Tax Type
Individual Income Tax
Description
In general; Wages included in income
Topic
Taxable Income
Date Issued
02-12-1997
February 12, 1997
Re: § 58.1-1821 Application: Individual Income Tax
Dear********************
This will reply to your letter concerning your 1993 Virginia individual income tax assessments. I apologize for the delay in responding to your letter.
FACTS
You did not timely file a 1993 Virginia income tax return. The department wrote you a letter requesting that you file the return. You furnished an incomplete return which did not include a signature or Wage and Tax Statements (W-2 forms). The incomplete return was mailed back to you along with a letter requesting this information. When the requested information was not received, the department issued an assessment for tax, late penalties, and interest.
You refer to Conner V. United States, 303 F. Supp. 1187 (1969), which provides that, "Whatever may constitute income, therefore, must have the essential feature of gain to the recipient." You contend that your wages and salaries are neither gains nor income. Rather, they are your property and the fruit of your labor. You further contend that § 61(a) of the Internal Revenue Code (IRC) pertains to income that is a gain to the recipient. Consequently, you contend that your wages and salaries are not subject to federal or Virginia taxation. Accordingly, you filed a Virginia return to claim a refund of the taxes withheld on your W-2 forms.
DETERMINATION
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 IRC 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). Section 61(a)(1) of the IRC and the associated Treasury Regulation 1.61-2 specifically include wages and salaries in the definition of gross income. Section 61 (b) of the IRC also cross references other types of income that are included in the definition of gross income (§§ 71 through 90). Wages and salaries are, therefore, included in FAGI and are subject to Virginia taxation.
In the Conner case, the Internal Revenue Service (IRS) required the taxpayers to include in gross income a reimbursement payment from an insurance company. The taxpayers received this payment as reimbursement for rental payments they made on a house in which they lived while their original house, which had been destroyed by fire, was being repaired. The court held that, "It is apparent that plaintiffs in this case realized no gain in connection with the reimbursement by the insurance company of the rental payments ...." . In referencing Webster's Seventh New Collegiate Dictionary, the court considered the everyday use of the word "income" by indicating that:
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- [T]he meaning of income in its everyday sense is 'a gain or recurrent benefit usually measured in money that derives from capital or labor; also: the amount of such gain recovered by an individual in a given period of time.' (Emphasis added.)
The court concluded that the taxpayers had no gain or recurrent benefit from the insurance reimbursement payment. The taxpayers, therefore, were not required to include these insurance payments as gross income on their federal returns.
On the contrary, a person has gain and benefit from wages and salaries received as compensation for services performed for an employer. Such compensation, as previously indicated, must be included in gross income. In conclusion, to the extent that wages and salaries are included in FAGI, they are subject to Virginia taxation.
Based on the information provided, there is no basis to abate your 1993 individual income tax assessment. The assessment, however, has been adjusted to allow for the
Virginia withholding tax shown on your W-2 forms. A summary of your adjusted
assessment has been enclosed. Please remit, within 30 days, the amount of******* to**************** , Office of Tax Policy, Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880. He may be contacted at ************** if you have any questions.
Your letter has been handled pursuant to Code of Virginia §58.1-1821. If you wish to pursue this matter further, there is a judicial remedy under Code of Virginia § 58.1 -1825. The application, however, should be filed within three years from the date of the assessment. Additionally, the assessment must be paid or the appropriate bond posted before the court application is deemed filed.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP12071N
Rulings of the Tax Commissioner