Tax Type
Employer Income Tax Withholding
Description
Employee or Independent Contractor
Topic
Persons Subject to Tax
Taxability of Persons and Transactions
Date Issued
10-30-2001
October 30, 2001
Re: § 58.1-1821 Application: Withholding Tax
Dear *****
This will reply to your letter of July 26, 2001, in which you seek correction of withholding tax assessments issued to ***** (the "Taxpayer") for the period April 1994 through December 1998.
FACTS
The Taxpayer is a janitorial service provider. Under audit, the Taxpayer was assessed tax, penalty and interest for failure to withhold taxes from wages of certain individuals whom the Taxpayer classified as independent contractors.
The Taxpayer contends that the assessments are incorrect because the individuals who work for it are properly classified as independent contractors.
DETERMINATION
Code of Virginia § 58.1-460 defines "employee" as, "an individual, whether a resident or a nonresident of the Commonwealth, who performs or performed any service in the Commonwealth for wages . . . ." The Code of Virginia does not define "independent contractor" for withholding tax purposes. Nevertheless, federal law provides certain factors to distinguish between an employee and an independent contractor.
Treasury Regulation § 31.3121(d)-1 provides these factors, and is summarized in Internal Revenue Service Publication 15-A, copy enclosed. The factors enumerated in this publication are used as a guideline for determining whether a worker is an employee or an independent contractor. These items, however, are not the only elements considered when determining the classification of workers.
In the instant case, the Taxpayer has provided extensive evidence that would indicate that the workers in question are in fact independent contractors. The Taxpayer entered into independent contractor agreements and issued year-end federal form 1099s to these workers. It issued federal W-2 forms to the individuals it classified as employees. The Taxpayer provided no training, supervision, holiday pay vacations, pensions or other employee benefits to the individuals in question. The Taxpayer did not furnish any uniforms nor any cleaning equipment or supplies. Workers received keys to customers' homes directly from the customers and arranged their cleaning schedule with the customers.
The term "employer" is defined by Code of Virginia § 58.1-460 as "the person ... for whom an individual performs or performed any service as an employee . . . ." Code of Virginia § 58.1-461 provides that employers must withhold taxes on wages of employees. Because the evidence indicates that the workers in question were independent contractors, the Taxpayer is not liable for withholding taxes on these individuals. Accordingly, withholding taxes that were assessed to the Taxpayer and to other individuals as "responsible officers" for the periods April 1994 through December 1998 will be abated.
If you have any questions about this determination, you may contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/32305B
Rulings of the Tax Commissioner