Tax Type
Employer Income Tax Withholding
Description
Failure to Withhold, Professional corporation
Topic
Withholding of Tax
Date Issued
06-25-1999
June 25, 1999
RE: Request for a Ruling: Withholding Tax
Dear***
This will reply to your letter in which you request a ruling regarding the application of withholding tax to the Law Office of ***** (the "Taxpayer'). I apologize for the delay in response.
FACTS
The Taxpayer is a Virginia professional corporation. Its sole shareholder (the "Owner') has been domiciled in another state ("State A') since August of 1997. In May 1998, the State A residence became the Owner's sole residence. The Owner is an employee of the Taxpayer. Since 1997, the Owner has worked at his Virginia office two days per month. The rest of the time, work is preformed at the State A office. The Taxpayer has one other employee in Virginia.
The Taxpayer inquires as to whether it is required to withhold income tax on the salary paid to the Owner.
RULING
Code of Virginia § 58.1461, copy enclosed, requires that employers withhold an amount each pay period that in the aggregate approximates the income tax liability of each employee for the calendar year. Code of Virginia § 58.1-460, copy enclosed, defines an "employee' as "an individual, whether a resident or nonresident or the Commonwealth, who performs or performed any service in the Commonwealth for wages...' Effective in August 1997, the Owner was a nonresident who performs services in Virginia. The Taxpayer would be required to withhold taxes for any years in which the Owner was employed in Virginia. The Owner's domicile and residency is irrelevant because the services are performed in Virginia.
Title 23 of the Virginia Administrative Code (VAC) 10-110-180, copy enclosed, provides that the taxable income of nonresidents would be the Virginia taxable income computed as if the individual was 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.
Code of Virginia § 58.1-475, copy enclosed, states that an employer who fails to withhold or fails to file withholding returns is subject to a penalty equal to six percent of the amount which should properly have been withheld for the first month, and each month after that, up to a maximum of 30%. Interest is also assessed upon the tax which has not been paid.
Based on the information provided, the Taxpayer should have been withholding on the Owner's salary from employment in Virginia since August of 1997. I have enclosed a Form R-1 to register for the withholding tax along with withholding returns with instructions. The instructions should explain to you how to properly calculate the tax, penalty and interest which you owe the Commonwealth. Please send the completed registration application and any delinquent tax, penalty and interest to ***** Office of Tax Policy, Virginia Department of Taxation, P.O. Box 1880, Richmond, Virginia 23218-1880 within 30 days of the date of this letter. If you have any questions, you may contact *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21134B
RE: Request for a Ruling: Withholding Tax
Dear***
This will reply to your letter in which you request a ruling regarding the application of withholding tax to the Law Office of ***** (the "Taxpayer'). I apologize for the delay in response.
FACTS
The Taxpayer is a Virginia professional corporation. Its sole shareholder (the "Owner') has been domiciled in another state ("State A') since August of 1997. In May 1998, the State A residence became the Owner's sole residence. The Owner is an employee of the Taxpayer. Since 1997, the Owner has worked at his Virginia office two days per month. The rest of the time, work is preformed at the State A office. The Taxpayer has one other employee in Virginia.
The Taxpayer inquires as to whether it is required to withhold income tax on the salary paid to the Owner.
RULING
Code of Virginia § 58.1461, copy enclosed, requires that employers withhold an amount each pay period that in the aggregate approximates the income tax liability of each employee for the calendar year. Code of Virginia § 58.1-460, copy enclosed, defines an "employee' as "an individual, whether a resident or nonresident or the Commonwealth, who performs or performed any service in the Commonwealth for wages...' Effective in August 1997, the Owner was a nonresident who performs services in Virginia. The Taxpayer would be required to withhold taxes for any years in which the Owner was employed in Virginia. The Owner's domicile and residency is irrelevant because the services are performed in Virginia.
Title 23 of the Virginia Administrative Code (VAC) 10-110-180, copy enclosed, provides that the taxable income of nonresidents would be the Virginia taxable income computed as if the individual was 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.
Code of Virginia § 58.1-475, copy enclosed, states that an employer who fails to withhold or fails to file withholding returns is subject to a penalty equal to six percent of the amount which should properly have been withheld for the first month, and each month after that, up to a maximum of 30%. Interest is also assessed upon the tax which has not been paid.
Based on the information provided, the Taxpayer should have been withholding on the Owner's salary from employment in Virginia since August of 1997. I have enclosed a Form R-1 to register for the withholding tax along with withholding returns with instructions. The instructions should explain to you how to properly calculate the tax, penalty and interest which you owe the Commonwealth. Please send the completed registration application and any delinquent tax, penalty and interest to ***** Office of Tax Policy, Virginia Department of Taxation, P.O. Box 1880, Richmond, Virginia 23218-1880 within 30 days of the date of this letter. If you have any questions, you may contact *****
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/21134B
Rulings of the Tax Commissioner