Tax Type
Employer Income Tax Withholding
Description
Failure to register and withhold income tax
Topic
Withholding of Tax
Date Issued
06-20-1994
June 20, 1994
Re: § 58.1-1821 Application;
Withholding taxes: 1989-1993 taxable years
Dear***************
This will reply to your letter of March 29, 1994 in which you make application for abatement of interest and penalty assessed to****************(the "Taxpayer") for 1989, 1990, 1991, 1992, and 1993.
FACTS
The Taxpayer was audited for payroll tax withholding for the 1989 through 1933 taxable years, and penalties and interest were assessed for the failure to withhold Virginia income taxes from wages paid to employees. The Taxpayer believes that because its activities do not exceed the activities protected by Public Law (P.L.) 86-272, it cannot be held liable for the collection of payroll taxes.
RULING
The Taxpayer paid wages to employees that performed services in Virginia during 1989 through 1993, but failed to withhold Virginia income taxes on such wages. The employees involved filed Virginia individual income tax returns, and paid Virginia income taxes on such income in their individual capacity. The taxability of the subject wages by Virginia is not in dispute.
Although the Taxpayer had registered with the Virginia Employment Commission for employment taxes in May 1989, it failed to register with the department for the collection of income tax withholding.
Va. Code §58.1-461 provides, in pertinent part:
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"Every employer making payment of wages shall deduct and withhold with respect to the wages of each employee for each payroll period an amount determined as follows..."
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- "...the person, whether a resident or a nonresident of the Commonwealth, for whom an individual performs or performed any service as an employee ..." (Emphasis added)
- "...the person, whether a resident or a nonresident of the Commonwealth, for whom an individual performs or performed any service as an employee ..." (Emphasis added)
The Taxpayer has cited P.L. 86-272, codified at §§15 U.S.C.A at 381-384, and the decision of the United States Court in Quill Corporation v. North Dakota, 112 S. Ct. 1904 (1992) as a defense to the requirement to withhold.
P.L. 86-272 only relates to a state's ability to impose a net income tax. It has no application when evaluating a state's ability to impose a requirement to withhold income taxes from employees.
Similarly, Quill has no application here as the bright-line test to determine physical presence with a state has been extended by the Courts beyond maintaining a place of business within a state. The United States Supreme Court's decision in General Tradinq Co., v. State Tax Commission of Iowa, 322 U.S. 335, 64 S. Ct. 1028 (1944) held that the presence of traveling salesmen in a state constitutes sufficient nexus to impose use tax collection responsibilities. The requirement to collect Iowa's use tax was upheld regardless of the fact that General Trading Co. did not maintain a branch, office, or warehouse in Iowa. In its decision in Scripto, Inc. v. Carson, 362 U.S. 207 (1960), the U. S. Supreme Court reinforced its decision in General Trading. The Court found the activities of independent contractors within a state constituted sufficient nexus to compel the collection of use tax by a dealer, and to require the payment of such tax by the dealer if he fails to collect it.
In Quill, the Court distinguished the "minimum contacts" required by the Due Process Clause from the "substantial nexus" required by the Commerce Clause. However, the decision in Quill did not disturb any of the prior rulings regarding physical presence.
Additionally, the facts of this case and Quill differ. Quill dealt with a firm which had neither a place of business nor employees in a state; while the Taxpayer may not have a place of business in Virginia, it clearly has employees within the state.
In conclusion, I find that the presence of employees within Virginia constitutes the requisite nexus to impose withholding tax collection responsibilities as defined in the Code of Virginia.
Given the clear language of the Code of Virginia, there is no basis for abating the interest or penalty. Accordingly, the assessment is correct and is now due and payable as reflected on the attached schedule. The balance due, ********should be paid within 30 days to prevent the accrual of additional interest. Your payment may be sent to **************, c/o Office of Tax Policy, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282-1880.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner