Tax Type
Individual Income Tax
Description
Income subject to withholding taxes
Topic
Collection of Tax
Penalties and Interest
Taxable Income
Withholding of Tax
Date Issued
03-29-2002
March 29, 2002
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****
This will reply to your letter regarding your Virginia individual income tax return for the 1998 taxable year. Based on the circumstances involved, your letter has been treated as an appeal pursuant to Code of Virginia § 58.1-1821. I apologize for the delay in responding to your letter.
FACTS
You are a Virginia resident who received wages from employment. You contend that your wages are not "gross income" as defined in the Internal Revenue Code. Consequently, you believe that you are not subject to income or withholding taxes, for federal or Virginia tax purposes, on your wages.
DETERMINATION
Code of Virginia § 58.1-301 provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code ("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.
Code of Virginia § 58.1-341 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. 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.
Code of Virginia § 58.1-460 defines "wages" for Virginia tax purposes. Additionally, Code of Virginia § 58.1-461 provides that [e]very employer making payment of wages shall deduct and withhold with respect to the wages of each employee for each payroll period an amount determined . . . ." (Emphasis added.) This statute also provides an exemption from withholding tax if a withholding exemption certificate is furnished by the employee to the employer:
-
- [certifying] that the employee: (i) incurred no liability for income tax imposed by this chapter for his preceding taxable year; and (ii) anticipates that he will incur no liability for income tax imposed by this chapter for his current taxable year. (Emphasis added.)
Unless a valid withholding exemption certificate is in effect certifying that an employee is exempt from income tax, an employer is required to withhold tax on wages paid to an employee. An employee, however, is entitled to claim a personal exemption as single, married, over 65 years old, blind, or for dependents.
Your claim that your wages are not considered "gross income" has no basis in fact or Virginia law. 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. Furthermore, one who files an application for correction pursuant to Code of Virginia § 58.1-1821 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 abate the Virginia income tax assessment issued to you for the 1998 taxable year. You are required to file Virginia individual income tax returns for all subsequent taxable years in accordance with Virginia law. Your refusal to file the appropriate income tax returns in accordance with Virginia law will justify the 100% fraud penalty and other legal actions to collect the proper tax. Further, as you are subject to Virginia taxation, you are also subject to have Virginia income tax withheld from your wages. Furnishing a withholding exemption certificate to your employer based on your statement that your wages are not "gross income" is an invalid use of the certificate. You should not provide such a certificate to your employer nor should your employer accept it.
The department's records indicate the tax assessments for 1998 taxable year have been partially paid. Please remit the remaining balance of ***** tax and ***** in interest) within the next 30 days, to the attention of *****, Office of Policy and Administration, Appeals and Rulings, Post Office Box 1880, Richmond, Virginia 23218-1880.
If you wish to appeal this matter further, you may seek a judicial remedy pursuant to Code of Virginia § 58.1-1825. The court application must be filed within three years from the date of the assessment or one year from the date of this letter, whichever is later. The assessment, however, must be paid or the appropriate bond posted before the court application is deemed filed.
Copies of the Code of Virginia, regulations and public documents cited are included 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 further questions, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/24614P
Rulings of the Tax Commissioner