business in Virginia. Under audit, the Department concluded that the Taxpayer had underreported its wages and owed additional withholding tax for the periods October 2017 through September 2020. As a result, assessments were issued for withholding tax due. The Taxpayer appealed the assessments, contending the Department’s methodology in computing the assessments was erroneous and the assessments should be abated based on the facts and circumstances.
DETERMINATION
The Taxpayer filed withholding returns for the taxable periods at issue, reporting tax withheld for two or three employees. Publically available information, however, showed that crews of seven to twenty individuals worked at some of the Taxpayer’s job sites. During conversations with the Taxpayer, he told the auditor that cash wages were paid to some workers.
Pursuant to Virginia Code § 58.1-111, when a taxpayer fails to file a correct and proper return, the Department may make an estimate of the tax due from any information in its possession. In this case, because the Taxpayer did not file a return that included all workers and provided inadequate records of payments to workers for the periods under review, the auditor estimated the Taxpayer’s payroll based on industry norms for labor costs as a percentage of gross sales. See Public Document (P.D.) 12-75 (5/9/2012).
Virginia Code § 58.1-205 provides that in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct.” As such, the burden of proof is on the Taxpayer to show the assessments were incorrect. Furthermore, Virginia Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the erroneous assessment is attributable to the taxpayers’ willful failure or refusal to provide the Department with necessary information as required by law.
The Taxpayer’s appeal made only vague allegations regarding the correctness of the audit assessments. The Department requested additional information on March 16, 2022. When no information was received, the Department sent a follow-up request on April 14, 2022. To date, the Taxpayer has failed to respond with the requested information. Because the Taxpayer has failed to submit a complete appeal as prescribed under Title 23 of the Virginia Administrative Code (VAC) § 10-20-165 D, the request for correction is being closed.
The Taxpayer will receive updated bills that will include accrued interest to date. The Taxpayer should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collection actions.
The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3904.X