Tax Type
Withholding Taxes
Description
Taxpayer failed to provide records to support payment claims.
Topic
Records/Returns/Payments
Withholding of Tax
Date Issued
05-29-2013
May 29, 2013
Re: § 58.1-1821 Application: Withholding Tax
Dear *****:
This will reply to your letter submitted on behalf of your client, ***** (the "Taxpayer"), in which you seek correction of the withholding tax assessments issued for the period April 2007 through March 2012. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates a shuttle service. Shuttle operators are paid by the trip. The Taxpayer did not register to remit Virginia employer withholding tax and did not maintain any employee records for the period at issue. Under review, the auditor concluded that the operators were employees of the Taxpayer, estimated the amount of the Taxpayer's payroll, and issued assessments for failing to withhold income tax. The Taxpayer appeals the assessments, contending its shuttle operators are independent contractors and not employees.
DETERMINATION
Virginia Code § 58.1-460 defines "employee" as, "[A]n individual, whether a resident or a nonresident of the Commonwealth, who performs or performed any service in the Commonwealth for wages...." The Code of Virginia does not define "independent contractor" for withholding tax purposes. Nevertheless, Virginia has adopted the factors enumerated in Treas. Reg. § 31.3121(d)-1 to distinguish between an employee and an independent contractor for income tax withholding purposes. See Title 23 of the Virginia Administrative Code (VAC) 10-140-10 and Public Document (P.D.) 99-294 (9/9/1999).
The Taxpayer contends that the shuttle employees are independent contractors and, as such, no income tax withholding is required. The Taxpayer has been unable, however, to provide any objective evidence to support its claim. No contracts or forms (i.e., Form I-9, Form W-4 or Form VA-4) have been provided to document the relationship between the Taxpayer and the shuttle drivers. Further, the Taxpayer did not issue either a Form W-2 or Form 1099 to the drivers or maintain any records for individual shuttle operators. When requested to provide additional information in order to allow a thorough evaluation of this case, the Taxpayer responded that it was unable to find any documentation to support payments to drivers during the periods at issue. Because no clear and cogent evidence has been provided that would indicate that the shuttle operators acted in the capacity of an independent contractor, the operators who performed services for the Taxpayer are deemed to have an employee/employer relationship with the Taxpayer.
Under the provisions of Va. Code § 58.1-205, in any proceeding relating to the interpretation of the tax laws of Virginia, an "assessment of a tax by the Department shall be deemed prima facie correct." As such, the burden of proof is on the Taxpayer to show it was not responsible for withholding tax in Virginia. In this case, the Taxpayer has made assertions, but has provided no objective evidence to show that the shuttle operators were independent contractors.
In addition, Va. Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the assessment was attributable to a taxpayer's willful failure or refusal to provide the Department with necessary information as required by law.
Pursuant to Va. Code § 58.1-111, the Department has the authority to estimate the amount of taxes due, based on any available information, when a taxpayer fails to file a valid state tax return. According to the Department's audit report, the Taxpayer failed to provide records to support payments to shuttle drivers. The auditor, therefore, made a reasonable attempt to estimate the Taxpayer's withholding tax. Accordingly, withholding tax assessments issued for the periods April 2007 through March 2012 are upheld.
Updated bills will be issued shortly, which will include accrued interest. Payment of the outstanding balances should be made within 30 days of the bill date in order to avoid the accrual of additional interest.
The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5269843516.B
Rulings of the Tax Commissioner