Tax Type
Employer Income Tax Withholding
Description
Wages subject to withholding; Nexus with Virginia
Topic
Withholding of Tax
Date Issued
07-05-1994
July 5, 1994
Re: §58.1-1821 Application; Withholding taxes
Dear***********
This will reply to your letter of June 7, 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 should not 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, 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..."
- "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, 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.
The Taxpayer also argues that Virginia lacks the requisite nexus to impose withholding tax requirements because the Taxpayer has no physical or economic presence within Virginia. However, 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 Trading 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. The fact that the Taxpayer's salesmen solicited orders for the purchase of products within Virginia, which were then shipped to Virginia customers, clearly established a direct economic presence. There is no question that the Taxpayer is doing business in Virginia.
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