Tax Type
Individual Income Tax
Description
Refund of Taxes Withheld
Topic
Taxable Income
Date Issued
03-10-2000
March 10, 2000
Re: § 58.1-1821 Application: Individual Income Taxation
Dear ****
This will reply to your letters concerning the 1996 Virginia income tax liability of ***** (the "Taxpayer"). I apologize for the delay in response.
FACTS
The Taxpayer requested a refund of all withheld and assessed Virginia income tax for the 1996 tax year because it claims that it had no income tax liability.
Specifically, the Taxpayer states that its salary is not "income" under the Internal Revenue Code ("IRC"), and therefore not subject to Virginia income taxation.
DETERMINATION
It appears that the Taxpayer has misunderstood the principle of conformity of Virginia income taxation with the IRC. Code of Virginia § 58.1-302, 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 unless a different meaning is clearly required.
Virginia "conforms" to federal law because it starts the computation of Virginia taxable income with federal adjusted gross income ("FAGI"). Therefore, to the extent that wages, salaries or other income are included in FAGI, they are subject to taxation on the Virginia return. Section 61(a)(1) of the IRC and Treasury Regulation § 1.62-2 clearly includes compensation for services, such as wages and salaries, in FAGI. Further, §61 (b) of the IRC cross references other types of income that are included in the definition of gross income (' 71 through 90) as well as income that is excluded from gross income (' 101 through 136). A review of the later sections reveals that wages are not excluded from the definition of gross income.
The Taxpayer contends that its salary is not income under the IRC and, therefore, not subject to Virginia income taxation. However, Code of Virginia § 58.1-460, copy enclosed, in part, defines wages to conform with the definition of wages as provided in §§ 3401(a), 3402, and 3405 of the IRC, which are considered part of gross income and included in FAGI. Further, Code of Virginia § 58.1-461, copy enclosed, requires an employer who pays wages to a Virginia resident to deduct Virginia income tax from those wages and pay the deducted taxes to the department. Code of Virginia § 58.1-480, copy enclosed, provides that the taxes withheld may be claimed as a credit against the employee's income tax liability for the calendar year. Typically, a Wage and Tax Statement, Form W-2, is issued by an employer to show how much income tax has been withheld on behalf of a taxpayer. The taxes deducted from the Taxpayer's wages were properly withheld by its employer and credited against its income tax liability when its 1996 income tax returns were filed.
Accordingly, the Taxpayer's request for a refund is denied. If the Taxpayer wishes to pursue this matter further, there is a judicial remedy available under Code of Virginia § 58.1-1825. However, the Taxpayer must file its appeal within three years of the tax assessment or one year of the date of this letter, whichever is later. If you have any questions regarding this determination, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/25085B
Re: § 58.1-1821 Application: Individual Income Taxation
Dear ****
This will reply to your letters concerning the 1996 Virginia income tax liability of ***** (the "Taxpayer"). I apologize for the delay in response.
FACTS
The Taxpayer requested a refund of all withheld and assessed Virginia income tax for the 1996 tax year because it claims that it had no income tax liability.
Specifically, the Taxpayer states that its salary is not "income" under the Internal Revenue Code ("IRC"), and therefore not subject to Virginia income taxation.
DETERMINATION
It appears that the Taxpayer has misunderstood the principle of conformity of Virginia income taxation with the IRC. Code of Virginia § 58.1-302, 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 unless a different meaning is clearly required.
Virginia "conforms" to federal law because it starts the computation of Virginia taxable income with federal adjusted gross income ("FAGI"). Therefore, to the extent that wages, salaries or other income are included in FAGI, they are subject to taxation on the Virginia return. Section 61(a)(1) of the IRC and Treasury Regulation § 1.62-2 clearly includes compensation for services, such as wages and salaries, in FAGI. Further, §61 (b) of the IRC cross references other types of income that are included in the definition of gross income (' 71 through 90) as well as income that is excluded from gross income (' 101 through 136). A review of the later sections reveals that wages are not excluded from the definition of gross income.
The Taxpayer contends that its salary is not income under the IRC and, therefore, not subject to Virginia income taxation. However, Code of Virginia § 58.1-460, copy enclosed, in part, defines wages to conform with the definition of wages as provided in §§ 3401(a), 3402, and 3405 of the IRC, which are considered part of gross income and included in FAGI. Further, Code of Virginia § 58.1-461, copy enclosed, requires an employer who pays wages to a Virginia resident to deduct Virginia income tax from those wages and pay the deducted taxes to the department. Code of Virginia § 58.1-480, copy enclosed, provides that the taxes withheld may be claimed as a credit against the employee's income tax liability for the calendar year. Typically, a Wage and Tax Statement, Form W-2, is issued by an employer to show how much income tax has been withheld on behalf of a taxpayer. The taxes deducted from the Taxpayer's wages were properly withheld by its employer and credited against its income tax liability when its 1996 income tax returns were filed.
Accordingly, the Taxpayer's request for a refund is denied. If the Taxpayer wishes to pursue this matter further, there is a judicial remedy available under Code of Virginia § 58.1-1825. However, the Taxpayer must file its appeal within three years of the tax assessment or one year of the date of this letter, whichever is later. If you have any questions regarding this determination, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/25085B
Rulings of the Tax Commissioner