Tax Type
Individual Income Tax
Description
Individual Claims not Required to File State Income Return
Topic
Persons Subject to Tax
Date Issued
11-06-2001
November 6, 2001
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****
This will reply to your letter concerning the Virginia individual income liability of ***** (the "Taxpayer") for the taxable year ended December 31, 2000. Your letter is being treated as an appeal pursuant to Code of Virginia § 58.1-1821.
FACTS
The Taxpayer is a Virginia resident who received wages from employment. You state that the Taxpayer is not engaged in any revenue taxable activities and that she had no liability for income taxes imposed under Subtitle A of Title 26 of the Internal Revenue Code ("IRC"). While your letter was addressed to this department and includes a statement that "this is a return for the year 2000," all tax references were made to the IRC and the Internal Revenue Service ("IRS"). By inference, you also have stated that the Taxpayer is not subject to income taxation by the Commonwealth of Virginia. Consequently, you are requesting a refund of the taxes withheld on the Taxpayer's Form W-2 for the 2000 taxable year.
DETERMINATION
Code of Virginia § 58.1-301, 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 IRC unless a different meaning is clearly required. For individual income tax purposes, Virginia "conforms" to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income ("FAGI"). Income included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Code of Virginia § 58.1-322, copy enclosed. IRC § 61(a)(1) and the associated Treasury Regulation § 1.61-2, copy enclosed, specifically include wages and salaries in the definition of gross income. IRC § 61(b) also cross-references other income that is included in the definition of gross income (IRC §§ 71 through 90). Consequently, wages, salaries, and other income included in FAGI are subject to taxation by Virginia.
Code of Virginia § 58.1-341, copy enclosed, provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Code of Virginia § 58.1-321, copy enclosed. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income that exceeds the filing threshold, the resident is required to file a Virginia income tax return. When a resident does not file a proper Virginia return, IRC § 6103(d), copy enclosed, authorizes the department to obtain information from the IRS that will help in determining the resident's tax liability.
The information provided in your letter shows that the Taxpayer is a resident of Virginia and includes a Form W-2 for the 2000 taxable year identifying income received from employment in Virginia. In addition, W-2 forms attached to the Taxpayer's 1998 and 1999 Virginia income tax returns identify income earned from that same employer. These wages were reported on the Taxpayer's 1998 return, but not on the 1999 return. As stated earlier, wages reported on Form W-2 are includible as income and are included in FAGI on the Virginia income tax return unless specifically exempted. Code of Virginia § 58.1-461, copy enclosed, provides that those wages are subject to employer withholding.
The claim set forth in your letter that the Taxpayer's wages are not subject to Virginia taxation has no basis in fact or Virginia laws. Further, a person who fails to file income tax returns based solely on such a claim has intentionally understated his or her income tax liability with the intent to evade tax and would be subject to a 100% fraud penalty pursuant to Code of Virginia § 58.1-308, copy enclosed. Furthermore, one who files an application for correction pursuant to Code of Virginia § 58.1-1821, copy enclosed, based solely on such claims has no purpose other than to hinder and delay collection of the proper tax liability. Consequently, collection activity need not be suspended on outstanding assessments while such applications for correction are being considered.
Based on the information presented, there is no basis to find that the Taxpayer is exempt from Virginia individual income tax for the 2000 taxable year or prior taxable years. Furthermore, the Taxpayer is not exempt from having Virginia income taxes withheld from her wages. Under the provisions of Code of Virginia § 58.1-111, copy enclosed, the department will make assessments based on the information provided. In the future, any Virginia income tax returns filed based on the claims set forth in your letter will justify the 100% fraud penalty and other legal actions to collect the proper tax in accordance with Virginia law.
If you have further questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/35940E
Rulings of the Tax Commissioner