Tax Type
Withholding Taxes
Description
Failure to sufficiently withhold tax from its employees
Topic
Collection of Tax
Persons Subject to Tax
Residency
Date Issued
06-28-2002
June 28, 2002
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 September 2000 through July 2001.
FACTS
The Taxpayer is an out-of-state contractor that periodically performs jobs in Virginia. The Taxpayer withheld Virginia withholding tax based on federal Form W-4 rather than Virginia Form VA-4. Under audit, only one withholding exemption was allowed per employee unless supported by a completed Form VA-4. The Taxpayer was assessed for failing to sufficiently withhold tax from its employees working in Virginia for the period stated above. Withholding tax was assessed only in cases where the auditor could not determine if the individual income tax return had been filed.
The Taxpayer contends that it was not fully aware of the Virginia withholding requirements and acted in good faith in having a federal Form W-4 on file for each employee. The Taxpayer states that none of its employees for the periods at issue were Virginia residents and that due to the low number of weeks worked on average, the actual amount of Virginia withholding tax would be less than that assessed. The Taxpayer also noted that only four of the applicable employees still work for the company; therefore, it could not retroactively collect the tax.
DETERMINATION
Code of Virginia § 58.1-470 provides that employees who receive wages will be entitled to the same exemptions for which the employees qualify, respectively, under federal income tax law. This section is further clarified by Code of Virginia § 58.1-461, which permits an employer to make an allowance for withholding purposes for only a standard deduction or an out-of-state tax credit, but prohibits an employer from making allowances for any other deductions, such as itemized deductions.
In addition, under Code of Virginia § 58.1-470, every employee is required to furnish a signed withholding exemption certificate (currently Form VA-4), relating to the withholding exemptions claimed, to his employer at the time employment commences. In this case, employees would be considered to have commenced employment when they were assigned to perform services for the Taxpayer in Virginia.
In the absence of a completed Form VA-4 for any employee, the auditor adjusted employee withholding to allow only one exemption. In the course of this audit, the Taxpayer was not held liable for withholding tax in cases where department records reflected payment was made on an employee's 2000 taxable year income tax return, as permitted by Code of Virginia § 58.1-467.
Based on the information provided and the clear language of the statutes, the assessments are correct. However, if the Taxpayer can provide the department with valid Form VA-4s showing the proper exemptions for the employees at issue, the audit will be adjusted. Please submit the requested information to ***** Office of Policy and Administration, Appeals and Rulings, P.O. Box 1880, Richmond, Virginia 23218-1880, within 60 days of the date of this letter. If the requested information is not provided within the allotted time, collection action will resume on the outstanding balance of the assessments.
Pursuant to the final revision of the audit assessment, the Taxpayer should provide its employees with amended Form W2s showing the revised amount of withholding tax remitted to Virginia.
Copies of the Code of Virginia sections cited are enclosed for reference purposes. These and other reference documents are also available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions regarding this determination, you may contact ***** at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/37944E
Rulings of the Tax Commissioner