Tax Type
Employer Income Tax Withholding
Description
Failure to withhold; Penalties
Topic
Withholding of Tax
Date Issued
12-23-1996
December 23, 1996
Re: §58.1-1821 Application: Withholding Tax
Dear***********
This will reply to your correspondence in which you applied for correction of an assessment for withholding taxes to ********** (the "Taxpayer) for the periods May 1, 1993 through December 31, 1995.
FACTS
The Taxpayer is a service business located in Virginia. For the periods May 1, 1993 through December 31, 1995, the Taxpayer was assessed tax, penalty, and interest for failure to withhold taxes on its personnel.
In your revised appeal, you indicate that you will not protest the classification of the Taxpayer's personnel as employees. Instead, you object to the assessment of withholding tax where the employees have paid the tax to the Commonwealth as provided in Code c If Virginia § 58.1-467. Further, you protest the assessment of a 100 percent fraud penalty pursuant to Code of Virginia §58.1-475.
DETERMINATION
Code of Virginia § 58.1-461 requires employers to withhold taxes from employee wages for each payroll period. Code of Virginia §58.1-460 defines "employer" as, "[T]he person, whether a resident or a nonresident of the Commonwealth, for whom an individual performs or performed any service as an employee ...." Further, this section defines "employee" as, "[A]n individual, whether a resident or a nonresident of the Commonwealth, who performs or performed any service in the Commonwealth for wages ...." It has been determined in this case that the Taxpayer is liable to withhold taxes from the wages of its employees.
When determining the amount of wages subject to withholding, the method utilized should provide the most accurate reflection of actual Virginia source income. In the instant case, the auditor used the amounts provided by the Taxpayer to determine the wages subject to withholding.
Code of Virginia §58.1 -467 provides that the withholding tax shall not be collected from the employer when the tax has been paid to the Commonwealth by the employee. Consequently, the audit will be adjusted to reflect Virginia individual return information filed by the Taxpayer's employees.
Pursuant to Code of Virginia § 58.1 -475, penalty and interest shall be imposed where an employer fails to properly withhold Virginia payroll taxes. The amount of the penalty shall not exceed 30 percent in the aggregate. Pursuant to Code of Virginia §58.1-467, the payment of Virginia income taxes by the wage recipient shall in no case relieve the employer from liability for penalties or additions to the tax for failure to withhold. Given the clear language of the Code, the Taxpayer is liable for penalty and interest for failure to withhold taxes from its employees' wages.
As provided in Code of Virginia § 58.1-1812, a 100 percent penalty is assessed in cases of fraud. Based on the Taxpayer's history and the information provided in the appeal, it does not appear that the Taxpayer intended to evade tax but rather misunderstood the withholding requirements. The 100 percent fraud penalty, therefore, will be replaced with the previous mentioned 30 percent penalty which will be computed on the total amount that was required to be withheld.
Accordingly, the outstanding assessments will be adjusted as shown on the enclosed schedule. Interest has been accrued through the date of this letter. The revised assessments should be paid in full within 30 days to avoid the accrual of additional interest. Please remit your payment to the attention of************ Virginia Department of Taxation, Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880. If you have any questions, you may contact her at*****************
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11380M
Rulings of the Tax Commissioner