Tax Type
Individual Income Tax
Description
Conformity to federal; Wages paid by federal reserve notes
Topic
Taxable Income
Date Issued
02-07-1997
February 7, 1997
Re: § 58.1-1821 Application: Individual Income Tax
Dear***********************
This will reply to your letter concerning your Virginia individual income tax assessments for the taxable years 1988, 1989, and 1991 through 1993. I apologize for the delay in responding to your letter.
FACTS
You filed Virginia individual income tax returns for the taxable years 1988, 1989, and 1991 through 1993. The balance due was not paid when the returns were filed; therefore, assessments were issued for tax, late penalties, addition to tax, and interest. You claim that you received no earned income from wages, salaries, professional fees, tips, or other compensation for personal services or income effectively connected with the conduct of a trade or business within the United States. You state the Victory Tax Act of 1942 was repealed. Further, you contend that the Sixteenth Amendment to the United States Constitution was never ratified. Lastly, you have requested an explanation of the reason for taxing federal reserve notes. Based on these factors, you contend that you have no Virginia tax liability.
DETERMINATION
Article X of the Constitution of Virginia grants the constitutional authority for the Commonwealth of Virginia to levy the taxes set forth in Title 58.1 of the Code of Virginia. Code of Virginia § 58.1-301, copy enclosed, provides that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code unless a different meaning is clearly required. Virginia "conforms" to federal law because it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). To the extent that income is included in FAGI, it is also subject to taxation by Virginia. Section 61(a)(1) of the Internal Revenue Code (IRC) clearly sets forth that certain types of income, such as wages, salaries, professional fees, tips and compensation for personal services, are included in determining gross income.
Code of Virginia § 58.1-341, copy enclosed, provides that a Virginia resident who is required to file a federal income tax return is also required to file a Virginia income tax return, unless the resident is exempt from filing under Code of Virginia § 58.1-321, copy enclosed. When a resident reports income on the Virginia return, the department is authorized by IRC § 6103 (d), copy enclosed, to obtain information from the Internal Revenue Service that will help in determining the resident's correct tax liability. Additionally, even if a resident is not required to file a federal return but has Virginia adjusted gross income which exceeds the filing threshold, the resident is still required to file a Virginia income tax return pursuant to Code of Virginia § 58.1-341.
While the Victory Tax Act of 1942, which involved withholding tax in some instances, has been repealed, withholding tax payments are now required, for federal income tax purposes, on wages and certain other types of income pursuant to §§ 3401, 3402, and 3405 of the IRC. Pursuant to Code of Virginia § 58.1-461, copy enclosed, Virginia employers, likewise, are generally required to withhold taxes on wages and other types of income, as defined in Code of Virginia § 58.1-460, copy enclosed. These Virginia withholding taxes may be claimed as a credit against the income tax liability computed on the Virginia income tax return.
Your statement concerning the ratification of the Sixteenth Amendment to the Constitution of the United States is without merit. After the enactment of the 16th Amendment, the constitutionality of federal income tax laws has been upheld judicially on repeated occasions as indicated in the enclosed United States court case Bobby J. Bernhardt v. United States of America and Donald C. Alexander, Commissioner of Internal Revenue; 38 AFTR2d 76-5674. (See also Brushaber v. Union Pacific R.R. Co., 240 U.S. 1 (1916); Phillips v. Commissioner, 283 U.S. 589 (1931); Acker v. Commissioner, 258 F.2d 568 (C.A. 6, 1958), affirmed, 361 U.S. 87 (1959); Swallow v. United States, 325 F.2d 97 (C.A. 10, 1963); Hartman v. Switzer, 376 F.Supp. 486 (W.D. Pa., 1974)).
You have requested an explanation of why federal reserve notes are subject to taxation by Virginia. You contend that these notes are obligations of the federal government and are exempt from state taxation. The Commonwealth of Virginia does not levy income tax on federal reserve notes. The mode of payment of income used by an employer is not relevant in determining whether the income is taxable. For example, if a taxpayer earns wages of $10,000 for services performed in a year, the wages are taxable regardless of whether they are paid to the taxpayer by check, cash (federal reserve notes), electronic funds transfer, money order, in goods, or in services.
You have not provided any documentation to verify that you are not subject to the Virginia tax. For the taxable year 1988, the Internal Revenue Service notified the department that your federal return had been adjusted. The department requested information from you concerning this income. When you did not provide an appropriate response, an assessment was issued. In addition, the assessments for 1989 and 1991 through 1993 were based on returns that you actually filed after being contacted by the department. You did not, however, remit the balance due when filing the returns. As a result, tax, late penalties, addition to tax, and interest were calculated and notices of assessments were mailed to your last known address in accordance with Code of Virginia § 58.1-1820, copy enclosed.
An application for correction of assessments that is filed pursuant to Code of Virginia § 58.1-1821, copy enclosed, and based solely on claims such that you have made, has no purpose other than to hinder and delay collection of the proper tax liability. Consequently, collection activity need not be suspended while such applications for correction are being considered.
Based on the information provided, the department has properly applied the provisions of Title 58.1 of the Code of Virginia to your case. There is no basis to abate the assessments for the taxable years 1988, 1989, 1991, 1992, or 1993. A summary of the updated outstanding assessments is enclosed for your information. Payment of your assessments, amounting to *****should be remitted, within 30 days, to *********** , Office of Tax Policy, Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880. If your payment is not received, collection activity will resume.
Your case has been handled as an appeal pursuant to Code of Virginia § 58.1-1821. If you are not satisfied with this determination, you may apply to the circuit court for relief pursuant to Code of Virginia § 58.1-1825, copy enclosed. The application, however, should be filed within three years from the date the assessments were made. Additionally, the assessments must be paid or the appropriate bond posted before the court application is deemed filed.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP11850N
Rulings of the Tax Commissioner