Tax Type
Withholding Taxes
Description
Lottery proceeds, withholding on prize annuity payments
Topic
Basis of Tax
Taxable Income
Withholding of Tax
Date Issued
08-30-2002
August 30, 2002
Re: Request for Ruling: Withholding Tax
Dear *****:
This will reply to your letter of June 28, 2002, in which you request a ruling on behalf of your client, ***** (the "Taxpayer") concerning income tax withholding from lottery proceeds.
FACTS
The Taxpayer is an insurance corporation incorporated and domiciled outside Virginia. The Taxpayer sells insurance policies in Virginia and is subject to taxation on gross premiums under the provisions of Code of Virginia § 58.1-2500 et seq. The Taxpayer acquired the right to receive future proceeds of two Virginia Lottery annuities from the original holders pursuant to judicial order under the provisions of Code of Virginia § 58.1-4013. The State Lottery Department ("SLD") withheld Virginia income tax from the payments to the Taxpayer. The Taxpayer requests a ruling as to the applicability of income tax withholding to such SLD lottery prize annuity payments and requests a refund of tax withheld. The Taxpayer also requests a ruling that the Taxpayer is not subject to withholding and that the SLD may cease such withholding on such lottery payments.
RULING
Code of Virginia § 58.1-4006 states in pertinent part, that the Director of the SLD is to "provide for the withholding of the applicable amount of state and federal income tax of persons claiming a prize for a winning ticket in excess of $5,001."
Title 11 of the Virginia Administrative Code ("VAC") 5-20-10, defines "person" as "a natural person and may extend and be applied to groups of persons as well as corporations, companies, partnerships, and associations, unless the context indicates otherwise."
The applicable statutes pertaining to Virginia income tax withholding are contained in Code of Virginia § 58.1-460 et seq. Section 58.1-460 defines the term "wages" to include "all prizes in excess of $5,001 paid by the State Lottery Department." The definition of "employer" means, in pertinent part, "the Commonwealth or any agency or instrumentality... from whom a person receives a prize in excess of $5,001 pursuant to the State Lottery Law (§ 58.1-4000 et seq.)." Code of Virginia § 58.1-461 provides the corresponding requirement for employers to withhold income tax from wages.
In the instant case, the SLD withheld Virginia income tax from the annuity payment remitted to the Taxpayer. The Taxpayer is exempt from Virginia corporate income tax under the provisions of Code of Virginia § 58.1-401 as an insurance company subject to the license tax on gross premiums or payment of a premium tax to the Commonwealth. As a result, the SLD overcollected tax when it withheld employer withholding because the corporation did not incur an income tax liability. Because the overcollection was not discovered until after the SLD had filed its annual written report pursuant to 23 VAC 10-140-190(A), the Taxpayer filed an income tax return in order to claim the refund. This return will be processed to refund the amount of withholding tax overcollected.
Code of Virginia § 58.1-461 provides that an employer is not required to withhold income tax if it has a withholding exemption certificate certifying that the recipient is not subject to withholding. Because the Taxpayer is exempt from Virginia corporate income tax, it may complete the applicable line on Virginia Form VA-4P to show that it is exempt from withholding. Upon receipt, the SLD will be authorized to stop withholding income tax from the annuity payments to the Taxpayer. However, should the Taxpayer become liable for Virginia income tax, the Taxpayer must notify the SLD.
Copies of the Code of Virginia and regulation sections cited are 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 ruling, you may contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/41555E
Rulings of the Tax Commissioner