Tax Type
Employer Income Tax Withholding
Description
Request for Refund
Topic
Persons Subject to Tax
Withholding of Tax
Date Issued
09-12-2001
September 12, 2001
RE: § 58.1-1821 Application: Withholding Tax
Dear *****
This will reply to your letter in which you request a refund of withholding tax and interest paid by your client ***** (the "Taxpayer") for various periods beginning October 1997 through September 2000. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer, a corporation located outside Virginia, failed to withhold and remit Virginia income tax withholding for employees working in Virginia for the periods in question. You contend that: (1) the Taxpayer's failure to withhold tax did not relieve its employees from the obligation to report and pay Virginia income tax; (2) the employees failed to file and pay Virginia income tax; (3) the Taxpayer paid the employees full compensation without any reduction for Virginia income tax withheld; and (4) the Taxpayer treated all of its employees in the same manner. You request that the withholding tax and interest paid by the Taxpayer be refunded.
DETERMINATION
Code of Virginia § 58.1-461 requires employers to withhold taxes from employee wages for each payroll period. Code of Virginia § 58.1-460 defines "employer" as, "[t]he person, whether a resident or nonresident of the Commonwealth, for whom an individual performs or performed any service as an employee ...." (Emphasis added). Further, this section defines "employee" as, "[a]n individual, whether a resident or a nonresident of the Commonwealth, who performs or performed any service in the Commonwealth for wages ...." (Emphasis added). Consequently, an employer located outside Virginia may be required to withhold Virginia income taxes for an employee who is not a resident of Virginia when that employee earns income from Virginia sources. Code of Virginia § 58.1-474 provides that any employer who fails to withhold or pay any sums required to be withheld shall be personally and individually liable.
Code of Virginia § 58.1-467 provides in pertinent part:
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- If the employer ... fails to deduct and withhold the [Virginia withholding] tax ..., and thereafter the tax against which such tax may be credited is paid, the tax so required to be deducted and withheld shall not be collected from the employer. This section shall in no case relieve the employer from liability for any penalties or additions to the tax otherwise applicable in respect of such failure to deduct and withhold.
If employees pay their Virginia income tax liabilities when their employers fail to withhold, the department will generally not hold employers liable for the tax, although they remain liable for any penalty or interest assessed. However, nothing in Virginia statutory or case law abrogates the employer's liability for failing to withhold Virginia income tax from its employees. In this case, the department has no evidence that the Taxpayer's employees have paid their Virginia income tax liabilities. As such, your request for a refund must be denied.
If you have any questions regarding this determination, you may contact ***** in the department's Appeals and Rulings Office at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
ARO/32400B
Rulings of the Tax Commissioner