Tax Type
Employer Income Tax Withholding
Description
Failure to Withhold
Topic
Withholding of Tax
Date Issued
06-18-1999
June 18, 1999
Re: Sec. 58.1-1821 Application: Withholding Tax
Dear***
This will reply to your letter of May 22, 1997 in which you applied for the correction of an assessment for withholding taxes to ***** (the "Taxpayer') for the period April 1994 through December 1995. I apologize for the delay in responding.
FACTS
The Taxpayer is a contractor located in another state ("State A') with customers throughout the southeastern United States, including Virginia. The Taxpayer states that jobs are typically performed in a three-to five-day period. For the period April 1994 through December 1995, the Taxpayer was assessed tax, interest and penalty for failure to withhold taxes from its employees who performed services in Virginia.
The Taxpayer contends that it should not be liable for the assessments because Virginia withholding taxes were paid to the employees' state of residence (State A) and many employees' Virginia wages would fall below the amount required to pay withholding tax.
DETERMINATION
Code of Virginia Sec. 58.1-461, copy enclosed, requires employers to withhold taxes from employee wages for each payroll period. Code of Virginia Sec. 58.1-460, copy enclosed, defines "employer' as, "[T]he person, whether a resident or nonresident of the Commonwealth. for whom an individual performs or performed any service as an employee....' (Emphasis added) 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....' (Emphasis added) Consequently, an employer located outside of Virginia my be required to withhold Virginia income taxes for an employee who is not a resident of Virginia when that employee earns income from Virginia sources.
The starting point for computing Virginia adjusted gross income is federal adjusted gross income. The federal adjusted gross income of a Virginia resident, however, can be modified by the additions, subtractions, deductions, and exemptions specifically indicated in Code of Virginia Sec. 58.1-322, copy enclosed, when computing Virginia adjusted gross income. Virginia adjusted gross income is calculated the same way for nonresidents as it is for residents. Thus, the employee's total wages adjusted by the additions, subtractions, deductions, and exemptions specifically indicated in Code of Virginia Sec. 58.1-322 are used to calculate Virginia adjusted gross income. Nonresident Virginia adjusted gross income is not limited to those wages actually earned preforming work in Virginia.
Code of Virginia Sec. 58.1-321, copy enclosed, provides the thresholds for which the Virginia adjusted gross income of both resident and nonresident taxpayers must exceed, in order to be liable for Virginia income tax. Although nonresidents would be subject to Virginia income tax, they would be taxed only on the proportion of income derived from Virginia sources to their total taxable income. Title 23 of the Virginia Administrative Code 10-110-180(A), copy enclosed, provides "[t]he 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.' Nonresidents are taxed on all their income, and the tax is prorated to Virginia based on Virginia income to total income. Thus, so long as an employee's total wages exceed the thresholds, he or she would be subject to Virginia income tax and their employers are required to withhold the appropriate amount of tax.
The Taxpayer also contends that income taxes were withheld for State A and therefore, should not be subject to Virginia withholding. State A does not practice reciprocity with Virginia concerning the income taxation of nonresidents. As a result, employers paying wages to residents of State A for services performed in Virginia are required to withhold Virginia income tax from such wages regardless of whether or not State A taxes are withheld.
Accordingly, the department cannot grant your request for relief. However, the audit amounts have been adjusted to reflect additional exceptions which would change the amount withheld from some employees. Enclosed is a schedule of the revised assessment amounts. Please remit your payment to *****, Office of Tax Policy, Virginia Department of Taxation, P.O. Box 1880, Richmond, VA 23218-1880. Should you have any questions regarding this determination, you may contact him at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12622B
Re: Sec. 58.1-1821 Application: Withholding Tax
Dear***
This will reply to your letter of May 22, 1997 in which you applied for the correction of an assessment for withholding taxes to ***** (the "Taxpayer') for the period April 1994 through December 1995. I apologize for the delay in responding.
FACTS
The Taxpayer is a contractor located in another state ("State A') with customers throughout the southeastern United States, including Virginia. The Taxpayer states that jobs are typically performed in a three-to five-day period. For the period April 1994 through December 1995, the Taxpayer was assessed tax, interest and penalty for failure to withhold taxes from its employees who performed services in Virginia.
The Taxpayer contends that it should not be liable for the assessments because Virginia withholding taxes were paid to the employees' state of residence (State A) and many employees' Virginia wages would fall below the amount required to pay withholding tax.
DETERMINATION
Code of Virginia Sec. 58.1-461, copy enclosed, requires employers to withhold taxes from employee wages for each payroll period. Code of Virginia Sec. 58.1-460, copy enclosed, defines "employer' as, "[T]he person, whether a resident or nonresident of the Commonwealth. for whom an individual performs or performed any service as an employee....' (Emphasis added) 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....' (Emphasis added) Consequently, an employer located outside of Virginia my be required to withhold Virginia income taxes for an employee who is not a resident of Virginia when that employee earns income from Virginia sources.
The starting point for computing Virginia adjusted gross income is federal adjusted gross income. The federal adjusted gross income of a Virginia resident, however, can be modified by the additions, subtractions, deductions, and exemptions specifically indicated in Code of Virginia Sec. 58.1-322, copy enclosed, when computing Virginia adjusted gross income. Virginia adjusted gross income is calculated the same way for nonresidents as it is for residents. Thus, the employee's total wages adjusted by the additions, subtractions, deductions, and exemptions specifically indicated in Code of Virginia Sec. 58.1-322 are used to calculate Virginia adjusted gross income. Nonresident Virginia adjusted gross income is not limited to those wages actually earned preforming work in Virginia.
Code of Virginia Sec. 58.1-321, copy enclosed, provides the thresholds for which the Virginia adjusted gross income of both resident and nonresident taxpayers must exceed, in order to be liable for Virginia income tax. Although nonresidents would be subject to Virginia income tax, they would be taxed only on the proportion of income derived from Virginia sources to their total taxable income. Title 23 of the Virginia Administrative Code 10-110-180(A), copy enclosed, provides "[t]he 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.' Nonresidents are taxed on all their income, and the tax is prorated to Virginia based on Virginia income to total income. Thus, so long as an employee's total wages exceed the thresholds, he or she would be subject to Virginia income tax and their employers are required to withhold the appropriate amount of tax.
The Taxpayer also contends that income taxes were withheld for State A and therefore, should not be subject to Virginia withholding. State A does not practice reciprocity with Virginia concerning the income taxation of nonresidents. As a result, employers paying wages to residents of State A for services performed in Virginia are required to withhold Virginia income tax from such wages regardless of whether or not State A taxes are withheld.
Accordingly, the department cannot grant your request for relief. However, the audit amounts have been adjusted to reflect additional exceptions which would change the amount withheld from some employees. Enclosed is a schedule of the revised assessment amounts. Please remit your payment to *****, Office of Tax Policy, Virginia Department of Taxation, P.O. Box 1880, Richmond, VA 23218-1880. Should you have any questions regarding this determination, you may contact him at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12622B
Rulings of the Tax Commissioner