Tax Type
Employer Income Tax Withholding
Description
Persons required to file; Unified return not permitted
Topic
Returns and Payments
Withholding of Tax
Date Issued
10-03-1996
October 3, 1996
Re: Ruling Request: Income Tax Withholding
Dear***************
This will reply to your letter in which you ask the department to consider alternative methods of withholding and filing Virginia individual income taxes for certain employees of ********* (the "Taxpayer").
Facts
The Taxpayer is an out-of-state corporation whose employees perform services in Virginia on a sporadic basis. A recent Virginia audit revealed that the Taxpayer had a responsibility to withhold taxes from its employees. The amount of withholding averaged $700 per year over the audit period. The Taxpayer agrees that it has a responsibility for collecting and remitting withholding taxes.
The Taxpayer is requesting permission from the department to use an alternative method to withhold individual income tax, and to file a unified return for its nonresident salespersons.
Determination
Withholding
Code of Virginia § 58.1-463 gives the Tax Commissioner the authority to permit employers to use a method of withholding other than prescribed in Code of Virginia § 58.1-462. Employers who desire to determine withholding by an alternative method must "obtain permission from the Tax Commissioner" before applying the alternative method. Permission will only be granted based on an established need to change.
The Taxpayer has indicated that employees operate in Virginia irregularly for periods generally ranging from 2 to 36 days in a given operating year. In addition, the audit results show a liability which demonstrates only a modest level of liability. Based on the nature and liability level of the activity, the Taxpayer has established a need for an alternative method of income tax withholding.
The Taxpayer proposes to submit a flat annual payment of withholding taxes. Subject to the following specific conditions, the department would accept such a method of filing:
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- 1. The Taxpayer will file the enclosed Form R-1 indicating that the Taxpayer's business is seasonal and that it will remit withholding taxes only for December.
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- 2. Each employee's income subject to Virginia withholding would be apportioned using the ratio of his work days in Virginia over his total work days, multiplied by such an employee's annual salary.
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- 3. The employee's income would be subject to Virginia withholding computed at a flat rate of 4%. The seasonal payment will be remitted no later than the 20th day of the following month (January) on a Virginia Form VA-5.
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- 4. The employee's annual income subject to Virginia withholding along with the withholding will be reported on a Virginia Form VA-6 with W-2 forms attached. In addition, a schedule would be submitted which would include information for each employee regarding total income and the amount of income subject to tax under the apportionment formula.
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- 5. If an employee leaves the Taxpayer during the applicable year, the Taxpayer remains responsible for remitting the withholding tax.
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- 6. The Taxpayer would be required to provide all employees with income subject to Virginia withholding a Form W-2 evidencing the amount of tax withheld.
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- 7. The Taxpayer will file any withholding tax returns already due through January 31, 1996. This agreement will be effective beginning January 1, 1997 and thereafter unless otherwise terminated.
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- 8. If the Virginia withholding for any one year exceeds $2,000.00, or if Virginia and North Carolina enter into a reciprocal taxation agreement, this agreement will become null and void.
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- 9. The department will agree to waive any 760C addition to the tax with respect to the Taxpayer's employees, but only if the Taxpayer is in full compliance with this agreement and the employee's only Virginia source income is from salary or wages paid by the Taxpayer.
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- 10. The department reserves the right to withdraw or modify these conditions upon reasonable notice to the Taxpayer.
Unified Return
The department has allowed unified returns on behalf of the partners of partnerships and the shareholders of S Corporations. Such returns are filed with respect to the income of the entity. These unified returns have been specifically conditioned on several factors. First, the nonresident individual taxpayers have no other income from Virginia sources. This relieves the nonresident partners or shareholders of the responsibility of having to file separate nonresident individual income tax returns. Second, the income of the partners or shareholders is their apportioned share of income generated by the pass-through entity. Third, the members of a partnership or S corporation unified return tend to remain constant from year to year.
Individuals with income from Virginia sources are subject to the individual income tax and are required to file a Virginia income tax return. In the case of a nonresident, Virginia Regulation (VR) 630-2-325(A) provides "The Virginia taxable income of a nonresident individual, partner, shareholder or beneficiary is Virginia taxable income computed as a resident multiplied by the ratio of net income, gain, loss and deductions from Virginia sources to net income, gain, loss and deductions from all sources." As such, nonresidents are taxed on all their income, and the tax is prorated based on Virginia income to total income. Taxing a nonresident based on only his Virginia wages does not meet this statutory requirement.
Based on the facts presented, the department has concluded that a unified return by nonresident employee salespersons as requested by the Taxpayer is not consistent with the Code of Virginia. Accordingly, your request for the department to file a unified return on behalf of the nonresident salespersons has been denied. The Taxpayer may commence the alternative method of withholding upon the department's receipt of completed Form R-1. Please send executed copies to****************, Office of Tax Policy, Department of Taxation, P. O. Box 1880, Richmond, Virginia 23218. If you have any questions, you may contact *********at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/95940
Rulings of the Tax Commissioner