Tax Type
Employer Income Tax Withholding
Description
Nexus to impose withholding tax requirements; Penalties and interest
Topic
Penalties and Interest
Withholding of Tax
Date Issued
08-18-1994
August 18, 1994
Re: §58.1-1821 Application; Withholding taxes
Dear*****************
This will reply to your letter of April 8, 1994, in which you make application for abatement of interest and penalty assessed to *********** (the "Taxpayer") for 1989 through 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 its activities are protected by Va. Code §13.1-601, and is not 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..."
The term "employer" is defined by Va. Code §58.1-460 as:
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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)
As provided in Va. Code § 58.1-475, penalty and interest shall be imposed where any employer fails to properly withhold Virginia payroll taxes. Pursuant to Va. Code 58.1-467, the payment of Virginia income taxes by the recipient of wages shall in no case relieve the employer from liability for penalties for failure to withhold.
The Taxpayer has cited Va. Code §13.1-757, copy attached, as a defense to the requirement to withhold. However, this section only applies for purposes of determining if a foreign corporation must obtain a certificate of authority from the State Corporation Commission to transact business in Virginia. The department's long-standing policy provides that tax responsibilities apply regardless of a foreign corporation's requirement to obtain a certificate of authority from the State Corporation Commission. See VR 630-3-302, copy attached. Va. Code §13.1-757 has no application when evaluating a .
impose a requirement to withhold income taxes from employees.
Virginia clearly possesses the requisite nexus to impose withholding tax requirements on the Taxpayer. 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. In its decision in Scripto. Inc. v. Carson, 362 U.S. 207 (1960), the U. S. Supreme Court reinforced its decision in General . 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.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/834OM
Rulings of the Tax Commissioner