Tax Type
Employer Income Tax Withholding
Description
Seafood Processor; 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 in which you seek correction of withholding tax assessments issued to ***** (the "Taxpayer") for the period October 1, 1994 through September 30, 2000. I apologize for the delay in the department's response.
FACTS
The Taxpayer is a seafood processor that sells its products on a retail and wholesale basis. Under audit, the Taxpayer was assessed tax, penalty and interest for failure to withhold taxes from wages paid to certain individuals whom the Taxpayer classified as independent contractors.
The Taxpayer contends that the assessments are incorrect because the individuals at issue are properly classified as independent contractors.
DETERMINATION
Code of Virginia § 58.1-460, copy enclosed, 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.
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, copy enclosed, provides that employers must withhold taxes on wages of employees.
It is my understanding that the Taxpayer failed to provide requested information during the audit, and the auditor assessed the tax based on the available records. In addition, the department has made repeated attempts to contact the Taxpayer since the appeal was filed to obtain information pursuant to the Taxpayer's letter. The Taxpayer has failed to provide the documentation described in its letter. Therefore, there is no basis for adjustment to the audit and the assessment of the tax is upheld.
Please pay the updated assessments as shown on the attached schedule within 30 days from the date of this letter to avoid accrual of additional interest. Please remit your payment to*****in the Office of Policy and Administration, Appeals and Rulings, Post Office Box 1880, Richmond, Virginia 23218-1880. If in the future the Taxpayer can provide the necessary documentation at issue in this case, the assessed tax and applicable interest will be refunded as warranted. Such documentation must be provided to the department within three years from the November 16, 2000 assessment date.
If you have any questions about this determination, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/32305B
Rulings of the Tax Commissioner