Rulings of the Tax Commissioner

Federal Rates Remain Unchanged: State and certain local interest rates are subject to change every quarter due to changes in federal rates established pursuant to 
IRC § 6621. IRC § 6621 dictates that the federal underpayment and overpayment rates are three percentage points higher than the federal short-term rate. Federal rates for the fourth quarter of 2014 will be 3% for tax underpayments (assessments) and 3% for tax overpayments (refunds) by taxpayers other than corporations. 

Virginia Code § 58.1-15 provides that the underpayment rate for Virginia taxes will be 2% higher than the corresponding federal rate and the overpayment rate for Virginia taxes will be 2% higher than the corresponding federal rate. Accordingly, the Virginia rates for the fourth quarter of 2014 will be 5% for tax underpayments (assessments) and 5% for tax overpayments (refunds).

Taxpayers whose taxable year ends on September 30, 2014: For the purpose of computing the addition to the tax for underpayment of Virginia estimated income taxes on Form 500C (for corporations), Form 760C (for individuals, estates and trusts), or Form 760F (for farmers and fishermen), the fourth quarter 5% underpayment rate will apply through the due date of the return, January 15, 2014.

Assessments in Dispute: During the 2011 session, the General Assembly passed Senate Bill 1152 (Chapter 295, 2011 Acts of Assembly), which created a reduced rate for certain assessments in dispute. If a taxpayer files an administrative appeal with the Department of Taxation on or after July 1, 2011, interest begins accruing at the standard underpayment rate until nine months from the date of assessment. From nine months after the date of assessment until a determination is issued, interest accrues at the federal short-term rate established pursuant to IRC § 6621(b). Because the reduced rate is effective for administrative appeals filed on or after July 1, 2011, this legislation could potentially impact interest rates during the fourth quarter of 2014.

The federal short-term rate established pursuant to IRC § 6621(b) for the fourth quarter of 2014, rounded to the nearest whole percent, is 0%. Accordingly, the reduced rate for the fourth quarter of 2014 for qualifying assessments in dispute is 0%. This rate applies only to contested assessments for which an administrative appeal was filed on or after July 1, 2011, and the Department has not made a determination within nine months from the date of assessment. See Va.Code § 58.1-1822 for more information.

Assessments: Localities that assess interest on delinquent taxes under Va. Code § 58.1-3916 may impose interest at a rate not to exceed 10% for the first year of delinquency, and at a rate not to exceed 10% or the federal underpayment rate in effect for the applicable quarter, whichever is greater, for the second and subsequent years of delinquency. For the fourth quarter of 2014, the federal underpayment rate is 3%.

Refunds: Localities that charge interest on delinquent taxes are required to pay interest to taxpayers on all overpayments or erroneously assessed taxes at the same rate as they charge interest on delinquent taxes under Va. Code § 58.1-3916.

Additional Information: Contact Customer Services, Virginia Department of Taxation, P. O. Box 1115, Richmond, Virginia 23218-1115, or call the following numbers for more information about interest rates and penalties.