08-46 | Virginia Tax

Tax Type

Individual Income Tax

Description

Sole proprietorships states workers were independent contractors, not employees.

Topic

Accounting Periods and Methods

Amnesty

Collection of Delinquent Tax

Persons Subject to Tax

Date Issued

04-17-2008

April 17, 2008

Re: § 58.1-1821 Application: Sole Proprietor Liability

Dear *****:

This will reply to your letter in which you seek correction of assessments issued
to ***** (the "Taxpayer").

FACTS

The Department issued numerous assessments to the Taxpayer personally, and to two different sole proprietorships operated by the Taxpayer, for sales and use tax and withholding tax for taxable periods August 1989 through September 1994. When the sole proprietorships failed to pay the deficiencies, the Department timely assessed the Taxpayer penalties in the amount of the taxes, penalties and interest owed by the sole proprietorships pursuant to Va. Code § 58.1-1813. These assessments were issued against the Taxpayer in August 1990 through March 1995. A portion of these assessments has been satisfied through the offset of an individual income tax refund.

The Taxpayer contends that the penalties assessed pursuant to Va. Code § 58.1-1813 are liabilities accrued by the previous owners of the businesses. He also argues that the individuals who worked at his establishments were independent contractors, not employees. Furthermore, the Taxpayer maintains that he satisfied his entire tax liability through a payment made via the Tax Amnesty program in November 2003.

DETERMINATION

Amnesty Payment

Under Va. Code § 58.1-1840.1 D 2, amnesty allowed a taxpayer to satisfy his state tax liability by paying off his entire tax liability and one-half of the interest due. In exchange for this payment, the balance of the interest and the entire penalty would be waived. The amount the Taxpayer paid pursuant to amnesty only covered his 1995 individual income tax liability. Our records indicate that the 1995 individual income tax assessment was in fact abated.

Timeliness of Appeal

Virginia Code § 58.1-1821 provides, in pertinent part, "Any person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner."

Virginia Code § 58.1-1825 A provides, in pertinent part, "Any person assessed with any tax administered by the Department of Taxation and aggrieved by any such assessment may, unless otherwise specifically provided by law, within (i) three years from the date such assessment is made or (ii) one year from the date of the Tax Commissioner's determination under § 58.1-1822, whichever is later, apply to the circuit court for relief."

For assessments issued prior to August 15, 2003, the Department had a policy of accepting administrative appeals at anytime within the three-year statute of limitations for pursuing a judicial remedy. See Public Document (P.D.) 06-132 (10/30/2006). In this instance, the latest tax assessment issued to the Taxpayer was dated March 9, 1995. In accordance with the Department's policy as it existed at the time the assessment was issued, the Taxpayer was required to file an administrative appeal within three years of the date of assessment, or by March 9, 1998, at the latest.

The Department's records indicate an administrative appeal for the taxable years at issue was filed with the Department on September 24, 2007, well after the expiration of the statute of limitations. Therefore, the Taxpayer's application for correction pursuant to Va. Code § 58.1-1821 under the Department's policy prior to August 15, 2003, was not timely filed. Accordingly, I have no choice but to deny the Taxpayer's request for an abatement of the converted tax assessments and for the refund of the converted taxes that have been paid.

Revised bills, with accrued interest, will be mailed to the Taxpayer shortly. No additional interest will accrue provided the outstanding assessments are paid within 30 days from the date of the revised bills. The Taxpayer should remit his payment to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261, Attn: *****.

The Code of Virginia sections and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact ***** at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/1-1886185221.B

Rulings of the Tax Commissioner