Tax Type
Employer Income Tax Withholding
Description
Wages of employees of interstate carriers; Federal exemption from withholding
Topic
Withholding of Tax
Date Issued
05-23-1994
May 23, 1993
Re: §58.1-1821 Application; Withholding taxes
Dear***********
This will reply to your letter of December 16, 1992, in which you applied for correction of an assessment for withholding taxes to****************(the "Taxpayer") for the periods August 1989 through July 1992. I apologize for the delay in responding.
FACTS
The Taxpayer was the subject of a field audit, and withholding taxes were assessed for those employees who were truck drivers making deliveries into Virginia for which the Taxpayer had failed to withhold Virginia income taxes. You aver that federal law exempts the Taxpayer from the requirement to withhold Virginia income taxes for these employees.
DETERMINATION
The Taxpayer conducts business and has an office in Virginia. Generally, Va. Code §58.1-460 et seq. would require the Taxpayer to withhold Virginia income taxes from its employees who perform any service in Virginia for wages. However, there are certain classes of employers and employees that are exempted from a state's jurisdiction to impose withholding and income taxes by federal law.
The Taxpayer is a wholesale distributor of food and general merchandise, with a principal place of business outside Virginia. The Taxpayer operates a private fleet of trucks to deliver its goods in interstate commerce. In order to distribute its products, the Taxpayer sometimes requires its driver employees to enter the Commonwealth of Virginia with its delivery vehicles. All truck driver employees of the Taxpayer are residents of a state other than Virginia. The Taxpayer operates its truck fleet subject to the jurisdiction of the U.S. Department of Transportation.
The Taxpayer believes that pursuant to Public Law (P.L.) 101-322, codified at 49 U.S.C.A. §1504(b), and its predecessor statute, P.L. 95-473, no employee income tax withholding is due the Commonwealth of Virginia, and that application of the current and predecessor statutes require that the Taxpayer withhold taxes only for the state of the subject employees' residence.
Effective July 6, 1990, 49 U.S.C.A. §11504, provides in pertinent part:
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- (b)(1) No part of the compensation paid by a motor carrier providing transportation subject to the jurisdiction of the Commission under subchapter II of chapter 105 of this title or by a motor private carrier to an employee who performs regularly assigned duties in 2 or more States as such an employee with respect to a motor vehicle shall be subject to the income tax laws of any State or subdivision of that State, other than the State or subdivision thereof of the employee's residence.
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- (2) In this subsection "employee" has the meaning given such term in section 204 of the Motor Carrier Safety Act of 1984 (49 App. U.S.C. 2503).
....
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- (d) A rail, motor, and motor Private carrier withholding pay from an employee under subsection (a) or (b) of this section shall file income tax information returns and other reports only with the State and subdivision of residence of the employee. (Emphasis added.)
For this purpose, the term "employee" includes "an operator of a commercial motor vehicle", mechanics, freight handlers and other employees "who in the course of his or her employment directly affects commercial motor vehicle safety." 49 App. U.S.C.A. §2503 (1993 Supp. ) .
Prior to July 6, 1990, the predecessor statute, P.L. 95-473, required an employer to withhold employee income tax only for the state in which the employee earned more than 50 percent of his income. If the employee did not spend more than 50 percent of his time in any one state, the employer was required to withhold income tax only for the state of the employee's residence. That statute provided in pertinent part:
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- (b) (1) (B) an employee is deemed to have earned more than 50 percent of pay in a State or subdivision of a State in which the mileage traveled by the employee in that State or subdivision is more than 50 percent of the total mileage traveled by the employee while employed during the calendar year.
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- (2) A motor carrier providing transportation subject to the jurisdiction of the Commission under subchapter II of chapter 105 of this title and a motor private carrier shall withhold from the pay of an employee having regularly assigned duties on a motor vehicle in at least 2 States only income tax required to be withheld by the laws of a State, or subdivision of that State ----
(A) in which the employee earns more than 50 percent of the pay received by the employee from the carrier; or
- (2) A motor carrier providing transportation subject to the jurisdiction of the Commission under subchapter II of chapter 105 of this title and a motor private carrier shall withhold from the pay of an employee having regularly assigned duties on a motor vehicle in at least 2 States only income tax required to be withheld by the laws of a State, or subdivision of that State ----
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- (B) that is the residence of the employee (as shown on the employment records of the carrier), if the employee did not earn in one State or subdivision more than 50 percent of the pay received by the employee from the carrier during the preceding calendar year.
A motor private carrier is defined at 49 U.S.C.A. §10102 (16) as:
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- a person, other than a motor carrier, transporting property by motor vehicle when --
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- (A) the transportation is [provided in interstate or foreign commerce];
(B) the person is the owner, lessee, or bailee of the property being transported; and
(C) the property is being transported for sale, lease, rent or bailment, or to further a commercial enterprise.
- (A) the transportation is [provided in interstate or foreign commerce];
The Taxpayer meets the definition of a motor private carrier and has at all relevant times complied with these statutory requirements. The Taxpayer has demonstrated that no employee driver earned more than fifty percent of his income in the Commonwealth of Virginia during the time P.L. 95-473 was in effect. Thus, no Virginia withholding was required for those years. Further, during the time period covered by the P.L. 101-322, all drivers employed by the Taxpayer were residents of a state other than Virginia.
The Virginia tax assessments applied to employees of the Taxpayer who operated trucks in Virginia. For each of these employees, the Taxpayer withheld income tax from the state of each employees' residence. During all times covered by the assessments, the Taxpayer was required by federal law to withhold employee income tax and file informational returns only for the state of the employees residence, not the Commonwealth of Virginia. Accordingly, the assessments relating to employees covered by 49 U.S.C.A §11504 shall be abated.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7079M
Rulings of the Tax Commissioner